Management Accounting Info System
Provides info to satisfy management objectives. Described by collecting, measuring, storying, analyzing, reporting, and managing info
Continuous Improvement
Ways to increase overall efficiency and productivity of activities by reducing waste, increasing quantity and reducing costs
Strategic decision making
Choosing among alternate strategies with the goal of selecting one or more strategies with a reasonable assurance of long term growth and survival
Planning
Detailed formulation of action to achieve a particular end.
Controlling
Monitoring a plan's implementation and taking corrective action as needed
Decision Making
Process of choosing among competing alternatives
Managerial Accounting
Internal users (managers) who plan, control, and make decisions
Financial accounting
External users and follows restrictive rules and regulations
Activity Based Management
System-wide, integrated approach that focuses on management's attention on activities with the objective of improving customer value and resulting profit
Customer Orientation
Customer value
Strategic positioning
Value chain framework
Cross functional perspective
Understand importance of value chain from manf. to marketing to dist. to customer service
Total Quality Management
Strive to create an environment that will enable workers to manufacture perfect (zero-defect) products, has replaced the “acceptable quality†attitude of the past
Line positions
positions that have direct responsibility for the basic objectives of an organization.
Staff positions
positions that are supportive in nature and have only indirect responsibility for an organization’s basic objectives.
Sarbanes-Oxley Act
Management accuracy of paperwork to public traded companies
Ethical Behavior
10 Core values: Honesty, integrity, promise keeping, fidelity, fairness, caring, respect, citizenship, pursuit of excellence, accountability
IMA Standards of conduct
Competence, Confidentiality, Integrity, Objectivity, Ability for conflict resolution
Certification signifies
Requirements met for education, experience, and passed a qualifying exam
CMA
Certified Management Accountant
CPA
Certified Public Accounting
CIA
Certified Internal Auditor
Cost
Amount of cash/cash equivalent sacrificed for goods and/or services expected to bring a current or future benefit
What is "Future Benefit" of a cost?
To generate REVENUE
Assets
Costs that provide future revenue earning potential
Expenses
Expired Costs - Amounts that provide no future revenue earning potential
Cost Object
any item for which costs are measured and assigned such as products, customers, departments, and regions
Direct Costs
Can easily and accurately traced to a cost object
Indirect Costs
Cannot be easily traced to a cost object
Traceability
ability to assign a cost to a cost object in an economically feasible way by means of a cause-and-effect relationship
Allocation
assigning indirect costs to cost objects based on convenience or some assumed linkage
Cost Assignment Trade-off
General: Inexpensive, Financial
Specific: Costly, Management
Tangible products
are goods produced by converting raw materials through the use of labor and capital inputs
Services
tasks or activities performed for a customer or an activity performed by a customer using an organization's products or facilities
Internal Value Chain
the set of all activities required to design, develop, produce, market, distribute, and service a product
Direct Materials
Materials that are a part of the final product and can be directly traced to the goods and services being produced
Direct Labor
Labor that can be directly traced to the goods or services being produced.
Manufacturer Overhead
Everything else: Indirect costs, facilities, equipment, supplies not part of the finished product
Prime Costs
D. Material & D. Labor
Conversion Costs
D. Labor and Manf. OHD
Product Costs
Carried in inventory until goods are sold
Period Costs
Expensed in period in which they are incurred or occurred: Selling and Admin costs
Absorption-costing (full costing)
Income computed by following functional classification
COGS
Cost of direct materials, labor, and overhead attached to units sold
Cost of Goods Manufactured
Represents the total cost of goods completed during the current period
Production (unit-level) drivers
Assigning costs using D. Matls, D. Labor, Machine hrs
Non unit level drivers
Other than production that describe cause and effect relationships
Operational Efficiency View
Managers responsible for controlling costs to derive operating efficiency
Activity based management system (ABM)
Cost view, operational efficiency view
Unit Costs (Equation)
(Total cost) / (# units produced)
Total Cost
Different costs for different purposes
Strategic profitability analysis
Uses all costs and revenues associated with product
Shortrun (tactical) profitability analysis
Production, marketing, distributing & servicing, esp. for special orders
External financial reporting
Uses only production costs
Actual costing
Assigns the actual costs of Direct materials, Direct Labor, and overhead to products
Normal Costing
Assigns actual costs of d.matls, d.labor, but OVERHEAD are estimated on a predetermined rate
Functional Based Management (FBM)
Control costs by assigning them to organizational units then holding the org unit mgr responsible for costs
Product Costing
D.Matls & labor assigned by DIRECT Tracing, Ohd: DRIVER tracing & alloc.
Predetermined rate (Equation)
Budgeted cost / Estimated activity usage
Unit Level Drivers (Production related drivers)
Assign manuf. overhead by UNITS produced, Direct labor hours, Machine hours
Expected Activity Capacity for FBC
Output for coming year
Normal activity capacity for FBC
Average activity experienced over long term
Theoretical activity capacity for FBC
Absolute max that can be achieved in a perfect world
Practical activity capacity for FBC
Max that can be achieved under efficient operation
Predetermined overhead rate (Equation)
Est. Annual Manf. OHD / Est. ann. alloc. base
Applied overhead (Equation)
Predetermined OHD rate * Act. Alloc. Base level
Applied overhead
Total overhead assigned to actual production at any point in time
Overhead variance
Difference between actual overhead and applied overhead
Underapplied (overapplied)
OHD is a variance that is added to (subtracted from) COGS
Plantwide Overhead Rate
Budgeted OHD accumulated in one pool, rate is computed using unit-level driver
Departmental OHD Rate
OHD divided up and assigned to departments, unit-based drivers used to compute rates
Non-unit-level Activity Drivers
factors that measure consumption of non-unit-level activities by product & can distort product costs
Activity Drivers
factors that measure the consumption of activities by product and other cost objects
Product diversity
Products consume overhead activities in systematically different proportions.
Consumption ratio (of product diversity)
Proportion of each activity consumed by a product
Activity-Based Costing (ABC) System
Traces costs to activities, then to products
Activity dictionary (of ABC)
Lists activities in an org along with some critical activity attributes
Activity attributes (of ABC)
Financial and Nonfinancial info that describe individual activities (Primary & Secondary)
Primary Activity (of Act. Attributes)
Activity consumed by product or customer
Secondary Activity (of Act. Attributes)
Activity consumed by other primary & secondary activities
Unit-level activities
Activities performed each time a unit is produced. (Packaging, inspections)
Batch-level activities
Performed each time a batch is handled or processed, regardless of how many units in the batch (shipment costs)
Product-level activities
Relate to specific products and typically must be carried out regardless of how many units/batches produced (engineering design, advertising)
Factory sustained activities
Carried out regardless of which products produced, or how many batches/units made (rent, dep)
How do you simplify ABC?
Reduce rates: Using consumption ratios, and approx. ABC
Activity Based Management (ABM)
Systemwide integrated approach that focuses mgt's attention on activities for improving customer value and profit
Cost dimension (of ABM)
Info on resources, activities, cost objects. OBJ: Improving accuracy of cost assignments
Process Dimension (of ABM)
Info on What, Why and How well act are performed. OBJ: Cost reduction
What are ABM objectives?
Improving decision making with accurate cost info, and reducing costs through Con't Improvement
Responsibility accounting (of ABM)
Fundamental tool of Managerial Accounting control : 3 ways to assign responsibility and measure performance (Fin based system, Act based sys, Strategic based sys)
Financial Based Systems
Responsibilities to ORGANIZATIONAL UNITS. Measures exclusively in financial terms
Activity Based Systems
Assigns responsibilities to processes. Uses Financial and Non-Fin. measures of perf
Process improvement (processed based sys)
Incremental and constant increases in efficiency of existing process
Process innovation (of process. based sys), aka Business Reengineering
Performance of a process in a radically new way in objective of achieving dramatic improvement in response time, quality, and eff
Process creation (of process. based sys)
Installation of an entirely new process with the Obj of meeting customer/fin objectives
Process Value Analysis (PVA in Act based respons. acc)
Focuses on Accountability rather than costs, MAX of system performance, concerned with driver analysis, activity analysis, activity perf. measuremt
Driver analysis
Effort to identify factors that are the ROOT CAUSES of activity costs
Activity inputs (of Driver Analysis)
Resources consumed by activity in producing its output
Activity input (of driver analysis)
Result or product of an activity
Activity output measure (of Driver Analysis)
Number of times activity is performed
Root Causes (of driver analysis)
Most basic causes for activity being performed
Activity Analysis
Process of identifying, describing, and evaluating activities that an org. performs
Activity Analysis Outcomes
Breakdown of activities: NVA vs. VA activities
Value-Added Activities
Necessary to remain in business: Mandatory to comply with laws, discretionary
Non-Value-Added Activities
UNnecessary: Scheduling, moving, waiting, inspecting, storing
Value added costs
Costs to perform VA activities with perfect efficiency
Non-value added costs
Costs caused by NVA activities or by inefficient performance of VA activities
Kaizen costing
Effort to reduce costs of existing products & processes
Activity elimination (Kaizen)
Eliminate NVA by determining root cost and making changes so causes don't exist
Activity selection (Kaizen)
Choosing activities that enhance overall production process and/or efficiency
Activity reduction (Kaizen)
Reducing time/resources required by improving their efficiency or limiting necessity
Activity Sharing (Kaizen)
Obtaining production efficiencies by utilizing common activities across production processes
Activity Performance Measurement
Assessing how well an activity was performed and results achieved using both financial & non fin measures
Efficiency (of Activity Performing Measurement)
Relationship of activity inputs & outputs
Quality (of Activity perf measurement)
Doing it right the first time
Time (of Activity performance measurement)
Shortening activity time
Kaizen's TWO subcycles
Kaizen Cycle, Maintenance cycle
Kaizen Cycle
Plan, Do, Check, Act
Maintenance Cycle
Standard, Do, Check Act . Standard is to lock in prior improvements
Kaizen Standard
Reflects planned improvement for the upcoming period
Standard (of Maintenance Cycle)
Set to lock in prior improvements
Benchmarking (of Act. perf)
Uses "best practices" as the standard for evaluating activity performance with goal of becoming the best at performing activities and processes
Activity Capacity
Number of times an activity can be performed. Determined on the expected use of relevant activity driver
Activity capacity cost
Cost of materials and labor necessary to provide activity capacity
Activity Volume Variance (of ActCapMgt)
Difference between actual activity level acquired and value-added standard quantity of activity that should be used
Unused Capacity Variance (of ActCapMgt)
Difference between activity availability and activity usage
