Summary
Intermedia Management Accounting summary of lectures and cases
- Course
- Institution
This is a summary of the course Intermedia Management Accounting.
[Show more]
Seller
Follow
YKN
Reviews received
Content preview
Management accounting summaryIntroduction
Separation of ownership and management
organization is important feature of modern
organizations. Shareholder elect the board of
directors and these directors represent the
interests of the shareholders. BOD appoints top
management team.
Business owners contribute monetary and non-
monetary resources, the managers try to make
efficient use of these resources. The roles of
managers:
- Planning→ setting goals and objectives and determining how to achieve them
- Directing and motivating→ overseeing day-to-day operations and keeping the
organization functioning smoothly
- Controlling→ evaluating the performance against the plan, and making adjustments
to keep the organization pressing toward its goal
The controlling cycle steps:
1. Set goals, choose strategies, make plans, set standards
2. Measure performance
3. Compare performance
4. Make decisions take corrective actions
What kind of information do managers need to acquire in this process?
- Cost information and make sure that price can cover these costs
- Prices set by the competitor
- Information about their own capacity and efficiency
- They need to be familiar with the regulations in the market/industry
- They need to gather the information about the performance and see if there are any
performance deviations (comparing with old performances)
Two types of accounting information:
- Financial accounting
o Managers preparing and providing information to outsiders
o E.g. financial statements provided to shareholders
- Management accounting
o Managers collecting and using information to make decisions
o E.g. cost information collected and organized by managers
Problem that can potentially occur in the process:
- Employees do not work hard
- Employees fail to follow the standards
- Goals are too hard/easy
1
, - Plans are not optimal, e.g. can reach the goal with that plan
Control problems= Any problems, issues, weaknesses, or vulnerabilities that are likely to
cause negative organization outcomes and hinder an organization form achieving its goals.
Causes:
- Managers fail to make the best decisions
- Employees fail to exhibit desired behaviors
Reasons occurrence of control problems
- Lack of information/specification/direction→ managers are not able to make the
best decision for the organization if they do not have sufficient information about
the current situation and future strategy. Employees will perform poorly if they do
not have sufficient information about what the organization expects them to achieve
and how to achieve it.
- Adverse selections→ limitation relating to employee selection mechanism
o Employees lack the right skills and abilities
o Employees’ preferences are different from what the company needs
Also limitations relating to promotion mechanism→ Peter principle: employees are
promoted based on their performance in their current role, rather than on the
abilities relevant to the intended role (not competent for the intended role)
- Agency issue (moral hazard)→ agents are hired to act on the principal’s behalf
(principal-agent relationship)
Management control system= an integrated use of different mechanisms to gather and use
the information about organization performance. Such a system allows to:
- Collect and analyze MA information
- Provide feedback to employees and managers→ facilitate learning and better
practices
- Integrated use of MCSs can turn into corporate cultures that attract the right
employees and motivate the right behaviors
Module 1. Costing system
Lecture 1. Volume-Based Costing
Get familiar with concepts
If your firm manufactures chairs, what kind of costs would be incurred?
- Manufacturing/product costs→ costs incurred during manufacturing process
o Materials (e.g. wood, plastic, nails, screws)
o Labor
o Utilites used for production (e.g. water and electricity)
o Depreciation of equipment used for production, because if we use
equipments more, there will be more depreciation
o Rent paid for the factory site
- Non-manufacturing costs→ costs not directly related to manufacturing process but
still important for the organization
o Marketing
o Costs of storage and delivery
2
, o Depreciation of delivery equipment
o Salary paid to managers and administrative staff
o Rent paid for the office site
o Utilities used in the office
o Depreciation of equipment used in the office
How to you classify these costs (direct or indirect? Fixed or variable? Manufacturing or non-
manufacturing?)
- Wood and plastic (the raw materials)
o are variable costs
o direct costs
- Wages paid to administration staff
o is most of the time fixed, because normally we offer them a fixed salary.
Moreover, you don’t link the salary of the administration staff with the
amount of chairs produced
o indirect costs, because impossible to trace the wages paid to secretary to
each of the chair manufactured
- Wages paid to the manufacturing workers
o depends→ do we pay them fixed wages or by hours or by products, then it’s
variable
o Direct costs, most of the time we can trace their work to the chair
manufactured
- Rent
o Fixed
o Indirect
- Utilities
o are semi-fixed or semi-variable→ lightening in the company is for example
fixed, and other parts of utilities are variable, for example electricity
o partially direct and partially indirect, depends on cost object
- Depreciation of production equipment
o is variable, because the more products we manufacture, the more we going
to use the equipment, the more depreciation
o depends on how the equipment is used and the cost object
Manufacturing/product costs can be direct or overhead:
- direct→ materials, labor, depreciation, and utilities that can be directly traced to a
cost object
- overhead/indirect→ products that cannot be directly traced to a cost object
the choice of cost object can affect if a cost should be classified as direct/indirect
How to allocate overhead to each chair?
- Imagine we only have one product line. So we only have one type of products, in
that case allocate overhead equally to each product
o Allocation rate (or burden rate)= overhead / number of products
- Imagine that we have several different product line. You can still allocate overhead
equally to each product.
3
, o Allocation rate (or burden rate)= overhead / variable costs or number of
products
Advantage of this is that it’s quick and easy, but the problem
Case RegionFly
About RegionFly
- Three decades of success
- Focused on high-quality premium services
- Refuse expansion or growth
- Strategy in a severe market situation: drop routes that do not seem to be profitable
“If any route were to contribute less than 25% of its revenue toward the overall firm
profit, this route’s costs are considered as “too high” and this route will be dropped”
Cost allocation in RegionFly
- Cost object is each of the routes
- Cost allocated to each of the route would be allocated overhead costs + direct costs
- The indirect cost pool are all the overhead costs→ cost-allocation base are the
variable direct costs→ in 2014 3.02, which mean if a route incurred 1 dollar of
variable costs we will allocate 3.02 dollar in indirect cost to this route
In total, VDC decreases more than OH→ OH allocation rate increases. This mean the
following for each of the remaining routes: more sales→ higher VDC→ higher allocated OH
Resource spending is not the equal to resource consuming
- Resource spending may be independent from volumes
o For example, a firm needs to pay for the rent of its warehouse/factory/office
regardless for the volume it sells
o In RegionFly, a lot of overheads are still incurred after the volume declined
- Resources consuming is usually directly related to production
o For example, the direct and/or indirect labor and materials used to produce
the products
We need to reduce spending on resources for the saving to take effect
Avoidable and unavoidable costs
- Variable costs change proportionally with volume
- Fixed costs remain fixed throughout→ this may not always be the case. If a firm
increases/decreases its capacity, its fixed costs will change
Using allocated costs to analyze the current situation of RegionFly may not appropriate, as it
ignores that even drop a route, some fixed costs will not decrease
Fixed or variable RegionFly
- Flight expenses→ variable cost
- Sales expenses→ some are fixed and some variable, marketing and publicity are for
example fixed
- Maintenance expenses→ variable, if we drop route, we will use less equipment so
less repairment and maintenance workers
4
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller YKN. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R137,09. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
81849 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now