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Summary of the whole course Management Accounting 1 for business (6012B0421). Everything you need to know for the exam including descriptions of calculations €19,49
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Summary of the whole course Management Accounting 1 for business (6012B0421). Everything you need to know for the exam including descriptions of calculations
Management and Cost Accounting with MyLab Accounting
FULL summary of everything you need to know for the Management Accounting 1 for business (6012B0421) FINAL exam, including specific descriptions of the calculations. Everything is clearly explained with colorful indications of what to add to what and why the result is like that. This summary is all...
Everything that is required for the exam from the book is covered
22 oktober 2021
108
2021/2022
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management accounting
full course summary
exam material
notes
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Management Accounting 1 For Business (6012B0421)
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Voorbeeld van de inhoud
NOTES: Management Accounting 1 for Business
WEEK 1
Overview of this week
• Introduction to key concepts
Direct and indirect costs
Fixed and variable costs
• Cost allocation
Cost pools and allocations bases
• Job costing: for individual products and services
Dealing with differences in expected and actual volumes
• Process costing: for large amounts of identical products and services
Dealing with input price changes
What does it cost? Costs and cost objects
• The cost of something is the amount of money that you have spent to achieve that
something
• This can be quite straightforward
If you buy a specific product or service, the cost is the price you pay for it (for
example if you buy something from the supermarket)
• But what if it is something more complex?
An automobile that is produced by a car manufacturer
An operation performed in a hospital
A three-year study by a student
• We call the something we want to know the cost of the cost object
This can be anything: products, services, employee activities, organizational units...
→ Typically, organisations use big instalations which are paid by operation.
Direct and indirect costs
Direct costs
• Direct costs can be linked directly to a cost object
• For a bicycle manufacturer, producing an extra bike requires two extra tyres
• For a hospital, performing an operation requires surgeon and nursing hours
• Often, these are variable costs (but not always!) Variable costs: costs that change
when the volume of products or services changes
Indirect costs
• Indirect costs are related to the cost object but cannot be linked directly
• Or this direct link would not be economically feasible because it requires too much
registration and administration: that is, it would cost too much
• The plant of the bicycle manufacturer is used to produce both regular and e-bikes
, • The hospital’s operating rooms and equipment are used for many different
operations
• Many fixed costs are indirect (but again, not always!) Fixed costs: costs that do not
change with a variation in the number of products or services
Example
• A health care provider offers one type of eye laser treatment
• Next year’s plans are the following:
• Fixed costs
- Lease of building: € 200,000
- Laser equipment: € 1,000,000
- Wages: € 400,000
• Variable costs
- Supplies: € 50,000
• What is the cost object? → treatment
• What are the direct and indirect costs?
• There is only one type of treatment
- Every treatment is the same
• The cost object is the treatment
• This also means that all costs are incurred for a single cost object: the laser treatment
- No need for distributing the costs among different types of treatment
• When there is only one cost object, there are no indirect costs
- But what are the costs per treatment?
- So what is the unit cost?
Unit costs depend on volume
The expected volume of treatments is 5,000 (this is how many patients are expected to
be served)
- This is estimated by the laser clinic
Total fixed costs: € 1,600,000
Variable costs: € 50,000
- Variable cost per unit = variable costs/expected volume
- 50,000/5000=10), so the (expected)
variable costs per unit are € 10
• Unit costs: (€1,600,000 (total fixed costs) / 5,000 (expected volume) + € 10 (variable
costs per unit) = € 320 + € 10 = € 330
- Unit costs = total fixed costs / expected volume + variable cost per unit
• What if the actual volume of treatments turns out to be 4,000?
- Unit costs: (€ 1,600,000/ 4,000) + € 10 = € 400 + € 10 = € 410
- Variable costs change with volume, but per unit they are constant, so still € 10
, → The volume (activity level) impacts the unit costs
- The expected volume is the most important number in planning and control
What if there are multiple types of treatments?
• Let’s assume that each patient is unique
• What are the cost objects?
- Treated patients
• We can trace the use of supplies to each treatment
- So, supplies are direct costs
• But now we do have indirect costs
- There is no way to identify which part of the equipment and building costs are
made specifically for a specific patient
- Wages are for employees on a permanent contract
Costing of products and services: job and process costing
1. JOB COSTING
• When an organization generates individual units with varying characteristics, we use
job costing
» Repair jobs, consultancy jobs, building jobs, manufacturing jobs
2. PROCESS COSTING
• When an organization generates similar units, we use process costing
» Process industry: chemicals, foods
» Large scale manufacturing
1. Job Costing
Job costing in the eye laser clinic
• Patients in the eye laser clinic have different requirements
• Some will require more use of laser equipment
• Some will require more support and attention from nurses
• Two patients
• Achraf gets a treatment requiring 2 hours of equipment use and 4 hours of
labor; additionally, € 20 supplies are used
, • Birgit gets a treatment requiring 4 hours of equipment and use and 3 hours of
labor; additionally, € 10 supplies are used
• How can we allocate the indirect costs of € 1,600,000 to these treatments?
! We identify the following groups of costs:
• Building and equipment: € 1,200,000
• Wages: € 400,000
Cost pools
• What are good ways to link these costs to patients?
• For building and equipment: hours use of equipment
• For wages: labor hours Allocation base
» To allocate the indirect costs to a treatment, we need to know what the expected
volume is of the hours of use and labor
• The clinic administration shows the following
• Expected hours of equipment use: 14,000
• Expected hours of labor: 22,000
Activity volume
• With this we can calculate a cost per unit of the allocation base
- Building + equipment: € 1,200,000/ 14,000 (expected hours of equipment use)
= € 85.71
- Wages: € 400,000/ 22,000 (expected hours of labor) = € 18.18
→ So we now have an allocation rate for each cost driver
B+E Wages
Cost pool 1,200,000 400,000
Units of allocation base 14,000 22,000
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