Kế toán, kiểm toán - Chapter 2: Management accounting: basic terms and concepts

Chapter 2Management accounting: basic terms and concepts1Management accounting informationComponentsCosting systemBudgeting systemPerformance measurement systemCost management systemConventional versus contemporary approaches2Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithConventional vs. contemporary management accounting systems3Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithEmphasis on costWhy do management accountants pay so much attention to costs?Historic focus on production costs, to value inventory and COGS for external reportingReady availability of cost data within the transaction-based accounting systemImportance of cost information in managers’ decisionsNon-financial information has assumed increased importance in contemporary management accounting systems4Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCost classificationsBefore classifying costs, need to consider how managers intend to use the cost information in decision makingDifferent cost and classifications are used for different purposesThe same cost can be classified in a number of ways depending on the intended use of the cost informationcontinued5Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCost classificationsWhat are costs?Resources given up to achieve a particular objectiveIf the benefit extends beyond the current accounting period these costs are classified as assetsIf the benefit is used, the costs are classified as expenseMeasured in monetary terms6Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCost behaviourManagers must understand how costs change as the as the level of activity in the business changesThe level of activity is the level of work performed in the organisationVariable costsChange in total in direct proportion to a change in the level of activitySometimes referred to as unit-level costs in product costing as they incurred for each unit of product/service producedcontinued7Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCost behaviourFixed costsRemain unchanged in total despite changes in the level of activityCan be described as committed costsResult from an organisation’s ownership or use of premises and its basic organisation structure, and is difficult to change in the short-termor as discretionary costsResult from management’s decision to spend a particular amount of money for some purpose, and can be easily changedcontinued8Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCost behaviourCost driversAny activities or factors that drive (cause) costsConventional approaches focus on production volume as the level of activity (or cost driver)Costs are classified as variable or fixed with respect to production volumeContemporary approaches recognise that other (non-volume) cost drivers exist9Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithDirect and indirect costsAn important function of management accounting is to measure the cost of cost objectsCost objects are the items for which management wants a separate measure of costsProducts, projects, contracts and departments are common cost objects in conventional costing systemsContemporary costing systems may also include activities and customers as cost objects10Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithDirect and indirect costsIn responsibility centresThe costing system may measure the costs of managers’ individual areas of responsibilityCosts that can be traced to a particular responsibility centre are direct costs of that centreCosts that relate to responsibility centres, but cannot be traced precisely to specific responsibility centres are indirect costs of those centrescontinued11Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithDirect and indirect costsProduct costsManufacturing costs that can be traced to product in an economic manner are direct product costsIndirect costs are manufacturing costs that cannot be traced to products in an economic mannerWhether a cost is classified as direct or indirect depends on the nature of the cost object12Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithControllable and uncontrollable costsManagers’ performance evaluation can be enhanced by classifying responsibility centre costs as either controllable by the manager or uncontrollableIdeally, managers should be held responsible only for costs they can control or significantly influencecontinued13Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithControllable and uncontrollable costs14Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCosts across the value chainThe value chain—a set of linked processes or activities that begins with acquiring resources and ends with providing and supporting product or services that customers valueProvides a useful framework for examining the areas where costs are incurred within a businesscontinued15Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCosts across the value chainUpstream costsResearch and development costs include the costs involved in developing new products and processesDesign costs include the costs associated with designing a product or production processSupply costs are the cost of sourcing and managing incoming parts, assemblies and suppliescontinued16Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCosts across the value chainProduction costsThe costs incurred to collect and assemble the resources used to produce a product or serviceDownstream costsMarketing costs are the cost of selling products and the cost of advertising and promotionDistribution costs are the cost of storing, handling and shipping finished productsCustomer service costs are the costs of serving customers, including after-sales service17Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith18Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithManufacturing costsManufacturing costs are incurred within the factory area, whereas upstream and downstream costs are sometimes called non-manufacturing costsManufacturing costs include three categories: direct material, direct labour and manufacturing overheadThis classification assumes that products are the relevant cost objectscontinued19Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithManufacturing costsDirect materialMaterial that is consumed in the manufacturing processPhysically incorporated into the finished products; andCan be traced to products convenientlyDirect labourThe cost of wages and labour on-costs of staff who work directly on manufacturing a productHowever, contractual arrangement sometimes means that such labour is a committed costcontinued20Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithManufacturing costsManufacturing overheadAll manufacturing costs other than direct material and direct labourAlso called indirect manufacturing costs or factory burdenIncludes the cost of indirect material and indirect labour, depreciation and insurance on factory equipment, utilities and the costs of manufacturing support departmentsAlso includes cost of overtime premium and idle timecontinued21Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithManufacturing costsConversion costsThe total of direct labour and manufacturing overhead costsThe cost of converting material into productPrime costsThe total of direct material and direct labour costsThe major cost associated with producing a productcontinued22Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithManufacturing costsContemporary costing systems analyse costs in greater detail than under conventional costing systemsLabour costs, and upstream and downstream costs may be classified within an activity frameworkIn general, direct material tends to be the largest proportion of manufacturing cost, and direct labour costs the smallest23Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithProduct costsManagers need estimates of product costs for different purposesIn financial accounting reportsTo determine cost of goods soldTo value inventory on handFor decision makingDefinitions of product costs that include non-manufacturing costs may be used24Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith25Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCost flows in a manufacturing business1. Material is purchased: cost is added to raw materials inventory2. Direct materials are consumed in production: cost is removed from raw materials inventory and added to work in process inventory3. Direct labour and manufacturing overhead are accumulated in work in process inventorycontinued26Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCost flows in a manufacturing business4. Products are completed: costs are transferred from work in process inventory and added to finished goods inventory5. Products are sold: costs are transferred from finished goods inventory to cost of goods sold expense6. Cost of goods sold is deducted from sales revenue to determine gross profitcontinued27Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCost flows in manufacturing businessRaw materials, work in processes and finished goods inventories balances are found in the Statement of Financial PositionCost of goods sold expense can be found in the Statement of Financial PerformanceThe Schedule of Cost of Goods Manufactured and Schedule of Cost of Goods Sold summarise the flow of manufacturing costs28Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith29Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-SmithCost and benefits of informationMust determine which cost concepts are most appropriate in each situationBenefits of measuring and classifying costs can be realised through improvements in the quality of managers’ decisionsInformation overload occurs when managers receive more information than they can use efficiently30Copyright  2003 McGraw-Hill Australia Pty Ltd, PPTs t/a Management Accounting: An Australian Perspective 3/e by Langfield-Smith, Thorne & HiltonSlides prepared by Kim Langfield-Smith