Ppt slides for cost accounting t2 w1 2016 0329arthur

Introduction

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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




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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

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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


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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


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

https://www.youtube.com/watch?v=FleRsM6voQY

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

http://www.globalsources.com/trdshw/gsol/pex/en/bondat/jsp/common/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

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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

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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.


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

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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)

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Process Value Analysis (PVA)

Pricing14

Product- Mix14

Customer Profitability14

Supplier Profitability14

Product design14

Big PictureCost & Benefit Job Costing Activity-based Costing

Activity-based Management

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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


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

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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

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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

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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

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http://www.youtube.com/watch?v=VHBHXSEL9Q0











… and this is not a copy!

Chery QQ Chevrolet Spark

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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


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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


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Big Picture - What is this?

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Driver Analysis 12






Cost of Quality19



Ethics (1)

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Pricing14

Product- Mix14



Product design14


Big Picture

CHAPTER 5Activity-Based Costing

andActivity-Based Management


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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


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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

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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


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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


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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

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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


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Distinguish between simple and activity-based costing systems

…unlike simple systems, ABC systems calculate costs of individual activities to cost products

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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)


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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

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Example: Plastim (p.184)

What does Plastim do?


What is the problem?Alternative supplier –

Competitior - Bandix bids $53 – which is below Plastim’s

$63 price


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Cost products or services using activity-based costing

…use cost rates for different activities to compute indirect costs of a product

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Plastim makes lenses for rear taillights of automobiles for Giovanni Motors




Example: Plastim & Simple Costing (Calculation)


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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)


72Total indirect costs under ABC = $2,115,000 – Direct costs = $270,000 (Direct Mold and Cleaning costs)

Example: Plastim and ABC Rate Calculation (Calculation)


Total indirect costs = $2,115,000 – Direct costs = $270,000 (Direct Mold and Cleaning costs) 73

Example: Plastim and ABC Product Costs (Calculation)


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Plastim: Simple & ABC Compared (Analysis)


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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.


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Evaluate the costs and benefits of implementing activity-based costing systems

…measurement difficulties versus more accurate costs that aid in decision making

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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

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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

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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


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Explain how managers use activity-based costing systems in activity-based management. …such as pricing decisions, product-mix decisions, and cost reduction

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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

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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


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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

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Activity-Based Management Value Engineering (PVA) Cost Plus PricingTarget CostingMarkets & Target Pricing





Driver Analysis 12






Cost of Quality19



Ethics (1)

84


Pricing14

Product- Mix14



Product design14

Big PictureCost & Benefit Job Costing Activity-based Costing

Activity-based Management

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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


Education

Ppt slides for cost accounting t2 w1 2016 0329arthur