ACCT1501 Lecture Notes - Lecture 9: Management Accounting, Finished Good, External Auditor
ACCT1501 – Mgmt Accounting Kristy
Management Accounting
- provision of information to all levels of management- internal (more forward looking), add value to
stakeholders
- assist management to carry out functions: planning, directing, motivating, controlling responsibilities
- manufacturing organisations produce goods by converting raw materials into physical product- hold 3 types of
inventory: raw materials, work in progress, finished goods inventories
→
COGS
- merchandising organisations buy goods already made (my manufacturers) and then sell them on to
consumers or to other merchandising orgs (retailers+wholesalers) (ready for sale)
- service organisations: manufac/merch- intangible rather than tangible (no inventory)- admin and
selling/marketing costs
Management Accounting System (MAS)
- supporting management activities
- costing- cost management system
- budgeting system
- performance measurement system (PMS)
- strategic and tactical decisions
- TQM: comprehensive management philosophy, focus is not just on defective products (cts improvement)
- flexible workforce, reduced set-up times, aim for zero-defects, improved plant layout, reliable suppliers
- benefits: reduced inventory costs, less warehouse space, greater customer satisfaction, higher quality products,
reduced rework costs
find more resources at oneclass.com
find more resources at oneclass.com
ACCT1501 – Mgmt Accounting Kristy
- Performance assessed across all four dimensions
- Measures are both quantitative and qualitative
- Measures are both backward and forward looking
- Mgmt. accounting doesn’t necessarily need to be audited by external auditor
common MC:
Basic cost concepts:
- Cost: cash or cash equivalent value sacrificed for g&s that are expected to bring a current or fut benefit to the
organisation
- COST
o Value sacrificed for g&s that are expected to bring a current/fut benefit (revenue) to the org
o Incurred to produce fut benefits
o As costs are used up in the production → expire
o Expired costs → expenses
o Unexpired costs → assets
- SUNK COST (main difference is timing)
o Has been paid and irretrievable and cannot be changed
- Differential cost- cost associated w different ways an organisation may achieve the same account
- Controllable costs- heavily influenced by a manager vs. non-controllable costs
- Direct: costs that can be traced to a cost object, in a convenient and cost-effective way
- Indirect: costs that are common to several cost objects (not directly traceable to any one particular cost obj)
- Allocate on percentage of production to factory- traceability depends on point of reference
o Decision making + performance evaluation
find more resources at oneclass.com
find more resources at oneclass.com
ACCT1501 – Mgmt Accounting Kristy
Functional classification of cost
- Relates to the way an organisation sets out its income statement
- Cost related to inventory/manufac → componenets of the COGS vs. admin (not COGS)- non-manufac cost
SG&A
- Manufacturing costs- costs incurred in process of converting raw materials into finished goods (D/ID)
Direct Manufacturing:
- Direct manufacturing costs: manufacturing costs directly traceable to product being converted from raw
materials into finished good
o Cost of raw materials (direct materials)
o Cost of labour (convert raw materials to finished product- direct labour)
Indirect:
- Indirect manufacturing costs: common to all products and cannot be economically and conveniently
associated w a particular cost object (ie manufacturing overhead)
- Depreciation on PPE, maintenance, supervision, material handling, utilities,
o indirect materials (necessary for production but not part of finished product + raw materials that form
insignificant part of finished)
o indirect labour
Non-manufacturing
- selling (marketing) and administrative costs
- Allocated to a cost object
Total manufacturing cost = DM + DL + OH
Cost concepts
- Period costs: expensed in period they occur (eg advertising, salaries)
- Product costs: manufacturing cost that are first inventories and later expensed as the goods are sold
o Expenses are capitalised- direct materials, direct labour, overhead
- Prime costs = direct materials + direct labour
- Conversion costs = direct labour + overhead (incurred in transformation of direct material into finished
product)
Financial Statements and the Functional Classification M1.10
Cost flows in a manufacturing organisation
- Absorption-costing profit: expenses (COGS+ operating) segregated according to function and then deducted
from revenues → profit before taxes
o COGS: beginning finished g inventory + COGS manufactured – ending finished g inventory = gross
profit – operating expenses (SGA) = profit before tax
o Costs of g manufactured- total cost of goods completed during period
- COGS = DM + DL + OH
- Work in progress: consists of all partially completed units found in production at a given PiT: beginning WiP
(manufacturing costs carried over from prior period)
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Kristy provision of information to all levels of management- internal (more forward looking), add value to stakeholders assist management to carry out functions: planning, directing, motivating, controlling responsibilities. Manufacturing organisations produce goods by converting raw materials into physical product- hold 3 types of inventory: raw materials, work in progress, finished goods inventories cogs. Merchandising organisations buy goods already made (my manufacturers) and then sell them on to consumers or to other merchandising orgs (retailers+wholesalers) (ready for sale) service organisations: manufac/merch- intangible rather than tangible (no inventory)- admin and selling/marketing costs. Management accounting system (mas) supporting management activities costing- cost management system budgeting system performance measurement system (pms) strategic and tactical decisions. Tqm: comprehensive management philosophy, focus is not just on defective products (cts improvement) Flexible workforce, reduced set-up times, aim for zero-defects, improved plant layout, reliable suppliers. Benefits: reduced inventory costs, less warehouse space, greater customer satisfaction, higher quality products, reduced rework costs. Measures are both backward and forward looking.
