Managerial accounting, Sintesi del corso di Programmazione C

Scarica Managerial accounting e più Sintesi del corso in PDF di Programmazione C solo su Docsity! AsIa Balducci MANAGERIAL ACCOUNTING 30007 – 6 cfu 2019 CHAPTER 1 . INTRODUCTION TO MANAGEMENT ACCOUNTING Accounting is concerned with providing both financial and non-financial information that will help decision-makers to make good decision. Management accountants are qualified to work across the business, not just in finance, advising managers on the financial implication of big decisions, formulating business strategies and monitoring risk. They use information of all kind to drive sustainable success. Accounting is important because of a significant changes for organizations in both the manufacturing and service sectors in their business environment. There has been deregulation (no political control) and an extensive competition added to increasingly discriminating costumers demands. Firms replied with a new management approaches and changing their manufacturing system and investing in new technologies. Moreover, companies have made costumers satisfaction an overriding priority. All these changes had a significant influence on management accounting system. THE USERS OF ACCOUNTING INFORMATION Accounting is a language that communicates economic information to various parties (to all the stakeholders) who have an interest in the organization. All the parties require different kind of information. Look at him specifically: • Managers: require information that will assist them in their decision-making and control activities. They need information such as estimated selling prices, cost, demands, competitive position, profitability of products • Shareholders or potential investors: require information in the value of their investment and the income deriving from their shareholding • Employees: need information on the ability to the firm to avoid redundancies • Creditors and the providers of loan capital: require information on the firm’s capability to meet its financial obligations • Government: are agencies such as Central Statistical Office that require detail about sales activity, profits, investment, stock. Or such as government taxation authorities that require information on the amount of profits subject to taxation. They require all the information for determinate policies to manage economy It’s evident that the need to provide information is not confined to business organization. Sometimes they also have to provide their financial situation. Non-profit organization or local government or public sector organization have to do the same in order to reporting the results of their activities. So, the objective of accounting is to provide sufficient information to meet the need of the various users at the lowest possible cost. We can divide the users of accounting information in two categories: • Internal users within the organization • External users such as shareholders, creditors and regulatory agencies, outside the organizations Thanks to this categorization, it is possible to distinguish between two branches of accounting: • Management accounting that is concerned with the provision of information to people within the organization to help them make batter decisions and improve the efficiency and the effectiveness - it could be called internal reporting organiza�on began to encounter serve compe��on from overseas company that offered high quality products at low prices. Manufacturing company, now, can establish global network for acquiring raw materials and distribu�ng good overseas and they can communicate with office overseas office immediately using internet and digital technologies. But, on the other hand, they have to compete with the best company in the word. This new compe��ve environment has increased the demand for informa�on rela�ng to quality and costumers sa�sfac�on, and cost informa�on and profitability analysis by product\service lines and geographical loca�ons. • Changing product life cycle. A product life cycle is the period of �me from the development of the product to the �me at which support to costumers is withdrawn. Intensive global compe��on and technological innova�on, combined with increasingly discrimina�ng and sophis�cated costumers demands, have resulted in a drama�c decline in product life cycle. To be successful, companies must now speed up the �me to introduce new products to the market, and constantly develop new products and services. Company to compete successfully, must be able to manage their costs effec�vely at the design stage (many cost are commi�ed or lock at this �me) , have the capability to adapt to new, different and changing costumers requirements and reduce the �me to market of new and modified products. (iPhone case) • Advances in manufacturing technologies. Excellence and innova�on in manufacturing can provide high quality product at a low cost. It’s a weapon to compete in sophis�cated worldwide markets. At the same �me they must have the flexibility to cope with short product life cycle, demands for greater product variety and more discrimina�ng costumers. So that, they use lean manufacturing systems that seek to reduce waste by implemen�ng just-in-�me produc�on system, focusing on quality, simplifying process and inves�ng in new technologies • The impact of informa�on technology. The use of informa�on technology (IT) to support business ac�vity has increase drama�cally and the development of electronic business communica�on technologies known as e-commerce, e-business or internet commerce have had a major impact. Now, costumers are more discerning in their purchases because they can access the Internet to compare the rela�ve merits of different products and services. It also allows buyers and sellers to undertake transac�ons from diverse loca�on in different parts of the world and has allowed considerable cost saving to be made by streamlining business processes an has also generated extra revenues. The proficient use of IT has given many companies a compe��ve advantage. Moreover, the development of IT had a significant impact on the work of management accountants. Managers can autonomy access the system of their personal computer to derive the informa�on they require directly and do their own analysis. Management accountants have now become more involved in interpre�ng informa�on generated from the accoun�ng system and providing business support for managers. • Environmental and sustainability issues. There is an increasing a�en�on for ethical, social and environmental issue. So there is the need to for organiza�on to be managed in a sustainable way. People recognize that the environmental resources are limited and should be perceived for future genera�ons. Actually, customers expect company managers to be more proac�ve in terms of their social responsibility, safety and environmental issue. Companies have understand that becoming a good social ci�zen and being environmentally responsible improves their image and enhances their ability to sell their products and service. Therefore environmental management accoun�ng is becoming increasingly important in many organiza�on. These developments have created the need for company to develop system of measuring and repor�ng environmental costs, the consump�on of scares environmental resources and details of hazardous materials used or pollutants emi�ed to the environment. Managers need this informa�on to redesign process in a more environmental way. • Pressure to adopt higher standards of ethical behavior. A code of ethics has now become an essen�al part of corporate culture. Firms give high priority to their social responsibility and ensure that employees adopt high standard of ethical behavior. Ethical falling impact on companies’ reputa�on and on profit and sales. Management accountants have a cri�cal part to play in the management of ethical performance and an obliga�on to uphold ethical standards and guidelines provided by professional bodies. • Deregula�on and priva�za�on. Many organiza�ons (airline or financial services industries) where government owned or operated in a highly regulated, protected and non-compe��ve environment. These organiza�on where not subject to any great pressure to improve the quality and the efficiency of their opera�ons or to improve their profitability. So, there was li�le a�en�on to developing management accoun�ng systems. Actually, priva�za�on of government controlled companies and deregula�on have resulted in the elimina�on in pricing and compe��ve restric�ons. Now, organiza�ons have to focus on cost management and develop management accoun�ng informa�on system that enable them to understand their cost base and determine the sources open profitability for their products, customers and markets. Management accountants have to provide these informa�on in order to help managers. • Focusing on value crea�on. Management accoun�ng need to place a greater emphasis on crea�ng value rather than an overemphasis on managing and recording cost. Reducing cost is s�ll important, but customers give more importance to the value of products. Therefore, recent developments have resulted in management accoun�ng dis�nguishing between value added and non-value added ac�vi�es. The first represent those ac�vi�es that the customers perceive as adding value to the product or service and the la�er as adding cost but not value. Management seeks to eliminate or reduce non value added ac�vi�es. Management accountants have to challenge to iden�fy, measure and report on the value of intellectual capital that include resources such as there organiza�on’s reputa�on, the staff’s morale and costumers sa�sfac�on. • Customer orienta�on. In order to survival in today’s compe��ve environment, companies have had to become more customer-driven and recognize that the customers are crucial to their future success. so that, customer sa�sfac�on is an overriding priority. FOCUS ON CUSTOMER SATISFACTION AND NEW MANAGEMENT APPROACH The key factors to provide the customer satisfaction are cost, quality, variability, delivery and the choice of innovative new products. it's necessary a continuous implement to reduce cost and improve quality. It's important to keep costs low. So, many companies have become aware of the need to improve their cost systems so that they can produce more accurate cost information to determine the cost of their products and services, monitor trends in cost overtime and analyze profits by products, sales outlets, customers and markets. In addition to demanding low-cost, customers are demanding high quality products and services. Most companies are responding to this by focusing on total quality management (TQM). that is a term used to describe a situation where all business function are involved in a process of continuous quality improvement. The emphasis on TQM has created fresh demands on the management accounting function to measure and evaluate the quality of products and services and the activities that produce them. Providing a spider responses to customer request is an important advantage. Reducing the time taken to develop and bring a new product on market is an important competitive advantage. For these reasons management accounting system now place more emphasis on the cycle time. Organization are focusing on minimizing cycle time by reducing the time spent for non-added value activities. The management accounting system has an important role to play in this processor by identifying and reporting on the time devoted to value added an non-value added process. If an organization isn't fast, another companies could take its place and its market segment. So, to be successful companies must have the capability to adapt to changing customer requirement. it's important the role of management accounting system which have to provide continuous information about opportunities for change and then reporting on the progress of the methods that have been implemented. FUNCTION OF MANAGEMENT ACCOUNTING A cost and management accounting system should the generate information to meet the following requirement. It should: • allocate the cost between cost of goods sold and Inventor ease for internal and external profit repor�ng • provide relevant informa�on to help managers make be�er decisions • provide informa�on for planning, control, performance measurement and con�nuous improvement The costs information is required for meeting external financial accounting requirements and also to produce internal profiter reports at monthly intervals. Thus, product costs are also required for periodic internal profit reporting. At this point, it is appropriate to distinguish between cost accounting and management counting. Coast accounting is concerned with cost accumulation for inventory valuation to meet the requirements of external reporting and Internal profit measurement, whereas management accounting relates to the provision of appropriate information for decision making, planning, control and performance evaluation. But, cost accounting and management accounting it is not clear cut and the two terms a usually used synonymously. CHAPTER 2 – AN INTRODUCTION TO COST TERMS AND CONCEPTS The term “cost” must be defined more precisely before to determinate “cost”. Usually, the term is perceived by an adjective to specify the type of cost being considered. The preceding term is necessary to clarify the assumption that underline a cost measurement. EXAMPLE: fixed cost, variable cost, suck cost. COST OBJECTS A cost object is any activity for which a separate measurement of cost is desired. It can be cost of a product, the cost of rendering a service, or indeed anything for which one wants to measure the cost of resources used. Cost system typically accounts for costs in two phases: 1. it accumulate costs by classifying them into certain categories such as by type of expense (direct labour, direct materials) or by costs behaviour (fixed cost, variable cost) 2. it then assigns these cost to cost objects to provide a better understanding of how different costs are used in organization, it is appropriate to define activities undertaking in manufacturing, merchandising and service organizations. Manufacturing organizations have raw material inventory, work in process inventory and finished good inventories. Merchandising organizations (supermarket and retail store) have only finished goods inventory. Service organizations (advertising agencies, hospital) may have work in process inventory. We will focus on the following cost terms and concepts: DIRECT AND INDIRECT COSTS Inside this group there is another distinction: direct and indirect material costs and direct and indirect labour costs. Direct material costs represent those material costs that can be specifically and exclusively identify with a particular cost object. It can be used to measure the quantity consumed by each individual product (ex. Wood are those that will not be affected by the decisions. If we have lots of alternatives, and all these have the same costs, it’s irrelevant our future choice in decision-making process because all them have the same cost. AVOIDABLE AND UNAVOIDABLE COSTS Sometimes the terms avoidable and unavoidable costs are used instead of relevant and irrelevant costs. Avoidable costs (relevant costs) are those costs that may be saved by not adopting a given alternative, whereas unavoidable costs (irrelevant costs) cannot be saved. SUNK COSTS (costi irrecuperabili) They are costs that have been created by a decision made in the past and that cannot be changed by any present or future decision. For example, the expenditure of £1000 on materials that were no longer required, is an example of suck costs. If an equipment was scarred, the £200000 (not used immurement) would be written off, also if the equipment will be used for productive purpose in the future. Sunk costs are irrelevant for decisions-making, but not all irrelevant costs are sunk costs. OPPORTUNITY COSTS An opportunity cost, is a cost that measure the opportunity that is lost or sacrifices when the choice of one course of action requires that an alternative course is given up. If no alternative use of resources exists, then the opportunity costs is 0, but if resources have an alternative use, and are scarce, than an opportunity cost does exist. Opportunity cost cannot be normally be recorded in the accounting system since they do not involve cash outline INCREMENTAL AND MARGINAL COSTS Incremental cost (or differential cost) are the difference between costs of each alternatives action that is being considered. For example, an university decide to increase students number by 20%. Now, university will have to increase budget by £165000 per annum. So, the incremental/differential cost between the two alternatives (the first is to not increase the number of students) is £165000. Incremental costs can include both fixed and variable costs. This concept is similar to marginal cost and marginal revenues. The main difference is that marginal costs represents the additional costs of one extra unit of output, whereas incremental costs represent the additional cost resulting from a group of additional units of output. CHAPTER 3 – COST-VOLUME-PROFIT ANALYSIS C-v-p analysis examines the relationship between changes in activity and changes in total sales revenue, costs and net profits. It allows us to predict what will happen to the financial results if a specified level of activity or volumes fluctuates. It is important the break even point (BEP) that is the critical output levels, i.e the level at which neither a profit nor a loss will happen. c-v-p analysis is based on the relationship between volumes and sales revenue and costs and profit in the short run. CURVILINEAR CVP RELATIONSHIP Total revenues and total costs lines are curvilinear. Total revenues lines do not increase proportionally with output. In fact, to increase the quantity of sales, it is necessary to reduce the unit selling price. The result is that the total revenues line rising less steeply, and eventually beginning to decline. At the beginning of the curve, total cost line rise steeply as the firm operates at the lower level of volume range and this reflect the difficulties of efficiently using manufacturing facilities designed for much more larger volumes. When firms start operating its manufacturing facilities within the efficient operating range, companies can take advantage of economy of scale. This situation is called increasing return of scale. In the upper portion of the volume range the total costs line rise more steeply as the cost per unit increases. That happen because manufacturing facilities are beginning operated beyond their capacity. This situation is called decreasing return to scale. The cost per unit of output increases and causes the total cost line to rise steeply. But, in the short period and for CVP analysis, we will assume that variable cost and selling price are constant per unit of output. So, we have a linear relationship for total revenues and total cost as output/volume change. We will use the term relevant range to refer to the output range at which the firm expects to be operating within a short term planning horizon. This relevant range also broadly represents the output levels at which a firm has had experienced in the past and for which cost information is available. In the relevant range, the cost and revenue relationship are effectively more or less linear. We also make an assumption for fixed cost. Normally, fixed cost acts like semi-fixed cost. Considering a relevant range, in a short period, we will assume that fixed cost are linear and constant. A NUMERICAL APPROACH TO CVP ANALYSIS CVP analysis can only be used for decisions that result in outcomes within relevant range. Outside this range, the unit selling price and the variable costs are no longer deemed to be constant per unit, and any results obtained from the formulae that fall outside the relevant range will be incorrect. Profit per unit changes with volumes. This happen because, unit selling price is constant as unit variable cost. But, unit fixed costs change with output level. For example, if fixed costs are £10000 for a period and output is 10000 units, unit fixed cost is £1. But, if outputs decrease to 5000, now unit fixed cost is £2. Contribution margin: is equal to sales revenues minus variable costs. Because the variable cost per unit and the selling revenue per unit are constant, the unit contribution margin is constant per unit. or or Using, UCM it is easier to calculate the profit. If we have taxes Break-even point in units Any times firm generates revenues, a part of it is used to cover variable costs. Now we have UCM that is available to cover fixed costs. What remains is profit. So… Break-even point in profits Unit to be sold to obtain a certain profit To achieve profit of any size we must fist obtain sufficient CM to cover all fixed costs (i.e to get break-even point). THE PROFIT VALUE RATIO The profit value ratio, also known as contribution margin ratio is the contribution divided by sales price It represents the proportion of each £1 of sales available to cover fixed cost and generate profit. Example: selling price is £20 and unit contribution margin is £10. The pv ratio is 0,5. So, for £1 sale, a contribution of 0,5 is earned. We assume that selling price and ucm are constant, so pv ratio is also constant. We can calculate profit is this way: From this formula we obtain that. MARGIN OF SAFETY Margin of safety indicates how much sales may decrease before a loss occurs MARGIN OF SAFETY (R)= expected sales – BEP (R) MARGIN OF SAFETY (Q) =expected quantity – BEP (Q) The optimal cost system is different for different organizations. If the organization has low percentage of indirect costs and fairly standardized product range, we can use a simplistic system. If the organization has high proportion of indirect cost and the products consume organization resources in different proportion, the highly sophisticated system is more suitable. We use this system to assign the high level of indirect costs to different cost objects. The most simplistic system assign indirect costs using a single overhead rate for the organization as a whole. We use the term blanket overhead rate or plan-wide rate to describe a single overhead rate that is established for the organization as a whole. A blanket overhead rate can only be justified if all products consume departmental overheads in approximately the same proportions. If a diverse range of products are produced consuming departmental resources in different proportions separate departmental rate or cost centre rate should be established. In this case separate overhead rates should also be established for each department. To sum, USING BLANKET RATE WE USE JUST ONE ALLOCATION COST DRIVER. USING DEPARTEMENT RATE WE MUST USE A SPECIFIC ALLOCATION RATE FOR EACH DEPARTMENT. THE TWO STAGE ALLOCATION PROCESS Separate department overhead rates should be used. To establish department overhead rates, an approach known as the two-stage allocation process is used. In the first stage, overhead are assigned to cost centres. Cost centres are also called cost pools and it’s referred to location to which overhead costs are initially assigned In the second stage, the costs accumulated in costs centres are allocated to costs object using selected cost drivers. N.B the choice of the number of costs centres should be based on costs-benefit criteria. AN ILLUSTRATION OF THE TWO-STAGE PROCESS FOR A TRADITIONAL COSTING SYSTEM Applying the two stage allocation process requires the following two steps: 1. Assigning all manufacturing overheads to produc�on and service cost centres 2. Realloca�ng the costs assigned to services centres to produc�on costs centres 3. Compu�ng separate overhead rates for each produc�on costs centres 4. Assigning cost centre overheads to products or other chosen cost objects Step 1 and 2 comprise the first stage; step 3 and 4 comprise the second stage Stage 1 - Assigning all manufacturing overheads to production and service cost centres Indirect labour and indirect material costs cannot be directly assigned to products, but they can be directly assigned to cost centres. The remaining costs cannot be traced directly to the cost centres and must be allocated to the cost centres using appropriate allocation bases. For example: COST BASIS OF ALLOCATION Property taxes, lightning and heating Area Employee-related expenditure Number of employees Depreciation and insurance of plant and machinery Value of items of plants and machinery [in pratica avendo l’area totale (allocation base), divido la parte di area occupata dal dipartimento 1 per l’area totale per ottenere la percentuale. Uso la percentuale per allocare il costo al dipartimento correlato secondo il giusto importo, ovvero la percentuale ottenuta] Stage 2 - Reallocating the costs assigned to services centres to production costs centres The next step is to reallocate the costs that have been assigned to service cost centres to production cost centres. Service departments or support departments provide different kinds of services to other units within the organization, but they do not deal directly with the products. Therefore, the cost of providing support services are part of the total product costs and they should be assigned to products. To assign costs to products, traditional costing system reallocate service centre costs to production centres, that actually work on the product. The allocation have to be done according to basis of allocation. Step 3 - Computing separate overhead rates for each production costs centres In this step we have to allocate overheads of each production centre to products passing through that centre. It’s necessary to establish department overheads rate that usually is based on the amount of time products spend in each production centres (for example direct labour hours. Machine hours and direct wages). If each department worked only on one product, all the costs allocated to the department would be assigned to the product and step 3 would not be necessary. So, we use machine hours rate for the machine production centres and direct labour hours rate for the assembly centre. The overhead rates are calculated by applying the following formula: Step 4 - Assigning cost centre overheads to products or other chosen cost objects We have to allocate the overheads to products passing through the production centre. BUDGETED OVERHEAD RATES When monthly profit calculations are required, we cannot use actual overhead rates because it could not be significant and it is volatile. In fact, activity will vary month to month, so each month we have a different overhead rate. For example, in the firs month we could have of £ 5 per hour and the following month we could have £ 2 per hour. Therefor, an average, annualized rate based on the relationship of total annual overhead to total annual activity is more representative. It is preferable to establish a budgeted overhead rate based on annual estimated overhead expenditure and activity. UNDER- AND OVER-RECOVERY OF OVERHEADS If actual activity or overhead spending is different from that used to compute the budgeted overhead rates there will be an under or over recovery of fixed overheads. Under- and over-recovery of overheads should be regarded as period cost adjustment and it must not be allocated to products. Note that under-recovery is recorded as an expense in the current accounting period, whereas an over-recovery is recorded as a reduction in the expense for the period NON-MANIFACTURING OVERHEADS For financial purpose, only manufacturing costs are allocated to products. Non-manufacturing overheads are regarded as period costs. However, for decision-making it may be necessary to assign non- manufacturing costs to products (for example to establish a selling price). Some non-manufactory costs may be directly allocate to products. Some other are overhead non-manufacturing. We allocate non-manufacturing costs to products through an arbitrary cost driver, using this formula: