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COLLEGE NOTES BEC22806 (EVERYTHING YOU NEED TO KNOW)
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Accounting BEC22806Lecture 1 Introduction to Management Accounting
Management accounting: information for planning, control, and performance management,
relevant for decision makers / managers (internal)
Financial accounting: true and fair view on financial position that is uniform and consistent,
decision making of external stakeholders (external)
Integral cost price: fixed cost per unit + variable costs per unit
Long run decision -> integral cost price
Short run decision -> differential costs or variable costs
Direct costs: can be identified with a given cost object
Indirect costs: cannot be allocated to a given cost object
Period costs: overhead costs as one cost item on the end
Product costs: manufacturing costs, but depends on if the product is sold or not, on balance
sheet
Relevant costs: future costs that will be changed by a decision (avoidable)
Irrelevant costs: costs will not be changed by a decision (unavoidable)
Sunk costs: costs that already acquired and are unaffected by the choice between various
alternatives, always irrelevant
Opportunity costs: are lost or sacrificed when the choice of one course of action requires
that an alternative is given up
Incremental costs / marginal costs: additional costs and revenues from the production or
sale of a group of additional units
Lecture 2 Financial Statements and Analysis
Balance sheet: assets = liabilities + stockholder’s equity
Accounting liquidity: ease & quickness with which assets can be converted to cash -> the
more liquid a firm’s assets, the less likely the firm is to experience problems meeting short-
term obligations.
Shareholder’s equity is the residual difference between assets and liabilities
GAAP: Generally Accepted Accounting Principle -> statements in terms of costs, different
than market value
Income statement: measures performance over a specific period (two timepoints needed)
Income: revenue (value of products sold) – expenses (costs to generate that revenue)
Net working capital: current assets – current liabilities (growing with size of firm)
Financial cash flow: cash from firm’s assets = cash flow to firm’s creditors (debt) +
stockholders (equity) -> CF (A) = CF(B) + CF(S)
Operating cash flow: EBIT + depreciation – current taxes
Cash flow of the firm: operating cash flow + capital spending + additions to net working
capital
Equity = eigen vermogen
Debts = vreemd vermogen
Assets = activa
Cash flow of investors in the firm: debt + equity
Liquidity: ability of the firm to meet its short-term obligations
- Net working capital: currents assets – current liabilities
- Current ratio: current assets / current liabilities
, - Quick ratio: quick assets (current assets – inventory) / current liabilities
Activity: ability of the firm to control its investments in assets
- Total assets turnover: total operating revenues / average total assets
- Receivables turnover: total operating revenues / average receivables
- ….
Solvency: extend to which a firm relies on debt financing
- Debt ratio: total debts / total assets
- Debt-equity ratio: total debts / total equity
- Equity multiplier: total assets / total equity
- Interest coverage: EBIT / interest
Profitability ratios
- Net profit margin: net income / total operating revenues
- Net return on assets (ROAnet): net income / average total assets
Lecture 3 Cost Assignment
Direct costing system only deals with variable manufacturing costs
Absorption costing system allocates both variable and fixed manufacturing costs by direct
tracing or by cost allocation
Process costing: homogeneous production, only direct costs
Job order costing: heterogeneous orders, both direct and indirect costs
Standard cost price calculation -> Cp = fixed costs / normal activity level + variable costs /
budgeted activity level
Volume variance: the over or under recovery of fixed costs
Valuation:
- Absorption costing takes the full cost price and corrects for volume variance
- Variable costing takes only variable cost price and corrects for the whole sum of the
fixed costs
When production is higher than sales, absorption costing will give a higher profit
Blanket overhead rate: depends on working hours, all the same
Separate department overhead rate: different departments so different overhead rates
Two stage allocation process (EXAM): all overhead costs -> allocate these costs to different
departments (first stage) -> allocate this to cost objects, also direct costs (second stage)
- Sequential method: service costs center can allocate to one service cost center
- Direct method: only allows to allocate indirect costs from service cost centers to
production costs centers
- Reciprocal method: service costs centers can allocate to other service costs centers
Lecture 4 Strategic Cost Management & Strategic Performance Management
Traditional cost control system treats pre- and post-manufacturing costs as period costs
Life cycle costing: see if profits made during manufacturing phase cover pre- and post-
manufacturing costs
Target costing (find out what customers are willing to pay at different stages):
- Determine target price
- Deduct target profit margin from target price to determine target costs
- Estimate actual costs of product
- Actual costs > target costs, investigate ways to have actual costs < target costs
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