Managerial Accounting - Management and Fundamentals of Accounting, Appunti di Economia Manageriale

Scarica Managerial Accounting - Management and Fundamentals of Accounting e più Appunti in PDF di Economia Manageriale solo su Docsity! Managerial Accounting and Cost Concepts - Chapter 1 Purposes of Cost Classification 1) Cost classifications for assigning costs to cost objects In accounting, costs can be classified differently depending on the needs of management. A cost object is anything for which cost data are desired- including products, customers, plants, office locations and departments. Direct costs are those costs that can be easily and conveniently traced to a unit of product or other cost object. Examples: direct material and direct labor. Indirect costs are costs that cannot be easily and conveniently traced to a unit of product or other cost object. Example: manufacturing overhead -> Common costs: indirect costs incurred to support a number of cost objects. These costs cannot be traced to any individual cost object. > A direct cost such as direct materials is a cost that can be easily and conveniently traced (=tracciato) to a cost object. An indirect cost is a cost that cannot be easily and conveniently traced to a cost object. For example, the salary of the administrator of a hospital is an indirect cost of serving a particular patient. 2) Cost classifications for manufacturing companies Manufacturing Costs Most manufacturing companies further separate their manufacturing costs into two direct cost categories, direct materials and direct labor, and one indirect cost category, manufacturing overhead. The materials that go into the final product are called raw materials. Actually, raw materials refer to any materials that are used in the final product, and the finished product of one company can become the raw materials of another company. The term Direct Materials refers to raw materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product. For example a radio installed in an automobile Direct Labor consists of labor costs that can be easily traced to individual units of product. Direct labor is sometimes called touch labor because direct labor workers typically touch the product while it is being made. Managers occasionally refer to their two direct manufacturing cost categories as prime costs. Prime cost is the sum of direct materials cost and direct labor cost. An example of direct labor are wages paid to automobile assembly workers. Manufacturing Overhead, the third manufacturing cost category, includes all manufacturing costs except direct materials and direct labor. From a product costing standpoint, manufacturing overhead costs are indirect costs because they cannot be readily traced to specific products. For example, manufacturing overhead includes a portion of raw materials known as indirect materials as well as indirect labor. Indirect Materials are raw materials whose costs cannot be easily or conveniently traced to finished products. Indirect Labor refers to employees that play an essential role in running a manufacturing facility; however, the cost of compensating these people cannot be easily or conveniently traced to finished products. Manufacturing overhead includes other indirect costs that cannot be readily traced to finished products, but only those indirect costs that are associated with operating the factory. Some examples of manufacturing overhead are depreciation of manufacturing equipment, utility costs, property taxes.. Another term that managers frequently use is Conversion cost. Conversion cost refers to the sum of direct labor and manufacturing overhead. The term conversion cost is used to describe direct labor and manufacturing overhead because these costs are incurred to convert direct materials into finished products. Manufacturing costs actually are often classified as Prone cost (Direct materials and Direct labor) or Conversion cost (Direct labor and Manufacturing overhead). Nonmanufacturing Costs are often divided into 2 categories: (1) selling costs and (2) administrative costs. Selling Costs include all costs that are incurred to secure customer orders and get the finished product to the customer. They are sometimes called order-getting and order- filling costs. Selling costs cane either direct or indirect costs. Administrative Costs include all costs associated with the general management of an organization rather than with manufacturing or selling. Administrative costs can be either direct or indirect costs. Nonmanufacturing costs are also often called selling, general, and administrative (SG&A) costs, or just selling and administrative costs. > Manufacturing costs consist of two categories of costs that can be conveniently and directly traced to units of product- direct materials and direct labor- and one category that cannot be conveniently traced to units of product- manufacturing overhead (=costi di produzione). 3) Cost classifications for preparing financial statements When preparing a balance sheet and an income statement, companies need to classify their costs as product costs or period costs. Generally costs are recognized as expenses on the income statement in the period that benefits from the cost. The matching principle is based on the accrual concept that costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized. For financial accounting purposes, product costs include all costs involved in acquiring or making a product. Product costs “attach” to a unit of product as it remains in inventory awaiting sale. Because product costs are initially assigned to inventories, they are also known as inventoriable costs. For manufacturing companies, product costs include: Raw materials that include any materials that go into the final product. Work in process that consists of units of product that are only partially complete and will require further work before they are ready for sale to the customer. Finished goods that consist of completed units of product that have not yet been sold to customers. Transfer of Product Costs When direct materials are used in production, their costs are transformed from Raw Materials to Work in Process. Direct labor and manufacturing overhead costs are added to Work in Process to convert direct materials into finished goods. Once units of products are completed, their costs are transferred from Work in Process to Finished Goods. When a manufacturer sells its finished goods to customers, the costs are transferred from Finished Goods to Cost of Goods Sold. Product costs include direct materials, direct labor, and manufacturing overhead. Mixed cost A mixed cost contains both variable and fixed elements. The total mixed cost line can be expressed as an equation: Y= a + bX Where: Y= the total mixed cost a= the total fixed cost (the vertical intercept of the line) b= the variable cost per unit of activity (the slope of the line) X= the level of activity An example If your fixed monthly utility charge is $40, your variable cost is $0.03 per kilowatt hour, and your monthly activity level. Is 2.000 Kilowatt hours, what is the amount of your utility bill? Y= a + bX Y= $40 + ($0.03 x 2.000) Y= $100 Cost terminology: a closer look > For purposing of predicting how costs will react to changes in activity, costs are classified into three categories: variable, fixed and mixed. Variable costs, in total, are strictly proportional to activity. The variable cost per unit is constant. Fixed costs, in total, remain the same as the activity level changes within the relevant change. The average fixed cost per unit decreases as the activity level increases. Mixed costs consist of variable and fixed elements and can be expressed in equation form as Y= a+bX, where X is the activity, Y is the total cost, a is the fixed cost element, and b is the variable cost per unit of activity. 5) Cost classifications for Decision Making Every decision involves choosing from among at least two alternatives. The key to choosing among alternatives is distinguishing between relevant and irrelevant costs and benefits. The ones that should be considered when making decisions are only relevant costs and relevant benefits. Differential cost (or incremental cost) is the difference in cost between any two alternative. A difference in revenue between two alternatives is called differential revenue. Both are always relevant to decisions. Differential costs can be either fixed or variable. Sunk costs have already been incurred and cannot be changed by any decision now or in the future. These costs should be ignored when making decisions. Opportunity cost represent the potential benefit that is given up when one alternative is selected over another. These costs are not usually found in accounting but must be explicitly considered in every decision. > For purposes of making decisions, managers must distinguish between relevant and irrelevant costs and benefits. To do this, they must understand the concepts of differential cost and revenue, opportunity cost, and sunk cost. Differential costs and revenues are the costs and revenues that differ between alternatives. Opportunity cost is the benefit that forgone(=rinunciare a ) when one alternative is selected over another. Sunk cost is a cost that occurred in the past and cannot be altered. Differential costs and opportunity costs are relevant costs that should be carefully considered in decisions. Sunk costs are irrelevant costs and they should be ignored when making decisions. Prepare income statements for a merchandising company using the traditional and contribution formats > Different cost classifications for different purposes is the unifying theme of this chapter and it can be highlighted by contrasting traditional and contribution format income statements. The traditional income statement format is used primarily for external reporting purposes. It organizes costs using product and period cost classifications. The contribution format income statement aids decision making because it organizes costs using variable and fixed cost classifications. Job-Order Costing: Calculating Unit Product Cost - Chapter 2 Product costing Product costing is the process of assigning costs to the products and services provided by a company. The essential purpose of any managerial costing system should be to provide cost data to help managers plan, control, direct and make decisions. Nevertheless external financial reporting and tax reporting requirements often heavily influence how costs are accumulated and summarized on managerial reports. There are 2 general approaches for costing products: absorption costing (A.C.) and variable costing (V.C.) Guarda esempio di esercizio dove si deve calcolare il Multiple Predetermined Overhead Rates sulle slide. When a company creates overhead rates based on the activities that It performs, it is employing an approach called activity- based costing. Activity-based costing is an alternative approach to developing multiple predetermined overhead rates. Managers use activity-based costing systems to more accurately measure the demands that jobs, products, customers and other objects make on overhead resources. > The total cost of a job includes the actual direct materials and direct labor costs assigned to the job plus the applied overhead. The applied overhead is computed by multiplying each predetermined overhead rate by the actual amount of its allocation base that is used by a job. The unit product cost of a job is computed by dividing the total cost of the job by the number of units included in the job. Cost-Volume-Profit Relationships- Chapter 3 Explain how changes in sales affect contribution margin and net operating income Contribution Income Statement: the contribution income statement is helpful to managers in judging the impact on profits of changes in selling price, cost, or volume. Sale, variable expenses and contribution margin can also be expressed on a per unit basis. (Guarda l’esempio sulle slide) We do not need to prepare an income statement to estimate profits at a particular sales volume. Simply multiply the number of units sold above break.even by the contribution margin per unit. CVP Relationships in Equation Form: this equation can be used to show the profit RBC earns if it sells 401. Notice, the answer of $200 mirrors our earlier solution. Profit= ($200.500 - $120.300) - $80.000 $200 = ($200.500 - $120.300) - &80.000 > The unit contribution margin, which is the difference between a unit’s selling price and its variable cost, indicates how net operating income will change as the result of selling one more or one less unit. For example, if a product’s unit contribution margin is $10, then selling one more unit will add $10 to the company’s profit. Prepare and interpret a cost-volume-profit (CVP) graph and a profit graph Guarda slides • In a CVP graph, unit volume is usually represented on the horizontal (X) axis and dollars on the vertical (Y) axis. • To represent total fixed expenses we draw a line parallel to the volume axis. Break-even analysis- we can compute break-even point in terms of using either the equation method or the formula method. The equation and formula methods can be used ti determine the unit sales and dollar sales needed to achieve a target profit of zero. The equation method relies on the basic profit equation introduced earlier in the chapter. In a single product situation, the equation method for computing the unit sales at the break-even point is: Profits = Unit CM x Q - Fixed expenses We can compute break-even pint in terms of using the equation method or the formula method. The formula method is a shortcut version of the equation method. It centers on the idea discussed earlier in the chapter that each unit sold provides a certain amount of contribution margin that goes toward covering fixed expenses. The formula method is a > A cost-volume-profit graph displays(=visualizza) sales revenues and expenses as a function of unit sales. The break-even point on the graph is the point at which the local sales revenue and total expenses lines intersect. A profit graph displays profit as a function of unit sales. The break- even point on the profit graph is the point at which profit is zero. Use the contribution margin ratio (CM ratio) to compute changes in contribution margin and net operating income resulting from changes in sales volume > The contribution margin ratio is computed by dividing the unit contribution margin by the unit selling price, or by dividing the total contribution margin by the total sales. The contribution margin shows how much a dollar increase in sales affects the total contribution margin and net operating income. For examples, if a product has a 40% increase in contribution margin ratio, then a $100 increase in sales should result in a $40 increase in contribution margin and in net operating income. Show the effects on net operating income of changes in variable costs, fixed costs, selling price, and sales volume > Contribution margin concepts can be used to estimate the effects of changes in various parameters such as variable costs, fixed costs, selling prices, and sales volume on net operating income. Determine the break-even point > The break-even point is the level of sales at which profit is zero. This is just a special case of solving for the level of sales needed to achieve a desired target profit- in this special case the target profit is zero. Determine the level of sales needed to achieve a desired target profit > The level of sales needed to achieve a desired target profit can be computed using several methods. The answer can be derived using the fundamental profit equation and simple algebra or formulas can be used. In either approach, the unit sales required to attain a desired target profit is ultimately determined by summing the desired target profit and fixed expenses and then dividing the result by the unit contribution margin. Compute(= calcolare, determinare) the margin of safety and explain its significance > The margin of safety is the difference between the total budgeted (or actual) sales dollars of a period and the break-even sales dollars. It expresses how much cushion there is in the current level of sales above the break-even point. Compute the degree of operating leverage at a particular level of sales and explain how it can be used to predict changes in net operating income > The degree of operating leverage is computed by dividing the total contribution margin by net operating income. The degree of operating leverage can be used to determine the impact a given percentage change in unit sales would have on net operating income. For example, if a company’s degree of operating leverage is 2.5, then a 10% increase in unit sales from the current level of sales should result in a 25% increase in net operating income. Compute the break-even point for a multiproduct company and explain the effects of shifts in the sales mix on contribution margin and the break-even point(= punto di pareggio) > The break-even point for a multi product company can be computed by dividing the company’s total fixed expenses by the overall contribution margin ratio. This method for computing the break-even point assumes that the sales mix is constant. If the sales mix shifts toward products with a lower contribution margin ratio, then more total sales are required to attain any given level of profits.