managerial accounting, Sintesi del corso di Economia Aziendale

Scarica managerial accounting e più Sintesi del corso in PDF di Economia Aziendale solo su Docsity! MANAGERIAL ACCOUNTING 16.MANAGEMENT * Managerial accounting focuses on providing information for internal decision makers. It helps managers make decisions needed to be successful. © Information focus on the past © Required to follow GAAP © Annual basis * Financial accounting focuses on providing information for external decision makers. Managers use financial accounting to report monetary transactions and prepare financial statements. © Information focus on the future © Not required to follow GAAP o Weekly basis -Managers’ Role in the Organization: most companies structure their organization along departments or divisions. A company's organizational chart helps show the relationship between departments and divisions and the managers who are responsible for each section. 1.Board of directors: elected by the stockholders and is responsible for developing the strategic goals of the corporation. 1.1President: has ultimate responsibility for implementing the company's short- and long- term plans. 2.Chief financial officier 3.Treasurer 3.Controller 4.Payroll processing manager 2.Chief operating officier 3.Software development division manager 3.Tablet computer manager 4.Production manager 4.Sales manager -Each position in a company can be classified as either a line or staff position: * Line positions are directly involved in providing goods or services to customers. * Staffpositions support the line positions. -Managerial Accounting Function: * Planning means choosing goals and deciding how to achieve them. © Strategic planning involves developing long-term strategies to achieve a company's goals. © Operational planning focuses on short-term actions dealing with a company’s day-to- day operations. * Directing involves running the day-to-day operations of a business. * Controllingis the process of monitoring dayto-day operations and keeping the company on track. COSTS CLASSIFIED * Service companies sell their time, skill, and knowledge. * Merchandising companies resell products they previously bought from suppliers. * Manufacturing companies use labor, equipment, supplies, and facilities to convert raw materials into finished products. © Raw Materials Inventory (RM) includes materials used to make a product. © Work-in-Process Inventory (WIP) includes goods that are in the manufacturing process but are not yet complete. © Finished Goods Inventory (FG) includes completed goods that have not yet been sold. -Costs: * Directcost: a costthat can be easily and cost-effectively traced to a cost object. A cost object is anything for which managers want a separate measurement of cost. © Direct materials (DM) are raw materials used in production. © Direct labor (DL) is labor of employees working on the products. = Primecosts combinethe direct costs of direct materials and direct labor. * Indirect cost: costs that cannot be easily or costeffectively traced directly to a cost object. © Manufacturing overhead (MOH): the indirect product costs associated with production, including: indirect materials, indirect labor. =. Conversion costs combine direct labor with manufacturing overhead. * Productcosts include the costs of purchasing or making a product: Direct materials, direct labor, and manufacturing overhead * Periodcosts are non-manufacturing costs: Selling and administrative expenses and other expenses such as taxes and interest. (TABELLA 36) IMANUFACTURING COMPANIES -Balance Sheet: * Service companies carry no inventories on their balance sheet. * Merchandising companies record the cost of inventory purchased as an asset, Merchandise Inventory, on their balance sheet. * Manufacturing companies keep track of costs using three inventory accounts: Raw Materials Inventory, Work-in-Process Inventory, and Finished Goods Inventory. «Income Statement: * Service companies only record period costs such as salaries expense and rent expense. * Merchandising companies and manufacturing companies report Cost of Goods Sold as the major expense. Because a manufacturer makes the product it sells, the calculation of cost of goods sold is different for manufacturing companies than for merchandising companies. -Cost of Goods Manufactured: the manufacturing costs of the goods that finished the production process in a given accounting period. It represents the cost of the Finished Goods Inventory that has been sold. 1. Calculate direct materials used. 2. Calculate total manufacturing costs incurred during the year. 3. Calculate cost of goods manufactured. UNIT PRODUCT COST=COST OF GOODS MANUFACTED/TOTAL UNITS PRODUCED COST OF GOODS SOLD=NUMBER OF UNITS SOLDXUNIT PRODUCT COST MANAGERIAL ACCOUNTING USED IN SERVICE AND MERCHANDISING COMPANIES -Managers of service and merchandising organizations make decisions on pricing based on cost per service or cost per item: * lthelpsmanager to set the price for each service provided. UNIT COST PER SERVICE=TOTAL COSTS/TOTAL NUMBER OF SERVICES PROVIDED * Ithelpsmanager to know which products are most profitable UNIT COST PER ITEM=TOTAL COST OF GOODS SOLDD/TOTAL NUMBER OF ITEMS SOLD MANUFACTURING OVERHEAD ACCOUNT ADJUSTED -Companies must adjust the Manufacturing Overhead account for any over- or underallocation of overhead. * Underallocated overhead occurs when actual manufacturing overhead costs are more than allocated manufacturing overhead costs. * Overallocated overhead costs occur when the actual manufacturing overhead costs are less than allocated manufacturing overhead costs. SERVICE COMPANIES USE A JOB ORDER COSTING SYSTEM -Service companies do not have inventory or manufacturing costs. -They trace direct labor to jobs. -They allocate overhead costs to jobs: 1. Computing the predetermined overhead allocation rate 2. Allocating indirect costs to jobs, using the predetermined overhead allocation rate -They use the costing information to make pricing decisions. PRICE=TOTAL COST+MARKUP MARKUP=TOTAL COSTXMARKUP PERCENTAGE 20.COST-VOLUTE-PROFIT ANALYSIS -Some costs change as the volume of sales increases or decreases. Other costs are not affected by changes in volume. Different types of costs are: * Variable costs: It remain constant per unit but change in total as volume changes. * Fixedcosts:It do not change in total but change per unit as voluce changes. * Mixed costs: Have both fixed and variable components. -High low method: method to separate mixed costs into variable and fixed components. It uses three steps to separate the variable and fixed costs: 1. Step 1:|dentifythe highest and lowest levels of activity and calculate the variable cost per unit. VARIABLE COST PER UNIT=CHANGE IN TOTAL COST/CHANGE IN VOLUME OF ACTIVITY 2. Step 2:Calculate the total fixed costs. TOTAL FIXED COST=TOTAL MIXED COST-(VARIABLE COST PER UNITXNUMBER OF UNITS) 3. Step 3: Create and use an equation to show the behavior of a mixed cost. TOTAL MIXED COST=(VARIABLE COST PER UNITXNUMBER OF UNITS)+TOTAL FIXED COST -The relevant range: the range of volume where total fixed costs and variable costs per unit remain constant CONTRIBUTION M ARGIN -It is called contribution margin because it is the amount that contributes to covering fixed costs. CONTRIBUTION MARGIN=NET SALES REVENUE-VARIABLE COSTS -The contribution margin can be expressed as a unit amount. The terms unit contribution margin and contribution margin per unit are used interchangeably. UNIT CONTRIBUTION MARGIN=NET SALES REVENUE PER UNIT-VARIABLE COSTS PER UNIT -A third way to express contribution margin is as a ratio. Contribution margin ratio is the ratio of contribution margin to net sales revenue. CONTRIBUTION MARGIN RATIO=CONTRIBUTION MARGIN/NET SALES REVENUE -A traditional income statement classifies costs by function: * Productcosts * Period costs TRADITIONAL=NET-COGS=GROSS PROFIT-SELLING AND ADMINISTRATIVE EXP.=OPERATING INCOM -A contribution margin income statement classifies costs by behavior: * Variable costs * Fixed costs CONTRIBUTION=NET-VARIABLE=CONTRIBUTION M ARGIN-FIXED COST=OPERATING INCOME CVP ANALYSIS -Managers use information about cost behavior to make business decisions. -Cost-volume-profit (CVP) analysis: a planning tool that looks at the relationships among costs and volume and how they affect profits (or losses). -Assumptions: * The price per unit does not change as volume changes. * Managerscan classify each cost as variable, fixed, or mixed. * The only factor that affects total costs is change in volume, which increases or decreases variable and mixed costs. * Fixedcosts do not change. * Thereare no changes in inventory levels. -CVP analysis can be used to estimate the amount of sales needed to achieve the breakeven point. -The breakeven point: the sales level at which the company does not earn a profit or a loss but has an operating income of zero. There are three methods of estimated sales required to break even: * Equation approach: can be used to estimate the number of units a company needs to sell to achieve target profit or total sales revenue. TARGET PROFIT=NET-VARIABLE COSTS-FIXED COSTS *Contribution margin approach: shortcut method of computing the required sales in units. REQUIRED SALES IN UNIT=(FIXED COSTS+TARGET PROFIT)/CONTRIBUTION MARGIN UNIT * Contribution margin ratio approach CONTRIBUTION MARGIN RATIO=CONTRIBUTION MARGIN/NET -A variation of the breakeven point calculation is the target profit calculation. -Target profit: the operating income that results when net sales revenue minus variable and fixed costs equals management's profit goal. The same three approaches used for breakeven point calculation can be used to determine the target profit. CVP ANALYSIS USED FOR SENSITIVITY ANALYSIS -Managers can use CVP relationships to conduct sensitivity analysis. -Sensitivity analysis: a “what if” technique that estimates profit or loss results if sales price, cost, volume, or underlying assumptions change. -One of the CVP assumptions is that the only factor that affects total costs is a change in volume, which increases or decreases variable and mixed costs. However, costs are often asymmetrical. -Cost stickiness: cost increase more when sales volume is increasing than costs decrease when sales volume is decreasing, a phenomenon known as cost stickiness. SOME OTHER WAYS CVP ANALYSIS -CVP analysis can be used for estimating target profits and breakeven points, as well as sensitivity analysis. Three additional applications of CVP are: * Marginofsafety:the excess of expected sales over breakeven sales. It is used to evaluate the risk of current operations and their plans for the future. MARGIN OF SAFETY IN UNITS=EXPECTED SALES-BREACKEVEN SALES MARGIN OF SAFETY IN DOLLARS=MARGIN OF SAFETY IN UNITSxSALES PRICE PER UNIT MARGIN OF SAFETY RATIO=MARGIN OF SAFETY IN UNITS/EXPECTED SALES IN UNITS * Operatingleverage: -Cost structure of a company is the proportion of fixed costs to variable costs. -Operating leverage predicts the effects that fixed costs will have on changes in operating income when sales volume changes. -The degree of operating leverage can be measured by dividing the contribution margin by the operating income. DEGREE OF OPERATING LAVARAGE=CONTRIBUTION MARGIN/OPERATING INCOME * Salesmix: the combination of products that make up total sales. -Most companies sell more than one product. -Sales price and variable costs differ for each product. Step 1: Calculate the weighted-average contribution margin per unit Step 2: Calculate the breakeven point in units for the “package” of products Step 3: Calculate the breakeven point in units for each product in the sales mix “package.” Multiply the “package” breakeven point in units by each product’s proportion of the sales mix. REQUIRED SALES IN UNITS=FIXED COSTS+TARGET PROFIT/WAIGHTED CONTRINITION UNIT 21.VARIABLE COSTING VARIABLE COSTING DIFFER FROM ABSORPTION COSTING -The cost of producing products is estimated using one of two methods: * Absorption costing includes all product costs(direct materials,labor,variable and fixed manufacting overhead) -Period costs: variable and fixed selling and administrative costs -Traditional format:SALES REVENUE-COGS=GROSS PROFIT-COSTS=OPERATING INCOME ® Variable costing considers only variable manufacturing costs(direct mateerials,labor,variable manufacting overhead) -Period costs: variable and fixed selling and administrative costs+fixed manufacting overhea -Traditional format:SALES REVENUE-VARIABLE COSTS=CONTRIBUTION MARGIN-FIXED COSTS=OPERATING INCOME -Contribution margin: the difference between net sales revenue and variable costs. OPERATING INCOME DIFFER BETWEEN VARIABLE COSTING AND ABSORPTION COSTING * Variable costing and absorption costing will result in different operating income when: © Units produced are more than units sold: operating income under absorption costing is greater than under variable costing. © Units produced are less than units sold: operating income under absorption costing is less than under variable costing. * The operating income result is the same under both methods when units produced equal units sold. VARIABLE COSTING USED FOR DECISION MAKING IN A MANUFACTURING COMPANY -For decision making, some cases should use variable costing, while other cases should use absorption costing. -Manager decisions include: * Setting sales prices: they charged to costumers must cover the full cost of the product. © Long run: absorption for covering the full cost © shortrun: variable because fixed costs are not relevant because don't change * Ifmanufacturing capacity is limited, managers must decide which products to produce. * Managers must also decide whether to drop products, departments, or territories that are not as profitable as desired. -Management’s considerations when dropping a product or business segment include: * Doesthe productor segment provide a positive contribution margin? * Will fixed costs continue to exist, even if the company drops the product or segment? * Are there any direct fixed costs that can be avoided if the company drops the product or segment? * Will droppingthe product or segment affect sales of the company's other products? * What would the company do with the freed manufacturing capacity or store space? -In the short-term, many fixed costs remain unchanged in total, regardless of how they are allocated to products or other cost objects. Allocated fixed costs are irrelevant. Relevant fixed costs include: * Willthe fixed costs continue to exist even ifthe product is dropped? * Are there anydirect fixed costs of the Premium Tablets that can be avoided ifthe product is dropped? -Managers considering dropping a product line or segment would consider: * Would dropping it hurt other product sales? -Don't drop if the lost revenues exceed the total cost saving. -Drop if the lost revenues are less than the total cost saving. * Whatcouldbe done with the freed manufacturing capacity? -Short-term business decisions should take into account all costs affected by the choice of action. -Companies do not have unlimited resources. A constraint is a factor that restricts the production or sale of a product. Managers should consider producing and selling the products that offer the highest contribution margin per unit of the constraint. Emphasize the product with the highest contribution margin per unit or the constraint. -Merchandising companies also have constraints, display space being the most common constraint. Managers must choose which products to display. Managers consider space constraints along with the contribution margin per unit. MANAGERS MAKE OUTSOURCING AND PROCESSING FURTHER DECISIONS -Short-term management decisions include how products are produced. Two questions are: * Shouldthe company outsource a component of the finished product or make it? * Shoulda company sella product as it is or process if further? -Many companies choose to outsource products or services. It is important for companies to consider opportunity costs in this decision. Management considers the following: * Howdothe company's variable costs compare to the outsourcing costs? -Outsource if the differential costs of making product exceed the differential cost of out outsources. -Don't outsource if the differential costs of making product exceed the differential cost of out outsources. © Three alternatives to consider: 1. Use the facilities to make the casings. 2. Buy the casings and leave facilities idle. 3. Buy the casings and use facilities to make the new product. * Are any fixed costs avoidable ifthe company outsources? * Whatcouldthe company do with the freed manufacturing capacity? -At what point in processing should a company sell its product? Managers must determine: * How much revenue will the company receive if it sells the product as is? * How much revenue will the company receive if it sells the product after processing it further? * Howmuch will it cost to process the product further? -Process further if the additional revenue from processing further exceed the additional cosy of processing further. -Don't process further if the additional revenue from processing further is less than the additional cosy of processing further. -Joint costs: costs of a production process that yields multiple products. PROFITABILITY, LIQUIDITY, SOLVENCY Accounting information allows to assess a firm's financial health under three different points of view: (the three aspects can be analyzed separately, but they are interconnected. Any problem in one of the areas can affect the other two areas) * Profitability: a measurement of efficiency. It is expressed as a relative, not an absolute, amount. Profitability can further be defined as the ability of a business to produce a return on an investment based on its resources in comparison with an alternative investment. -A firm is profitable if the return it generates is deemed satisfactory. -It is a subjective assessment, that depends on the firm’s ownership structure, business.. -The firm’s ROE should be compared with the return from alternative investment. It should be high enough to remunerate any labour contributed to the firm by the owners. ROE=NET PROFIT/EQUITY ROI=EBIT/OPERATING ASSETS * Liquidity:the capability of the firm to generate enough cash to meet its short-term needs, without compromising its profitability. -It can be assessed by the cash flow genertion capability of the firm and by the structure of assets and liabilities (current ratio and quick ratio or acid test ratio). -A liquidity problem is an immediate threat to the life of the firm and must dealt with in the short term. Liquidity problems eventually lead to a decrease in profitability, because of the costs related to additional debt. * Solvency:the capability of the firm to meet its long-term financial obligations. -A company that is insolvent could be forced to declare bankruptcy. -A company is solvent when the amount of liabilities is not deemed to be excessive, i.e. it has an adequate amount of equity. -It is normally investigated by the Debt/Equity ratio. -How much equity does a firm need? There is no clear answer to this question. The amount depends on the structure of the assets and on the operating risk of the firm. The more volatile results are, the higher the need for equity is. It also depends on how much it costs to finance the assets: if the cost of debt is greater than the operating return on the assets, the D/E ratio is too high. Some companies have a risk-taking attitude and can increase their profitability by reducing their equity and increasing their debt (financial risk). It is a risky choice. Interaction among the three aspects: * A decline in profitability may reduce the firm’s equity (with negative consequences on its solvency), and, eventually, it can deteriorate its liquidity. * A liquidity problem is sometimes solved at the expense of profitability, by selling productive assets or increasing the amount of financial debt. * A solvency problem means that the amount of debt is too high, so it is likely that the interest expenses can affect the firm's profitability.