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Introduction
1
2
Management Accounting II Introduction
Course outline Structure
Required text Books Readings
Assessment Read and questions
Expectations & course load Complete form
Moodle & Google Docs Course material Questions
http://www.youtube.com/watch?v=nq9SnHXIG00
Course outline Required text Assessment Yahoo groups QuestionsExpectations
3
Books
Required textbook: Horngren, Data and Foster. Cost Accounting, Fifteenth edition,
Pearson., 2014.
Reference book: O’Connor, N.G. The China Casebook on Operational Risk, Pearson,
2012.
Course outline Assessment Yahoo groups QuestionsExpectationsRequired text
4
VI. Assessment
Activity Marks Due date
Attendance &In-class group activities - 8% FOR COMMENTS on Videos
2+810 %
Week 2 to 12
Assignment 1 – Trade show interviews, presentation and report
5 + 15 + 2040 %
Week 9 & 10
Computer Simulation Exercise
Final exam 50 % Week 12
Course outline Required text Assessment Yahoo groups QuestionsExpectations
5
A Theory may be fantastic, but…
Time
Theory
Case study
Simulation
Real world experience
Lear
ning
exp
erie
nce
Intellectual understanding
WHAT
Operational Understanding
HOW
Course outline Required text Assessment Yahoo groups QuestionsExpectations
Target
http://nealeoconnor.com/cs1000/
• Learn real strategy• Support for China supplier 1000 projectct
• Clear mind about business strategies
Process Brief Interview with Team member Jacqualine https://www.youtube.com/watch?v=FleRsM6voQY 6 people each group 1-day-interview each group Interview 30 suppliers Present and Write Report on 3 suppliers Go to the expo in groups and go to different
sections if two groups are in the same trade show
Expo Information Register before 2 Groups per each selected day
No.Name of Exhibitions Date Venue
1 Global Sourcing – Home, Office, Auto, Security, Components 11-14, Apr, 2016 Asia World-Expo
2 HKTDC – Electronic fair 13-16, Apr, 2016Hong Kong Convention and Exhibition Centre
3 Global Sourcing – Smartphones, Tablets, Wearables, Accessories 18-21, Apr, 2016 Asia World-Expo
4 HKTDC – Houseware fair 20-23, Apr, 2016Hong Kong Convention and Exhibition Centre
5 Global Sourcing – Fashion sourcing for accessories, fabrics and apparel 27-30, Apr, 2016 Asia World-Expo
6 HKTDC – Gift & Premium fair 27-30, Apr, 2016 Hong Kong Convention and Exhibition Centre
(1) HKTDC Hong Kong Toys & Games Fair
Register: http://www.globalsources.com/trdshw/gsol/pex/en/bondat/jsp/comm
on/visreg.jsp?tsid=2808800036785&source=GSE_DSP_HK043&WT.mc_id=8009217
(2) HKTDC Hong Kong Baby Products Fair
Register: http://form.hktdc.com/UI_RegistrationSite/Registration/RegistrationForm.aspx?
FORMID=58c2f8c5-c7e7-42b0-8fa4-b1568b28c11a&BYPASS=YES&LANGID=1&URLEVENTNAME=Hong+Kong+Electronics+Fair+2016+(Spring&URLFORMNAME=Hong+Kong+Electronics+Fair+2016+(Spring&URLDATESCODE=00&BARCODETYPE=SEM
(3) Hong Kong International Stationery Fair
Register: http://www.globalsources.com/trdshw/gsol/pex/en/bondat/jsp/comm
on/visreg.jsp?tsid=2808800036785&source=GSE_DSP_HK043&WT.mc_id=8009217
(4) HKTDC Hong Kong Fashion Week for Fall/Winter
Register: http://form.hktdc.com/UI_RegistrationSite/Registration/RegistrationForm.aspx?
FORMID=f91bc728-81fa-4797-9d9a-05fd9e5baa23&BYPASS=YES&LANGID=1&URLEVENTNAME=HK+Houseware+Fair+2016&URLFORMNAME=Visitor+Pre-registration+(Sync+to+VMS)&URLDATESCODE=00&BARCODETYPE=SEM
The “Landwind” SUV was exported to Germany and showed disastrous results in a crash test
13
14
Google Drive Backup for storing MP3 files Post files for you to download
Moodle Ask Questions Answer Questions Get files
PPT WORD DOC
Course outline Required text Assessment Moodle/Google QuestionsExpectations
15
Questions
Handouts Course outline Case studies
Small group sheet – enter your English name
Subclass list Max 48 seats (8 groups of six)
Lecture – Chapter 4 and 5 Next week – Finalize presentation groups and how to present a case.
Course outline Required text Assessment Yahoo groups QuestionsExpectations
Basic cost systems (4,6,8) Cost flow assumptionsBasic cost concepts
(2) Cost accumulation
Cost Behavior (10)
Costing System Foundations
Management Accounting I
Costing System Applications
Average
LIFO
FIFO
Job Order Costing (4)
Activity-based Cost (5)
Process Costing (17)
Inventory Valuation (9) Decision Facilitating Decision Influencing
Normal
Standard
Throughput
Variable
Absorption
Pricing (11)
Product-Mix (11)
Cost Volume Profit Analysis (3)
Mastering Budgeting (6-8)
Actual
Ethics (1)
Expanded in Management Accounting II
26
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
Big Picture
Decision FacilitatingActivity – Based Decision Making
Decision InfluencingHow to control & implement strategy?
Management Accounting II
How to reduce costs?Value Engineering
Driver Analysis 12
Activity Analysis 12
Performance Measure12
How to improve decisions that add value?Decision Making (DM)
ServiceDepartmentProfitabilityResponsibility15
Balanced Scorecard13
Cost of Quality19
Delegation & Management Control Systems 22
Performance Measurement & Compensation23
Ethics (1)
27
Process Value Analysis (PVA)
Pricing14
Product- Mix14
Customer Profitability14
Supplier Profitability14
Product design14
Big PictureCost & Benefit Job Costing Activity-based Costing
Activity-based Management
28
Management Accounting Themes
● Cost MA - FASB● Flow assumptions● Accumulation - Object● Std - Timing● Behavior
● Strategic MA – GOALS● Goal congruence (Influencing)● On-time info● Accuracy● Learning● Selection Decisions (Facilitating)
Relevance
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
Decision FacilitatingHelping people to make decisions
Faster decisions (On time)More choices (Accurate)Feedback (Learning)
Decision InfluencingInfluencing peoples effort in making decisions
Focusing (Goal aligning/congruence)
Activity-based management Implementation Model
81
ABM Model
Systems Planning
Identify, Define, and Classify Activities
Reduce Costs
Improve Decisions
Increase Profitability
ABC
1. Continuous improvement (PVA) 2. Product design (eg complexity drivers)
3. Improved decision making 4. Accurate cost info (VCA)(ABC)
a. Products (MA1)b. Customers (eg setup drivers)c. Suppliers
PVA
Assess Value Content of Activities
Define Root Causes of Each Activity
Establish Activity Performance Measures
Search for Improvement Opportunities
Part 1 – Week 2 Part 2 – Week 3
Assign Resource Cost to Activities
Identify Cost Objects and Define Activity Drivers
Calculate Activity Rates
Assign Costs to Cost objects
Product design
Value engineering
Design analysis
Functional analysis
25
Week 1 Job Costing
Activity-Based Costing and Activity-Based Management
Lesson Plan
● OH Transparency – Learning objectives● Big picture and video● Big question for this week● Specific quantitative problem● Qualitative considerations
29
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
22
Learning Objective 1: Explain how broad averaging undercosts and overcosts products or services
Learning Objective 2: Present three guidelines for refining a costing system
Learning Objective 3: Distinguish between simple and activity-based costing systems
Learning Objective 4: Describe a four-part cost hierarchy
Learning Objective 5: Cost products or services using activity-based costing
Learning Objective 6: Evaluate the costs and benefits of implementing activity-based costing systems
Learning Objective 7: Explain how managers use activity-based costing systems in activity-based management
Learning Objective 8: Compare activity-based costing systems and department costing systems
Week 1: Learning objective summary
Cost Allocation Value Chain Analysis Sales Profitability Analysis
Big Picture – What is the purpose of costing?
● Surveys of company practice across the globe indicate that the majority of firms use costing systems for:
● Inventory costing● Strategic purposes
● Pricing● Product mix decisions● Decisions about cost reduction● Process improvement● Design● Planning and budgeting
● http://www.youtube.com/watch?v=nq9SnHXIG00
31
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
… and this is not a copy!
Chery QQ Chevrolet Spark
24
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
33
Big Picture – What is the purpose of costing?
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
From $200 to $649>$847
Subject to import duty, custom , VAT….
Profit Tax, Sales Tax, Income Tax….
Notes1. US price: US649 HK Price: HKD5588(USD716), China Sales : RMB5288 (USD847)1. China customer has to pay 20% more?? Why2. How much of US$649 go to TAX??
VAT - 17% for semiconductors
Doing Business with China and Chinese suppliers | 29
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
36
Big Picture – What is the purpose of costing?
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
New Product Development❖ Global competition increases cost and quality competition
❖ shortened the product life cycle Management recognizes that a high proportion of production costs are committed during the development and design stage of a new product.
❖ The requirement to control cost (particularly for firms facing price competition) encourages the use of target costing and activity-based management.
Significance – Increased cost of inaccuracy 39
Factors affecting cost management
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
38
Big Picture - What is this?
40
http://www.youtube.com/watch?v=nq9SnHXIG00
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
Decision FacilitatingActivity – Based Decision Making
Decision InfluencingHow to control & implement strategy?
Management Accounting II
How to reduce costs?Value Engineering
Driver Analysis 12
Activity Analysis 12
Performance Measure12
How to improve decisions that add value?Decision Making (DM)
ServiceDepartmentProfitabilityResponsibility15
Balanced Scorecard13
Cost of Quality19
Delegation & Management Control Systems 22
Performance Measurement & Compensation23
Ethics (1)
41
Process Value Analysis (PVA)
Pricing14
Product- Mix14
Customer Profitability14
Supplier Profitability14
Product design14
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
Big Picture
CHAPTER 5Activity-Based Costing
andActivity-Based Management
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
64
Broad Averaging
● Historically, firms produced a limited variety of goods while their indirect costs were relatively small.
● Allocating overhead costs was simple: use broad averages to allocate costs uniformly regardless of how they are actually incurred
● Peanut-butter Costing
● The end-result: over costing & undercoating
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
65
Over costing – a product consumes a low level of resources but is allocated high costs per unit
Undercoating – a product consumes a high level of resources but is allocated low costs per unit
Learning Objective 1:
Explain how broad averaging undercosts and overcosts products or services
…this problem arises when reported costs of products do not equal their actual costs
1
Cross-Subsidization
● The results of over costing one product and undercoating another.
● The over costed product absorbs too much cost, making it seem less
profitable than it really is
● The under costed product is left with too little cost, making it seem more
profitable than it really is
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
66
Rationale for selecting a more refined costing system(p. 179) – When?
● Increase in product diversity
● Increase in Indirect Costs
● Advances in information technology
● Competition in foreign markets
● Significant overhead costs allocated using one or two cost pools
● Most or all overhead is considered unit-level
● Products that consume different amounts of resources
● Products that a firm should successfully make and sell consistently show small profits
● Operations staff disagreeing with accounting over manufacturing and marketing costs
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
67
Learning Objective 2:
Present three guidelines for refining a costing system
…classifying more costs as direct costs, expand the number of indirect-cost pools, and indentify cost drivers
2
ABC vs. Simple Costing Schemes
● ABC is generally perceived to produce superior costing figures due to the
use of multiple drivers across multiple levels
● ABC is only as good as the drivers selected, and their actual relationship to
costs. Poorly chosen drivers will produce inaccurate costs, even with ABC
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
68
Learning Objective 3:
Distinguish between simple and activity-based costing systems
…unlike simple systems, ABC systems calculate costs of individual activities to cost products
3
Cost Hierarchies
● ABC uses a four-level cost structure to determine how far down the production cycle costs should be pushed:
● Unit-level (output-level) (e.g. distribution activity, molding machine operations)
● Batch-level (setups, shipment set up)
● Product-sustaining-level (e.g. design)
● Facility-sustaining-level (e.g. administration – not as necessary)
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
69
Learning Objective 4:
Describe a four-part cost hierarchy
…a four-part cost hierarchy is used to categorize costs based on different types of cost drivers- for example, costs that vary with each unit of a product versus costs that vary with each batch of products
4
Example: Plastim (p.184)
What does Plastim do?
http://www.youtube.com/watch?v=VHBHXSEL9Q0
What is the problem?Alternative supplier –
Competitior - Bandix bids $53 – which is below Plastim’s
$63 price
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
70
Learning Objective 5:
Cost products or services using activity-based costing
…use cost rates for different activities to compute indirect costs of a product
5
Plastim makes lenses for rear taillights of automobiles for Giovanni Motors
Example: Plastim & Simple Costing (Calculation)
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
71
Manufacturing CL5 lenses is more complex because various parts in the mold must align and fit precisely.
Budget Labor hrs – S3 = 30,000 hours, CL5 = 9,750 hoursIndirect allocation Rate = $60 per hour
Example: Plastim and ABC (Calculation)
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
72Total indirect costs under ABC = $2,115,000 – Direct costs = $270,000 (Direct Mold and Cleaning costs)
Example: Plastim and ABC Rate Calculation (Calculation)
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
Total indirect costs = $2,115,000 – Direct costs = $270,000 (Direct Mold and Cleaning costs) 73
Example: Plastim and ABC Product Costs (Calculation)
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
74
Plastim: Simple & ABC Compared (Analysis)
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
75
Conclusions
● Each method is mathematically correct & Each method is acceptable● Each method yields a different cost figure, which will lead to different Gross Margin
calculations
● Only Overhead is involved. Total Costs for the entire firm remain the same – they are just allocated to different cost objects within the firm
● Selection of the appropriate method and drivers should be based on experience, industry practices, as well as a cost-benefit analysis of each option under consideration
● A number of critical decisions can be made using this information;● Should one product be “pushed” over another?● Should one product be dropped?
● Accounting for overhead costs is an imprecise science. Accordingly, best efforts should be put forward to arrive at a cost that is fair and reasonable.
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
76
78
Learning Objective 6:
Evaluate the costs and benefits of implementing activity-based costing systems
…measurement difficulties versus more accurate costs that aid in decision making
6
Big Question For This WeekBackground
● Recall that Factory Overhead is applied to production in a rational
systematic manner, using some type of averaging. There are a variety of
methods to accomplish this goal.
● These methods often involve tradeoffs between simplicity and realism
Simple Methods Complex Methods Unrealistic Realistic
42
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
Low Accuracy High AccuracyOptimal Level
Measurement Cost
Cost
Error Cost
Total Cost
Trade-Off Between Measurement and Error Costs
Functional-based and activity-based Cost management systems
43
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
Activity-Based Management
● A method of management that used ABC as an integral part in critical decision-making situations, including:
● Pricing & product-mix decisions
● Cost reduction & process improvement decisions
● Design decisions
● Planning & managing activities
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
79
Learning Objective 6:
Explain how managers use activity-based costing systems in activity-based management. …such as pricing decisions, product-mix decisions, and cost reduction
7
52
8Learning Objective 8:
Compare activity-based costing systems and department costing systems …activity-based costing systems are a refinement of department costing systems into more-focused and homogenous cost pools
Activity-based management Implementation Model
81
ABM Model
Systems Planning
Identify, Define, and Classify Activities
Reduce Costs
Improve Decisions
Increase Profitability
ABC
1. Continuous improvement (PVA) 2. Product design (eg complexity drivers)
3. Improved decision making 4. Accurate cost info (VCA)(ABC)
a. Products (MA1)b. Customers (eg setup drivers)c. Suppliers
PVA
Assess Value Content of Activities
Define Root Causes of Each Activity
Establish Activity Performance Measures
Search for Improvement Opportunities
Part 1 – Week 2 Part 2 – Week 3
Assign Resource Cost to Activities
Identify Cost Objects and Define Activity Drivers
Calculate Activity Rates
Assign Costs to Cost objects
Product design
Value engineering
Design analysis
Functional analysis
Cost & Benefit Job Costing Activity-based CostingActivity-based Management
82
How to Fight Low Cost Rivals?
Activity-Based Management Value Engineering (PVA) Cost Plus PricingTarget CostingMarkets & Target Pricing
How to Fight Low Cost Rivals?
Seating density
Aircraft Utilization
Lower crew costs
Cheaper airports / landing fees
Single aircraft type
Minimal station costs
No in-flight catering
No agents commission
Reduced sales / reservation costs
Smaller administration
Product Function
Product Design
Manufacturing / Service Process
83
Activity-Based Management Value Engineering (PVA) Cost Plus PricingTarget CostingMarkets & Target Pricing
Decision FacilitatingActivity – Based Decision Making
Decision InfluencingHow to control & implement strategy?
Management Accounting II
How to reduce costs?Value Engineering
Driver Analysis 12
Activity Analysis 12
Performance Measure12
How to improve decisions that add value?Decision Making (DM)
ServiceDepartmentProfitabilityResponsibility15
Balanced Scorecard13
Cost of Quality19
Delegation & Management Control Systems 22
Performance Measurement & Compensation23
Ethics (1)
84
Process Value Analysis (PVA)
Pricing14
Product- Mix14
Customer Profitability14
Supplier Profitability14
Product design14
Big PictureCost & Benefit Job Costing Activity-based Costing
Activity-based Management
85
Summary
1. Cost accounting and provide value added information for operational and strategic decisions
2. There are costs and benefits associated with having a simple or complex costing system
3. Cost accounting can be used to aid control decisions – ie influencing people in the firm
Course outline Required text Assessment Yahoo groups QuestionsExpectations
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