Managerial Accounting (Prof. Culasso), Appunti di Contabilità

Scarica Managerial Accounting (Prof. Culasso) e più Appunti in PDF di Contabilità solo su Docsity! 1 Managerial Accounting Professor Francesca Culasso Università degli Studi di Torino Business and Management – 2nd year Contents Lecture N. Topics page Lecture 1 Introduction and Cost Classification: ➢ The managerial control system ➢ Strategic planning and managerial control ➢ The managerial control mechanism ➢ General firm’s structure ➢ The technical and accounting tools used in managerial control ➢ Cost and Cost Classification ➢ Operating Costs ➢ Manufacturing Costs ➢ Non-manufacturing Costs ➢ Non-Operating Costs ➢ Variable Costs ➢ Fixed Costs ➢ Mixed Costs ➢ Income Statement 2 Lecture 2 Cost-Volume-Profit Analysis: ➢ BEP analysis 11 Lecture 3 BEP in multi-production firms: ➢ Operating Leverage 12 Lecture 4 Operating Decisions and Economic Convenience: 13 Lecture 5 Budgeting: ➢ Commercial Budget ➢ Production Budget ➢ Staff Budget 14 Lecture 6 Budgeted Funds Flow Statement: ➢ Budgeted Balance Sheet 17 2 Lecture 1 – Introduction and Cost Classification Chapter 1 and chapter 2, slides 1 -2 Management accounting is a system that support managers in the decision-making process. It is not compulsory, but can be useful in every kind of company, also in non-profit ones and public administration. It was born in the early 19th Century in the American railways companies and was initially mainly focused on financial information, even though nowadays it comprehends a wider set of tools. Therefore, we could talk about managerial control in general. While Financial Accounting was referred to financial institution external to the company, to the owners and other shareholders (which were interested in past results, already achieved), Managerial Accounting it is addressed to managers, so to the internal part of the company (internal prospective). The Managerial Control System: It’s a system used by managers at various levels to assess that the management is carried out efficiently and effectively, enabling the company to reach the established goals, defined during the strategic planning process. The scope is to provide managers relevant information of the company, to evaluate the efficiency of the Value Chain (a value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market). Nowadays Managerial Accounting is not only accounting, not only financial information, because there is some not financial information which are very important: • competition  shares of the market; • customer satisfaction  qualitative survey; • attitude to innovate  number of projects N.B. they are quantitative information, so numbers, but not referred to financial information. Since it includes also this non-financial information, we can call it Managerial Control instead of Accounting. Managers which use this information are General managers, production managers and also managers that are at the lower level of the hierarchical structure of the company. As we have said in the definition, this system tries to improve the efficiency (the attitude of the company to save resources) and the effectiveness (the attitude to reach the established goals concerning output in quantity and quality). Usually the efficiency can be measured by financial indicators: COSTS, more precisely full cost which can be compared with the full cost of my competitors (financial indicators). From what concern effectiveness, it can be expressed by the number of product that can be sold in the market in comparison with the market demand, so QUANTITY, but also related to the QUALITY of them, measured by the customers’ feedback or number of damaged products for instance. Quality can consist also in flexibility, the attitude of changing things, my product, in order to satisfy the change in orders (non- financial indicators). Someone has said there is a financial indicator for the effectiveness, which is revenue, but it is a short-run information, because revenue reflects past actions, while it is important to know how’s the company now, in order to understand the possible revenues in the future. Moreover, profit is the perfect synthesis of efficiency and effectiveness but just in the short-run. 5 The Technical and Accounting Tools used in Managerial Control: There are several accounting techniques: • General Accounting and Financial Statement Analysis: they are very useful also in managerial accounting, in fact through these techniques we are able to collect financial information about the past between the company and third parties (i.e. actual costs, actual revenues, actual credits etc…) Very useful to know the actual trend of the company, but not sufficient for the aims of management accounting, because this requires also more analytical information about the company and the units in which the company can be articulated. • Cost Accounting: this is an analytical tool, because trough this technique the manager can know the analytical cost of something that stays into the company (i.e. how much does a single pizza cost) during both the preventive phase, as a target cost, and in the current and consumptive phases, as the actual cost achieved. These data are not implied in the general income statement (by nature) where costs are classified under some aggregations. • Budgeting System: is an accounting tool, we will arrive to build a budgeted income statement and a budgeted balance sheet for instance. It has been developed to plan goals, actions and use of resources for the financial year, in the preventive control phase. The budget is a quantitative expression of a proposed plan of action by management for a specific period and is an aid to coordinating what needs to be done to implement that plan. • Managerial Reporting: is another tool, that support managers during above the second and third phase in the managerial control process, where variations between goals and results are evaluated, with respect of every year but also every month. • Non-economic Information: the most recent report includes on one side the financial information (short-run oriented) and on the other side the non-economic information (long-run oriented) So, the Managerial Reporting bring us to a Balance Scorecard: kind of reporting in which finance indicators balanced perfectly with the non-financial indicator (so short-run is integrated with the long-run prospective and his strategic goals). Managerial Reporting General Accounting Cost Accounting Budgeting System Non- economic information 6 Cost and Cost classification: A cost is a monetary amount that the firm has to burden itself in order to achieve a product or a service in order to be able to generate revenues or to achieve a specific goal. We should distinguish between Actual Cost and Budgeted Cost. Budgeted Cost: so, cost we should spend in order to be efficient in the future. Actual Cost: cost already registered, spent. Cost Objects: objects in which the company is interested in determining the cost; for instance, determining the cost of a product could help in deciding whether continuing to produce it or not. Some examples are finished products, various departments, plants, customers, processes, geographical area where the company sell. In fact, only knowing the costs of certain objects is easy to make decisions. Cost Accounting: it is a system that allows managers to determine all various costs, its aim is to assign to an object costs classified by nature in general accounting; it is divided into two phases: cost accumulation and cost assignment. 1. COST ACCUMULATION is the gathering of all the costs day by day, collecting everyday cost information. 2. COST ASSIGNMENT consists in to the assignment all the accumulated costs to a specific product. I have to distinguish costs to the different cost objects; for some of them it is very easy, for others, it is more difficult, because we are not able to establish theirs physical and objective cost: a. DIRECT COST: can be traced to the cost object in an objective and economically feasible way; I exactly know the quantity of that product and I exactly know the purchasing price for that  cost tracing i.e. raw materials, direct labour costs, leasing of one equipment that produces just one product of the company. b. INDIRECT COST: cannot be traced to the cost object in an objective way or in an economically feasible way (maybe it is too much expensive to measure even if there is an objective way)  cost allocating i.e. light expense, compensation of the CEO, depreciation of equipment that produce every product, rent of a building in which different products are manufactured, some indirect material. Operating Costs: Costs strictly linked to the characteristic activity of the company, to its core business that is the production and distribution of products, direct manufacturing labour costs (the amount of manpower involved in the production process) and manufacturing overhead costs (depreciation, salaries of indirect workers such as supervisor). So, they consist in resources consumed in the operating area during the transformation process of input in output. Pay attention, the wage of the employees involved in the production is an operating cost. Manufacturing Costs: Are those directly involved in manufacturing of products and services: • Direct material costs • Direct man labour costs • Manufacturing overhead costs Prime cost Conversion cost 7 Non-Manufacturing Costs: Are those not incurred in manufacturing of products and services: • Marketing and selling costs • Administrative costs • Innovation costs Non-Operating Costs: They are typically linked to the administration and finance area, so resources consumed in the non- operating areas (fiscal, participations and financial costs). O P ER A TI N G C O ST S Manufacturing costs Direct material costs Prim e co sts Direct manufacturing labour costs Co n versio n co sts Manufacturing overhead costs Ind irect co sts Non-manufacturing costs Marketing and selling costs Administrative costs Innovation costs N O N -O P ER A TI N G C O ST S Atypical costs Financial costs Fiscal costs Extraordinary costs Period costs: costs not assigned to a product and related to a specific period, which are included in the income statement (i.e. advertisement costs). Product costs: are assign to the finished products of the company in order to determine the value of the inventory and of this product, usually they are variable + fixed manufacturing costs (i.e. depreciation). 10 Income Statement: Two different schemes of income statements are commonly used for managerial accounting purposes: The first scheme is adopted in order to underline the profitability of the products of a company, through the calculation of their contribution margin. SCHEME 1 Products A B C Total Revenues Op eratin g A rea X X X X (Variable Costs of goods sold) X X X X = contribution margin X X X X (Direct Fixed Costs) X X X X = semi-contribution margin X X X X (Indirect Fixed Costs) (X) (X) (X) X = operating income (EBIT) (X) (X) (X) X Interest and Income receivables and Interest payable N o n -o p eratin g area X Extraordinary income and charges X = income before income taxes X Income taxes X = net income X N.B. Non-operating costs aren’t usually allocated to products Contribution Margin: really important in order to determine the profitability of the company. Contribution Margin is the contribution from the product to the coverage of other fixed costs incurred by the company. Moreover, it is essential to determine the Contribution Coefficient (CC), so the average profitability of the firm. Semi-contribution Margin: margin that each product can offer to the company, after deducting its variable and fixed costs, in order to cover the overhead costs (both manufacturing and non-manufacturing). The second scheme is adopted in order to determine the profitability of the manufacturing department of a company. SCHEME 2 Revenues (Industrial costs of goods sold) = gross margin or loss (other operating costs) Distribution costs Administrative expenses Research and Development Product design costs Marketing costs Miscellaneous = operating income (EBIT) Interest and income receivables and interest payable Extraordinary income and charges = income before income taxes Income taxes = net income 11 Lecture 2 – Cost-Volume-Profit Analysis Chapter 3, slides 3 CVP analysis is a good starting point in the budgeting process, that is in the preventive control phase of management accounting. The aim of this analysis is to determine the relation between the costs, the selling quantities and prices of the company (revenues) and their effect on the profit. Through this analysis it is possible to change the variables in order to assess the effects on the profit, that is to make economic simulations (sensitivity analysis*). In fact, changing fixed costs means making decisions about production capacity of the company or discretionary programmes; changing the selling price has effects on the selling quantity; changing variable costs, the company will gain a different profit. Sensitive Analysis: is a “what if” technique that, when used in the context of CVP analysis, examines how an outcome such as operating income will change if the original predicted data are not achieved*. CVP (cost-volume-profit) Analysis examines the effects of the behaviour of total revenues, total cost and the output level on the operating income. It is a very useful tool in order to make some economic simulation playing with the revenues of the company and on its profit. There are some assumptions we’ve to consider: 1. Changes in the level of revenues and costs arise only because of changes in the number of product (or service) units produced and sold. 2. Total costs can be divided into fixed element and an element that is variable with respect to the level of output. 3. When graphed, the behaviour of total revenues and total costs are linear (straight-line) in relation to output units within the relevant range (and time period). 4. The unit selling price, unit variable costs, and fixed costs are given and constant. BEP analysis: A first analysis done in the CVP one is the break-even point (BEP) analysis, that determines the volume at which revenues are able to cover all the costs or the profit is equal to zero. This can be done through the graph method. Determine the breakeven point and output level needed to achieve a target operating income using the equation and graph methods. TR: total cost TC: total cost X: quantity of output sold and manufactured P: selling price B: variable cost per-unit A: fixed cost TR = TC TC = A + bx TR = px so px = A + bx X𝑏𝑒𝑝 = 𝐴 𝑝 − 𝑏 = 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 𝑐𝑜𝑛𝑡𝑟𝑖𝑢𝑡𝑖𝑜𝑛 𝑚𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 12 The revenues line starts from the axes’ origin and has a constant angular coefficient equal to the selling price. The BEP point is the intersection of the two lines. The more we go to the right, the higher the profit. At the left-hand side of BEP point, on the other hand, the company incurs in a loss. In this case we are considering only one product. Lecture 3 - BEP in multi-production firms: Chapter 3, slides 3 (look at SEDITAL exercise) It consists in the Break-even point in a firm producing different kinds of output. The BEP in this case cannot be expressed in terms of volume (because there are different prices, different economic features, different revenues that means different profits). In this case we have a product mix which is the quantities of various products (or services) that constitute total unit sales of a company. So, we’ve to change unit of measurement, we have to choose a common cost-driver, a common unit of measurement. There are many possibilities, one for example is the hours of labour, but the best solution is to adopt as unit of measurement, the euro of revenues: how many euros we have to sell in order to achieve the break-even point? 𝑅𝑏𝑒𝑝 = 𝐴 1 − 𝑘 A: total fixed costs (direct + indirect to the product) K: average incidence of variable costs on total revenues 1 – K: average contribution margin percentage, that is contribution coefficient (CC) Where the contribution coefficient, which is the incidence of the total contribution margin of the company on the revenues of the company 𝐶𝐶 = 𝑇𝐶𝑀 𝑇𝑅 𝑤𝑖𝑡ℎ 𝑇𝐶𝑀 = 𝑇𝑅 − 𝑇𝑉𝐶 and 𝑘 = 𝑇𝑉𝐶 𝑇𝑅 The contribution coefficient is constant under certain circumstances: ✓ Constant selling prices ps ✓ Constant unitary variable costs bs, that is constant physical standards ph, and purchasing ms ✓ Constant mix of products Operating Leverage: The operating leverage is a good tool in order to evaluate the operating risk of a company. The operating risk is the risk of incurring in reduction or increasing in the profit due to a change in the market demand and, therefore, in the selling quantities. The selling quantities are strictly correlated to the costs incurred by the company: while the fixed stay the same, the variable costs increase or decrease. So, the operating leverage describes the effects that fixed costs have on changes in operating income as changes occur in units sold and hence in contribution margin. The operating leverage is given by: 𝐿 = 𝑇𝐶𝑀 𝑂.𝐼. Where TCM is equal to Revenues – Total Variable costs. 15 Below it is shown a graphical representation of the budgeting process, on the right we have costs and revenues while on the left-hand side we have the financial point of view. During a typical budgeting process, first of all the strategic goal are translated into short run goals for the whole company. This activity is usually carried out by the top management. Then, the first manager involved in the process is the marketing manager, that has to determine the sales or commercial budget; Commercial Budget: This is the first area, after having identified the company’s goals. This involves marketing managers but also other managers. The elements we must consider in making a commercial budget are: - The revenues, that depend on the selling volume (that depend on the customers’ order), the selling price (which depend on many variables such as costs, demand, laws etc…) and, in the hypothesis of a multi-production company, the sales mix (which Is based on economic decision). - The commercial costs, that are the commercial resources required in order to achieve the targeted selling quantities and sales mix of the product, with relation to the targeted selling volume. Commercial variable costs are usually commissions or packaging costs, while typical commercial direct fixed costs (connected to the single product) are advertising, distribution, salaries of employees that work on one specific product… and commercial indirect fixed costs are commercial area director’s salary. 16 Production Budget: First of all, you have to transform the “volume to be sold” in “volume to be produced”. The volume to be produced usually exceeds the market demand, in order to meet the eventual extraordinary demand without interrupting the selling process. So, the production manager (manufacturing director) has to plan the change in inventory, the beginning inventory and the final one: so, he has to determine the inventory policy. Therefore, the quantity to be produced is determined considering also the stock policy. Budget units to be sold + (add) targeted ending finished goods inventory (rimanenze finali) - (deduct) targeted beginning finished goods inventory (rimanenze iniziali) = Budgeted units to be produced 1. Once the volume to be produce has be planned, we have to determine, for the resources for which it is possible, the industrial standard costs (bstd). So, costs usually related to variable resources for which we can plan the amount that permits to the company to be efficient (efficiency goals). Since, it is variable, we can measure the standard physical consumption (phstd) and the monetary standard purchasing price (mstd) and we obtain: 𝑝ℎ×m=bstd and then, 𝑏 × 𝑡𝑎𝑟𝑔𝑒𝑡𝑒𝑑 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑣𝑜𝑙𝑢𝑚𝑒 = 𝒗𝒂𝒓𝒊𝒂𝒃𝒍𝒆 𝒎𝒂𝒏𝒖𝒇𝒂𝒄𝒕𝒖𝒓𝒊𝒏𝒈 𝒄𝒐𝒔𝒕𝒔 *when there is the X you can calculate the industrial standard costs* 2. Then there are costs for which it is not possible to calculate the industrial standard costs, because they are fixed. They consist in flexible budget or indirect industrial costs (manufacturing overhead costs budget); they are typically discretionary (cost elements whose amount is not related to technical parameters, but to the goals to be achieved by the company) or bonded costs (cost elements that are derived by previous decisions by the firm), such as salaries of manufactories indirect workers, costs related to PPE purchased long time ago. 3. The last step, related to the purchasing area, is this one: we need the purchasing director to plan how many units of resources are necessaries to be purchased (direct material), so the purchasing budget linked to raw materials, in order to guarantee the production of the products we have planned. Quantity of material to be used (physical units budget) * + (add) targeted ending material inventory - (decrease) targeted beginning material inventory = Quantity of material to be purchased *The quantity of material to be used can be obtain easily by: 𝑝ℎ𝑦𝑠𝑖𝑐𝑎𝑙 𝑢𝑛𝑖𝑡𝑠 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙 × 𝑏𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑣𝑜𝑙𝑢𝑚𝑒 Variation in inventories (in units’ term) 17 4. Then we have the same process for the direct labour: 𝒕𝒐𝒕𝒂𝒍 𝒉𝒐𝒖𝒓𝒔 𝒐𝒇 𝑫𝑴𝑳 𝒏𝒆𝒄𝒆𝒔𝒔𝒂𝒓𝒚 𝒇𝒐𝒓 𝒕𝒉𝒆 𝒑𝒓𝒐𝒅𝒖𝒄𝒕𝒊𝒐𝒏 𝒃𝒖𝒅𝒈𝒆𝒕 (𝒍𝒂𝒃𝒐𝒖𝒓 − 𝒉𝒐𝒖𝒓 𝒃𝒖𝒅𝒈𝒆𝒕) 𝒚𝒆𝒂𝒓𝒍𝒚 𝒉𝒐𝒖𝒓𝒔 𝒑𝒆𝒓 𝒎𝒂𝒏 We can obtain the Total hours of DML necessary in this way: 𝑝ℎ𝑦𝑠𝑖𝑐𝑎𝑙 𝑢𝑛𝑖𝑡 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝐷𝑀𝐿 × 𝑏𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛 We can obtain yearly hours per man in this way: 𝑐𝑎𝑙𝑒𝑛𝑑𝑎𝑟 ℎ𝑜𝑢𝑟𝑠 − 𝑣𝑎𝑐𝑎𝑡𝑖𝑜𝑛 ℎ𝑜𝑢𝑟𝑠 − 𝑓𝑒𝑠𝑡𝑖𝑣𝑖𝑡𝑦 ℎ𝑜𝑢𝑟𝑠 − 𝑎𝑏𝑠𝑒𝑛𝑡𝑒𝑒𝑖𝑠𝑚 ℎ𝑜𝑢𝑟𝑠 + 𝑜𝑣𝑒𝑟𝑡𝑖𝑚𝑒 ℎ𝑜𝑢𝑟𝑠 Staff Budget: In this area, the costs are not standard, but discretionary and/or bonded costs. Due to this reason, it is very difficult to plan this costs in an objective way. So, managers used to apply a wrong method, called incremental approach, in which managers extrapolate the future costs from the past, by adding or deducting a certain percentage. This method is not really useful, as it doesn’t allow managers to evaluate the efficiency and effectiveness of these areas and doesn’t correlate the costs with the results achieved. On the other hand, the Zero Based Budgeting (ZBB) should be preferred. This method doesn’t apply the incremental approach, but it imposes to the managers to start thinking from zero every year, considering the activities that must be carried out. Therefore, it is very important to make a deep analysis about the activities that are required in the different staff areas and the resources required for every activity, starting from the determination of the decisional units involved and the activities currently developed by them. Then every decisional unit should look for alternative ways to improve its activities or consider the possibility of eliminating those that are not necessary in order to achieve the company’s goals. Through incremental analysis, each unit determines the ranking list between activities, from the most to the less important, indicating beside to each activity, the resources required and the corresponding costs. Then, after having consolidated all the ranking lists of the different organizational units, the controller has to choose the level of activities to be developed, considering the financial resources available. In this way, the budget of the decisional units is made without considering the costs incurred by in the previous year. Lecture 6 - Budgeted funds flow statement: Chapter 4, slides 5 So far, we have calculated only the operating income, considering the operating costs. Now, we have to consider the non-operating area of the company and, in particular, the financial costs. Then, by deducting the income takes from the EBT, we will be able to calculate the net income. The financial interests are usually calculated by applying an interest rate i to the capital C taken into loan and multiplying it by the time. 𝐹𝐼 = 𝑖 × 𝐶 × 𝑡 Where t is the time (in man. acc. is equal to 1, because it is one year), so we can eliminate it; C is the amount of Capital that we need to support the various activities that we have predicted in the operational process; i is the interest.