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ACC2022 Management Accounting 1 Full Summary
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Management Accounting 1 (ACC2022F)What is management accounting?
The processes and techniques that focus on the effective and efficient use of organisational resources,
to support managers in their tasks of enhancing both customer value and shareholder value.
What are the objectives of a manager?
- To develop and pursue strategy
- To maximise shareholders’ wealth
- To use resources efficiently and effectively
Week 1: Cost and Cost Behaviour
What are costs?
- Resources given up to achieve a particular objective.
Cost Classification
Cost
The process of Behaviour
The relationship Using knowledge of
determining cost betweeen cost and cost behaviour to
behaviour; often activity. forecast the level of
focuses on historical cost at a particluar
data. level of activity.
Cost Cost
Estimation prediction
,Cost Function – an equation used to describe a cost behaviour.
Cost object – an item for which management wants a separate measure of costs (e.g. products, periods,
contracts, etc.)
Direct and Indirect Costs
Direct Cost
- A cost that can be identified with, or traced to, a particular cost object in an economic manner.
- E.g. raw/direct materials; direct labour; other direct non-manufacturing expenses.
Indirect Cost
- A cost that cannot be identified with, or traced to, a particular cost object in an economic
manner.
- E.g. fixed and variable overheads; can be manufacturing or non-manufacturing.
Controllable and Uncontrollable Costs
Controllable Cost
- A cost that can be controlled or significantly influenced.
Uncontrollable Cost
- A cost that cannot be controlled or significantly influenced.
This concept is relevant to evaluating or measuring employee’s performance. Management accountants
generally focus on the managers ability to influence, rather than control costs, as few costs are
completely under the control of any individual.
Costs Across the Value Chain
What is a Value Chain?
- A set of linked processes or activities that begins with acquiring resources and ends with
providing (and supporting) goods and services that customers value.
, Support Services
Research and Customer
Design Supply Production Marketing Distribution
Development Upstream
(non-manufacturing)
Manufacturing
Service Downstream
(non-manufacturing)
Primary Processes
Manufacturing and Non-Manufacturing Costs (Nature of Costs)
Manufacturing Costs
Direct Material
- Raw materials consumed in the production process, physically incorporated into the finished
product, and can be traced to products conveniently.
Direct Labour
- The cost of salaries and wages and labour on-costs for personnel who work directly on the
manufactured product.
- Labour on-costs: the additional labour related costs that businesses have to incur to employ
personnel, such as payroll tax, workers’ compensation insurance and employer contributions to
pension funds.
Manufacturing Overhead
- All manufacturing costs other than direct material and direct labour costs
- E.g. indirect materials, indirect labour, depreciation.
Prime costs – direct materials and direct labour
major costs directly associated with the product
Conversion costs – direct labour and manufacturing overhead
costs of converting raw materials into finished products
On the Statement of Financial Position, the line item inventory is broken up into:
- Raw materials
- Work in process
- Finished goods
, Non-manufacturing costs
- Below gross profit in the income statement
- Includes advertising expenses and selling and admin expenses
Product Costs and Period Costs (Timing of Costs)
Product Costs
- A cost assigned to goods that were either manufactured or purchased for resale.
- Regarded as part of inventory (capitalised) until the goods are sold; the product cost is then
transferred to the cost of sales account (expensed).
Period Cost
- Costs that aren’t considered product costs.
- These costs are expensed in the accounting period in which they are incurred rather than being
attached to units of purchased or produced goods.
Cost Estimation
There are 3 methods to estimate costs: scatter graph, hi-low, least squares regression
We will use hi-low.
Hi-Low Method
Y = a + bX
where:
Y = total cost
a = fixed costs
b = variable cost per unit
X = activity
1. Identify highest and lowest levels of activity
2. Find variable cost per unit (b)
b=(change∈cost )/(change ∈activity)
3. Substitute any values in for x and y to determine fixed costs (a)
Cost Behaviour
Fixed Cost
- The cost remains the same at all levels of activity
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