This course introduces students to the role of management accounting, as distinct from financial accounting, in the decision-making process. Major topics of the document include: the determination of the costs of products and services, cost behaviour, relevant costs, standard costs, budgeting, resp...
MANAGERIAL ACCOUNTING
There will be 11 quizzes, 9 will be scored: 5% of weight
Ch.1 – Managerial Accounting & the Business Environment
Comparison of Financial and Managerial Accounting
Managerial Acc.: future-oriented, non-mandatory,
for managers.
It primarily concerns providing information to people
inside an organization who direct and control its
operations.
Financial Accounting: it primarily concerns providing information to shareholders, creditors, and others who are
outside an organization.
Work of Management
Every organization has managers who perform several major activities (manager-oriented) such as:
- Planning
- Controlling
- Directing and Motivating
- Decision making
Planning
It involves establishing goals and specifying how to achieve them.
- Identify alternatives,
- Select an alternative that does the best job of furthering the organization's objectives,
- Develop budgets to guide progress toward the selected alternative = a detailed plan for the future that is usually
expressed in formal quantitative terms.
Directing and Motivating
Directing and motivating involves managing day-to-day activities to keep the organization running smoothly.
- Employee work assignments
- Routine problem solving
- Conflict resolution
- Effective communications
Controlling
The control function ensures that plans are being followed or modified as circumstances change, by gathering
feedback → Feedback in the form of performance reports that compare actual results with the budget on a periodic
basis are an essential part of the control function.
Decision making
It involves selecting a course of action from competing alternatives.
The most basic managerial skill is the ability to make intelligent, data-driven decisions.
Many of these decisions revolve around the following 3 questions:
- What should we be selling?
- Who should we be serving?
- How should we execute?
,Big Data
o Companies are now making decisions using analytical approaches that employ extensive amounts of data from a
variety of sources.
o It is estimated that less than 0.5% of available data is currently being analysed and used to support decision-
making. This suggests that business managers have an opportunity to harness the big data phenomenon.
o Big data refers to large collections of data that are gathered from inside or outside a company to provide
opportunities for ongoing reporting and analysis.
o Big data can be both structured, such as memos and reports, and unstructured, such as videos, pictures, audio,
and other digital forms.
o Big data is often discussed in terms of 5 Vs.
The first 3: variety, volume, and velocity refine the definition of big data.
1. Variety refers to the data formats in which information is stored.
2. Volume refers to the continuously expanding quantity of data that companies must gather, cleanse, organize,
and analyse.
3. Velocity speaks to the rate at which data are received and acted on by organizations.
This is particularly important where the data have a limited shelf life.
The remaining 2 Vs, value, and veracity, define users' expectations with respect to Big Data.
1. Value implies that the expenditure of time and money by organizations to analyse big data needs to result in
insights that are valued by stakeholders.
2. Veracity refers to the fact that users expect their data to be accurate and trustworthy.
For management accounting professionals, veracity may be the most important of the 5 Vs because their analysis
and opinions, which are relied on by numerous stakeholders, must be supported by verifiable data.
Data Analytics
From a managerial accounting standpoint, the goal for managers is to use data analytics to derive value from Big Data.
- Data analytics refers to the process of analysing data with the aid of specialized systems and software to draw
conclusions about the information they contain.
- Managers often communicate the findings from their data analysis to others through the use of data visualization
techniques, such as graphs, charts, maps, and diagrams.
- Data analytics can be used for descriptive, diagnostic, predictive, and prescriptive purposes:
1) Descriptive analytics are used to answer the question: What happened?
2) Diagnostic analytics are used to answer the question: Why did it happen?
3) Predictive analytics are used to answer the question: What will happen?
4) Prescriptive analytics can be used to answer the question: What should I do?
Planning and Control Cycle
Starts with plan, have to implement it, control plan so goes according to plan, then adjust and come up with new plan.
Strategy
A strategy is a “game plan” that enables a company to attract customers by distinguishing itself from competitors.
- The focal point of a company’s strategy should be its target customers.
- Customer value propositions are the essence of strategy.
Value propositions typically focus on providing customers with one of the following:
Products or services with exceptional quality and innovation, operational excellence (i.e., low-cost products or services
with reliable service), or outstanding customer service.
Managerial Accounting: The Broader Context
• A business process is a series of steps that are followed in order to carry out some tasks in a business.
• A value chain consists of the major business functions that add value to a company’s products and services.
,• Business functions making up the value chain:
Enterprise Risk Management
Every business strategy or decision involves risks.
o Enterprise risk management is a process used to proactively identify and manage these risks.
o Companies should identify foreseeable risks before they occur.
o Can reduce risks by implementing specific controls to mitigate the identified foreseeable risks.
Ethics
Accountants must maintain a level of competence appropriate to their designation.
1. Confidentiality: is essential because of the importance of the information they analyse.
2. Integrity: is maintained by avoiding conflicts of interest with their employers or clients, by communicating the
limits of professional competence, and by not accepting favours that would compromise their judgement.
3. Objectivity: must be present in communications, so that recipients can receive both favourable and unfavourable
information.
Corporate social responsibility (CSR)
Leadership
• Leaders must be able to unite the behaviours of employees around 2 common themes – pursuing strategic goals
and making optimal decisions.
• Therefore, intrinsic motivation, extrinsic incentives, and cognitive biases need to be understood how they
influence human behaviour.
1. Intrinsic Motivation → Motivation that comes from within us.
2. Extrinsic Incentives → A way to highlight important goals and to motivate employees to achieve them by
offering a type of reward.
3. Cognitive Biases → Everyone possesses cognitive biases, or distorted thought processes; it is important for
leaders to recognize this.
, Ch.2 – Cost Terms, Concepts, and Classifications
Every organization has costs (doesn’t matter which type of organization it is) => it is really important to think about
costs => knowing what to spend our money on matters. The smartest way to spend it the better decisions are taken.
- Retailer: buy products in order to sell them,
- Service: hire people so can sell their time,
- Non-profit: employees, rent space.
Manufacturing Costs
Manufacturing companies typically divide manufacturing costs into 3 broad categories:
1. Direct Materials
2. Direct Labour
3. Manufacturing Overhead
Direct Materials
• Materials that go into the final product are called raw material.
• Raw materials may include both direct and indirect materials.
• Direct materials are those materials that become an integral part of the product and that can be physically and
conveniently traced directly to it.
• Indirect materials either cannot, or it is not worth the expense or effort to trace the costs to the end product.
Indirect materials are included as part of manufacturing overhead. They are still raw materials but are not treated
as direct ones because the costs of directly tracing them to the finished products exceed the benefits.
Track the costs.
Direct Labour
• Direct Labour consists of labour costs that can be easily (physically and conveniently) traced to individual units of
product.
• Labour costs that cannot be physically traced to the creation of products (or it would be costly or inconvenient to
trace) are called indirect labour and are treated as part of manufacturing overhead.
Manufacturing Overhead
It includes all costs of manufacturing except direct material and
direct labour: indirect materials and labour.
Only costs associated with operating the production facility (factory)
are included: indirect manufacturing cost, factory overhead, and
factory burden => not selling and administrative costs.
Classifications of Costs
Manufacturing costs are often classified as follows:
Prime = Direct Material Cost + Direct Labour Cost: need this to make unit of product.
Conversion Cost = Direct Labour Cost + Manufacturing Overhead Cost —> Converting → Conversion of Costs
→ Conversion: stuff to do to convert raw materials into finished goods.
Learn how to maximise profits and reduce costs.
Overtime Premiums
= the extra hourly wage rate paid to workers who must work more than their normal time requirements.
• The overtime premiums for all factory workers are usually considered to be part of manufacturing overhead.
• Product job-specific overtime premiums are part of direct labour.
→ Issue when labour shortage.
Non-Manufacturing Costs
• Marketing or Selling Costs: Costs necessary to secure and get the customer order and deliver the product or service
—> order-getting and order-filling costs.
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