Contents

 

Check the availability and buy your books from our Bookshop. Contact us here Online Business School  for the delivery and management of your own existing or the customised versions of our programmes for in-class or global distance learning.  Teaching and Research Skills     Content and Language Integrated Learning Educational Leadership and Planning for Technology Educational Research Open and Distance Learning Tutorials Psychology Applied to Teaching Student Motivation and Active Leaning Teacher Training Teacher's Page for Business Studies Teacher's Page for Modern Languages Teaching Business Administration Teaching Careers Task-based language learning (TBLL)   For further information Curriculum and Learning Contents Learning Material and Environment Terms and Conditions Privacy Policy Products and Services   The Bookshop Today's Videos Playlist Loading

Rationale Learning Outcomes Teaching and Learning Resources The Changing Role of Managerial Accounting Cost Management Concepts Alternatives in Conventional Costing Systems Budgeting: profit planning and control Standard Costing and Performance Measures Allocation of Support Activity Costs Financial performance measures Pricing Decisions Decision Making: Costs and Benefits, Capital Expenditure Managing Inventory, Quality and Strategy   Related Workshops Cost Management - Accounting and Control Managerial Decision Making Strategios   Learner Support Career Direction Graduate Services International Student Services Study Abroad Management of Learning Online Libraries Study Skills   Recommended Texts Resources Assignments, Assessments Assessment Regulations   Learning Centres Economics Centre Education, Staff Development and Teacher Training Centre Entrepreneur Centre Financial Centre Foundation Study Centre Higher Qualifications Centre HR Centre IT Centre Language Centre Management and Leadership Development Centre Management Centre Marketing Centre MBA Centre Postgraduate Centre Research Centre Undergraduate Centre

 

Management Accounting

Rationale

Management accounting or managerial accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis to make informed business decisions that will allow them to be better equipped in their management and control functions.

In contrast to financial accountancy information, management accounting information is:

1. designed and intended for use by managers within the organization, instead of being intended for use by shareholders, creditors, and public regulators;

2. usually confidential and used by management, instead of publicly reported;

3. forward-looking, instead of historical;

4. computed by reference to the needs of managers, often using management information systems, instead of by reference to general financial accounting standards.

 

• Definition
• Traditional vs. innovative practices
• Role within a corporation
  • An alternative view
• Specific concepts
  • Cost accounting
  • Grenzplankostenrechnung (GPK)
  • Lean accounting (accounting for lean enterprise)
  • Resource consumption accounting (RCA)
  • Throughput accounting
  • Transfer pricing
• Resources and continuous learning
• Management accounting tasks/ services provided
• Related qualifications
• Methods

 

See also

• Differences between managerial accounting and financial accounting
• Managerial risk accounting
• IT Cost Transparency
• References

 

External links

• CAM-I Consortium for Advanced Manufacturing–International
• The Institute of cost and works Accountants of India
• AICPA Financial Management Center - Resource for CPAs working in business, industry and government.
• Institute of Management Accountants - Resource for Management accountants (CMA's) working in industry.
• Chartered Institute of Management Accountants - UK Chartered Institute of Management
• Aether-Iroha - Management Accountancy
• Accounting Homework Help & Finance Homework Help, Marketing Homework Help, Statistics Economics SPSS Homework Help
• Article: What's Lean Accounting All About?

 

 

Today's Videos

• Connect with us on http://www.youtube.com/finntrack
• Google's Playlists

 

Teaching and Learning Resources

• Learning Environment
• Learning Contents
• Teaching Strategies

Click on titles

 

The Changing Role of Managerial Accounting in a Dynamic Business Environment

 

Tutorials

• The Changing Role of Managerial Accounting in a Dynamic Business Environment
• Management Accounting: Information for Contemporary Managers
• Management Accounting: Basic terms and Concepts

 

Readings

 

Cost Accounting is the process of tracking, recording and analyzing costs associated with the products or activities of an organization. In modern accounting, costs are measured in accordance with Generally Accepted Accounting Principles (GAAP). GAAP reporting records historical events and assigns a monetary value to each event that has taken place. Costs are measured in units of currency by convention. Cost accounting could also be defined as a kind of management accounting that translates the Supply Chain (the series of events in the production process that, in concert, result in a product) into financial values. Managers use cost accounting to support decision making to reduce a company's costs and improve its profitability.

There are at least four approaches:

• Standard Cost Accounting
• Activity-based Costing
• Throughput Accounting
• Marginal Costing

 

 

Cost Management Concepts

 

Tutorials

• Basic Cost Management Concepts and Accounting for Mass Customization Operations
• Cost drivers, cost behaviour and cost estimation
• Product costing systems: general principles and job costing
• Product Costing and Cost Accumulation in a Batch Production Environment
• Process costing
• Process Costing and Hybrid Product-Costing Systems

 

Readings

Cost Management is the process whereby companies use cost accounting to report or control the various costs of doing business.

 

The term cost management is widely used in business today. Unfortunately cost management has no uniform definition. Cost management generally describes the approaches and activities of managers in short run and long run planning and control decisions that increase value for customers and lower costs of products and services. For example, managers make decisions regarding the amount and kind of material being used, changes of plant processes, and changes in product designs. Information from accounting systems helps managers make such decisions, but the information and the accounting systems themselves are not cost management. Cost management has a broad focus. It includes – but is not confined to – the continuous control of costs. The planning and control of costs is usually inextricably linked with revenue and profit planning. For instance, to enhance revenues and profits, managers often deliberately incur additional costs for advertising and product modifications. Cost management is not practiced in isolation. It is an integral part of general management strategies and their implementation. Examples include programs that enhance customer satisfaction and quality as well as programs that promote new product development. Many cost management concepts are inevitably intertwined with manufacturing and production concepts, such as lean accounting, value chain analysis, throughput accounting, theory of constraints, etc.

 

Process Costing traces and accumulates direct costs, and allocates indirect costs, through a manufacturing process. Costs are assigned to products, usually in a large batch, which might include an entire month's production. Eventually, costs have to be allocated to individual units of product. Alternatively, Job costing can be used to track the flow of costs.

Process costing is a type of operation costing which is used to ascertain the cost of a product at each process or stage of manufacture. CIMA defines process costing as "The costing method applicable where goods or services result from a sequence of continuous or repetitive operations or processes. Costs are averaged over the units produced during the period". Process costing is suitable for industries producing homogeneous products and where production is a continuous flow. A process can be referrwed to as the sub-unit of an organization specifically definde for cost collection purpose.

Reasons for Use

Companies need to allocate total product costs to units of product for the following reasons:

1. A company may manufacture thousands or millions of units of product in a given period of time.

2. Products are manufactured in large quantities, but products may be sold in small quantities, sometimes one at a time (automobiles, loaves of bread), a dozen or two at a time (eggs, cookies), etc.

3, Product costs must be transferred from Finished Goods to Cost of Goods Sold as sales are made. This requires a correct and accurate accounting of product costs per unit, to have a proper matching of product costs against related sales revenue. *Managers need to maintain cost control over the manufacturing process. Process costing provides managers with feedback that can be used to compare similar product costs from one month to the next, keeping costs in line with projected manufacturing budgets.

4. A fraction-of-a-cent cost change can represent a large dollar change in overall profitability, when selling millions of units of product a month. Managers must carefully watch per unit costs on a daily basis through the production process, while at the same time dealing with materials and output in huge quantities.

5. Materials part way through a process (e.g. chemicals) might need to be given a value, process costing allows for this. By determining what cost the part processed material has incurred such as labour or overhead an "equivalent unit" relative to the value of a finished process can be calculated.

 

 

Alternatives in Conventional Costing Systems

 

Tutorials

• A closer look at overhead costs
• Understand the alternatives in conventional costing systems
• Activity-based costing
• Activity-Based Costing and Cost Management Systems
• Activity-Based Management and Today's Advanced Manufacturing Environment
• Activity Analysis, Cost Behavior, and Cost Estimation

 

Readings

In a business organization, Activity-based costing (ABC) is a method of allocating costs to products and services. It is generally used as a tool for planning and control. This is a necessary tool for doing value chain analysis.

 

 

• Historical development
• Methodology
• Limitations
• References

 

External links

• Who Wins in a Dynamic World: Theory of Constraints Vs. Activity-Based Costing? article on SSRN
• Activity Based Costing - Global Community Portal - not currently active (as of 6/13/07)
• Activity Based Costing case studies

 

 

 

Budgeting: profit planning and control

 

Tutorials

• Cost-Volume-Profit Analysis
• Budgeting: profit planning and control
• Contemporary cost management
• Profit Planning, Activity-Based Budgeting, and e-Budgeting

 

Readings

Budget (from french bougette) generally refers to a list of all planned expenses and revenues. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods. In other terms, a budget is an organizational plan stated in monetary terms.

 

 

• Personal or family budget
• Government budget
  • Union Budget in India
• Corporate budget
• Budget for a non-profit

 

See also

• Personal finance
• Deficit
• Budget theory
• Budget surplus
• Budget crisis
• Budget overrun
• Chancellor of the Exchequer (UK budget)
• United States budget process
• Canadian federal budget
• Union budget of India
• Government financial reports
• Variance analysis (accounting)

 

 

Standard Costing and Performance Measures for Today's Manufacturing Environment

 

Tutorials

• Standard Costing and Performance Measures for Today's Manufacturing Environment
• Standard costs for control: direct material and direct labour
• Standard costs for control: flexible budgets and manufacturing overhead

 

Readings

Performance measurement is the use of statistical evidence to determine progress toward specific defined organizational objectives.

There are many types of measurements. In school, exams are graded to establish the academic abilities; in sports, time is clocked in split seconds to verify the athletic abilities. Similarly in teams and organisations, there are various tools and measurements to determine how well it performs.

However, the daunting task of measuring performance for organisations across industries and eras, declaring the top performers, and finding the common drivers of their success did not occur to anyone until around 1982, when Tom Peters and Bob Waterman got down to work researching and writing In Search of Excellence. This publishing sensation challenged industrial managers’ actions and attitudes, and inspired researchers and scholars to further pursue the theory of high performance – the holy grail of any competitive business organisation.

Several performance measurement systems are in use today, and each has its own group of supporters. For example, the Balanced Scorecard (Kaplan and Norton, 1993, 1996, 2001), Performance Prism (Neely, 2002), and the Cambridge Performance Measurement Process (Neely, 1996) are designed for business-wide implementation; and the approaches of the TPM Process (Jones and Schilling, 2000), 7-step TPM Process (Zigon, 1999), and Total Measurement Development Method (TMDM) (Tarkenton Productivity Group, 2000) are specific for team-based structures. With continued research efforts and the test of time, the best-of-breed theories that help organisations structure and implement its performance measurement system should emerge.

Although the Balanced Scorecard has become very popular, there is no single version of the model that has been universally accepted. The diversity and unique requirements of different enterprises suggest that no one-size-fits-all approach will ever do the job.

 

Purposes Control and Oversight of Progress Recognise and reward performers Encourage and improve non-performers Challenges in Performance Measurement Diversity of organisations and professionals Intangible and non-financial measurements Change management practises Performance Measurement Guidelines Process Improvement Employee Involvement Reportable Forward Looking Optimisation Realistic Management Commitment References   External links http://www.performance-measurement.net/ http://www.referenceforbusiness.com/

 

In 1992, Robert S. Kaplan and David Norton introduced the Balanced Scorecard, a concept for measuring a company's activities in terms of its vision and strategies, to give managers a comprehensive view of the performance of a business. The key new element is focusing not only on financial outcomes but also on the human issues that drive those outcomes, so that organizations focus on the future and act in their long-term best interest. The strategic management system forces managers to focus on the important performance metrics that drive success. It balances a financial perspective with customer, process, and employee perspectives. Measures are often indicators of future performance.

Since the original concept was introduced, balanced scorecards have become a fertile field of theory and research, and many practitioners have diverted from the original Kaplan & Norton articles. Kaplan & Norton themselves revisited the scorecard with the benefit of a decade's experience since the original article.

Implementing the scorecard typically includes four processes:

1. Translating the vision into operational goals;
2. Communicate the vision and link it to individual performance;
3. Business planning;
4. Feedback and learning and adjusting the strategy accordingly.

 

 

• A comprehensive view of business performance
• Actual usage of the balanced scorecard
• Comparison to Applied Information Economics
• Key performance indicators

 

See also

• Applied Information Economics
• Digital dashboard, also known as business dashboard, enterprise dashboard or executivedashboard
• Key performance indicators
• Performance management
• Strategic management
• Strategy map
• References
• Software tools

 

External links

 

 

Allocation of Support Activity Costs

 

Tutorials

• Allocation of Support Activity Costs and Joint Costs
• Flexible Budgeting and the Management of Overhead and Support Activity Costs
• Absorption, Variable and Throughput Costing

 

Readings

Total absorption costing (TAC) is a method of Accounting cost which entails the full cost of manufacturing or providing a service. This includes not just the costs of materials and labour, but also of all manufacturing overheads (whether ‘fixed’ or ‘variable’).

Traditional TAC was developed in the age of manufacturing and mostly used to arrive at the full manufacturing cost of producing goods; an alternative method of arriving at full cost known as activity-based costing (ABC) is often thought to be more appropriate for services.

 

 

 

Financial performance measures

 

Tutorials

• Financial performance measures and transfer pricing
  
• Contemporary approaches to measuring and rewarding performance
• Responsibility Accounting and Total Quality Management

 

Readings

 

 

Adopting Public Sector’s Performance Based Budgeting to the private sector using the CPM framework.

• Introduction
• Performance-Based Budgeting (PBB)
• Achieving PBB
• The way to CPM and PBB
• References

 

 

Pricing Decisions

 

Tutorials

• Investment Centers and Transfer Pricing
• Target Costing and Cost Analysis for Pricing Decisions
• Pricing and product mix decisions

 

Readings

Pricing is one of the four p's of the marketing mix. The other three aspects are product management, promotion, and place. It is also a key variable in microeconomic price allocation theory.

 

 

Pricing is the manual or automatic process of applying prices to purchase and sales orders, based on factors such as: a fixed amount, quantity break, promotion or sales campaign, specific vendor quote, price prevailing on entry, shipment or invoice date, combination of multiple orders or lines, and many others. Automated systems require more setup and maintenance but may prevent pricing errors.

The traditional cost approach, i.e.'cost plus pricing' is inappropriate for today's liberalized environment. In traditional cost system,material, labour and overhead costs are measured and a desired profit is added to determine the selling price. The need has arisen to apply the technique named as target costing which has been widely used by Japanese firms since 1970s and which has recently received a considerable attention in the U.S.A. and European accounting literature. Target Costing is defined as "a cost management tool for reducing the overall cost of a product over its entire life-cycle with the help of production, engineering, research and design." A target cost is the maximum amount of cost that can be incurred on a product and with it the firm can still earn the required profit margin from that product. It is that estimated cost which enables a firm to remain and compete in the market in the very long-run.

 

Questions involved in pricing What a price should do Definitions of Pricing   See also Product life cycle management Price elasticity of demand Time based pricing Suggested retail price Purchasing power Psychological pricing Market-Adaptive Pricing

Marketing Key concepts Product / Price / Promotion Placement / Service / Retail Marketing research Marketing strategy Marketing management Promotional content Advertising / Branding Direct marketing / Personal Sales Product placement / Public relations Publicity / Sales promotion Underwriting Promotional media Printing / Publication / Broadcasting Out-of-home / Internet marketing Point of sale / Novelty items Digital marketing / In-game Word of mouth

 

Transfer Pricing refers to the pricing of goods and services within a multi-divisional organization, particularly in regard to cross-border transactions. For example, goods from the production division may be sold to the marketing division, or goods from a parent company may be sold to a foreign subsidiary, with the choice of the transfer price affecting the division of the total profit among the parts of the company. This has led to the rise of transfer pricing regulations as governments seek to stem the flow of taxation revenue overseas, making the issue one of great importance for multinational corporations.

 

 

• Economic theory
• Practical application
  • Role of administrative regulations and guidelines
  • Application of the Arm's Length Principle
    • Traditional methods
      • Comparable Uncontrolled Price method
      • Cost Plus method
      • Resale Price method
    • Non-traditional methods
  • APA
  • Mutual agreement procedures

 

See also

• Transparency (market)
• Multinational corporation
• International taxation
• Double taxation

 

Methods of pricing:

• Negotiated transfer pricing
• Market-based pricing
• Cost-based pricing
• Full cost pricing
• Variable cost pricing
• Performance appraisal

 

External Links

• OECD transfer pricing resources
  
• IRS transfer pricing documentation
  
• US State and International Transfer Pricing Website
• KPMG's Transfer Pricing Guide (8th Edition)
• Ernst & Young's Transfer Pricing Global Reference Guide
• Deloitte Touche Tohmatsu's Strategy Matrix for Global Transfer Pricing
• U.S. transfer pricing laws, regulations and news portal site

 

 

Decision Making: Costs and Benefits, Capital Expenditure

 

Tutorials

• Decision Making: Relevant Costs and Benefits
• Capital Expenditure Decisions: An Introduction
• Further Aspects of Capital Expenditure Decisions

 

Readings

Capital Expenditures (CAPEX or capex) are expenditures creating future benefits. Capex are used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings. In accounting, a capital expenditure is added to an asset account ("capitalized"), thus increasing the asset's basis (the cost or value of an asset as adjusted for tax purposes). Capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset.

 

Included in such amounts is spending on:

1. acquiring fixed assets
2. bringing them into business
3. legal costs of buying buildings
4. carriage inwards on machinery bought
5. any other cost needed for a fixed asset ready for use.

 

An ongoing question of the accounting of any company is whether certain expenses should be capitalized or expensed. Costs that are expensed in a particular month simply appear on the financial statement as a cost that was incurred that month. Costs that are capitalized, however, are amortized over multiple years. Capitalized expenditures show up on the balance sheet. Most ordinary business expenses are clearly either expensable or capitalizable, but some expenses could be treated either way, according to the preference of the company.

The counterpart of capital expenditure is operational expenditure ("OpEx").

See also

• Operational expenditure (OPEX)
• Cash flow statement
• Income statement
• Balance Sheet
• Expense
• Amortization/Depreciation
• Gross fixed capital formation

 

External links

• Capital Expenditure — CAPEX

 

Workshop

• Managerial Decision Making

 

 

Managing Inventory, Quality and Strategy

 

Tutorials

• Managing inventory and quality
• Strategic management accounting, and the future
  

 

Readings

Inventory is a list of goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that manufacture/supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials.

 

Business inventory The reasons for keeping stock Special terms used in dealing with inventory Inventory examples Manufacturing Logistics or distribution Accounting perspectives The basis of Inventory accounting Accounting for Inventory Financial accounting The role of a cost accountant on the 21st-century in a manufacturing organization FIFO vs. LIFO accounting Standard cost accounting Theory of constraints cost accounting National accounts References   See also Manufacturing Purchasing Distribution Logistics, Transportation Just in time Vendor-managed inventory Wholesaling Retailing Stock management New old stock Consignment stock Distressed inventory Accounting Cost accounting Throughput accounting Eliyahu M. Goldratt List of theory of constraints topics Economic order quantity Operations research

 

 

 

 

Recommended Text

Managerial Accounting: Creating Value in a Dynamic Business Environment, 5/e Ronald W. Hilton Check the availability and buy your books from our Bookshop.

 

Management Accounting, An Australian Pespective Check the availability and buy your books from our Bookshop.

 

 

Resources

 

 

 

 

 

 

 

 

Case Studies

• Airbus Industrie
• Amazon.com
• Ben and Jerry's
• Coca-Cola
• Dell Computer
• Ford Motor Company
• Intel Corporation
• Levi Strauss

 

 

 

 

Copyright © 2011 Finntrack Ltd

Learning Contents | Terms | Privacy