Accounting
Introduction:
What is managerial accounting?
- MA is concerned with providing information for internal use
- To help managers in their decision making
- And for the control of business activities
- MA information is only used by the firm´s management and is rarely given to anyone
outside the company
Costs 1:
= the money, time, and resources associated with a purchase or activity. Usually for the
ultimate purpose of increasing revenues.
● There are many different costs incurred in the running of a business
- e.g. cleaning & gardening materials & equipment; electricity, oil & gas; wages of bar
staff, cleaners & gardeners
- salaries of accountants, marketing, HR
- rent/mortgage; vehicles; depreciation, etc.
Direct and indirect costs
● Direct costs: can be directly traced to a specific operation, e.g. hospitals will have
F&B, cleaning, stuff, laundry, etc costs traceable to each department.
- usually, appear in “cost of sales”
● indirect costs: but other stuff not so easy, e.g. administration, property maintenance,
utilities, insurance, depreciation
- marketing/ HR/ strategic planning costs in HQ attributable to compass, Breda, or
Sodexo Netherlands
- Tend to appear in “operating expenses” = often called “overheads”
Fixed & variable costs
● FC: stay the same in the S-R, even if sales/business activity changes
- e.g. salaries, rent, insurance, interest on loans
● VC: these costs change as sales change
- e.g. cost of food, beer, cleaning materials, packaging, electricity, part-time
staff, etc.
FC are variable and VC are fixed!
Example:
FC is €1M p.a., there are 1000 students
AFC = €1m / 1000 = €1000 per student
if there are 10 students
AFC = €1m / 10 = €100.000 per student
VC = €900 per student
10 or 10000 students still get €900 per student
Semi-variable, or mixed costs
- these have an element of both fixed and variable costs e.g. phone has fixed line
rental plus charge for calls; vehicles have road tax + insurance but variable fuel &
maintenance costs.
, Marginal costs (MC)
● These are the same as variable costs with one subtle difference:
- they tell us by how much costs have risen if one extra unit is purchased
- and by how much costs have fallen if one less unit is produced
Contribution:
- this determines how much if any, units sold contribute towards paying FC or making a
profit
example Euros
sales A 100
minus variable cost B 60
equals contribution A-B 40
minus fixed costs C 50
equals profit (A-B) - C 10
1. FC = €5000, VC = €1 per unit, what are costs per unit?
- (5000/10000) + 1 = 1,5
- (5000/50000) + 1 = 1,1
2. the company produces 50000 units, but sells 10000 for €1,90?
- 10.000 x 1,9 = 19.000 profit 36.000 lost
Lecture: Absopting costing
Absorption costing is the process of allocating costs (V&F) to the appropriate department
- also known as overhead absorption (get this wrong and a lot of people are left
dissatisfied)
Full, or absorption costing
- So, how are these overheads or indirect costs allocated to the proper departments?
- proper allocation enables an organization to see how well or badly each department
is performing
- Problem is to select the correct method of allocation
Variable = COGS = Direct costs
Example Dining room snack bar Total
Sales REV €105.000 €45.000 €150.000
Direct costs €-75.000 €-39.000 €-114.000
Contribution €30.000 €6000 €36.000
overhead costs €-24.000
operating income €12.000
1. use percentage sales as a way of allocating overheads. Does this mean the snack
bar is a liability?
- 105.000/45.000 = 150.00
105.000/150.000 x 100% = 70%
45.000/150.000 x 100% = 30%
- dining room = 24.000 x 0,7 = 16800
- snack bar = 24.000 x 0,3 = 7200
= 24.000+
2. Use labour as department. Assume dining room had 8 FTE and snackbar had 2?
→ this means dining room will pay 80% of overheads and snackbar 20%
3. Use floor space. Dining room has 950m2 and snackbar 50m2
→ dining room will absorb 95% of overheads and snack bar 5%
Introduction:
What is managerial accounting?
- MA is concerned with providing information for internal use
- To help managers in their decision making
- And for the control of business activities
- MA information is only used by the firm´s management and is rarely given to anyone
outside the company
Costs 1:
= the money, time, and resources associated with a purchase or activity. Usually for the
ultimate purpose of increasing revenues.
● There are many different costs incurred in the running of a business
- e.g. cleaning & gardening materials & equipment; electricity, oil & gas; wages of bar
staff, cleaners & gardeners
- salaries of accountants, marketing, HR
- rent/mortgage; vehicles; depreciation, etc.
Direct and indirect costs
● Direct costs: can be directly traced to a specific operation, e.g. hospitals will have
F&B, cleaning, stuff, laundry, etc costs traceable to each department.
- usually, appear in “cost of sales”
● indirect costs: but other stuff not so easy, e.g. administration, property maintenance,
utilities, insurance, depreciation
- marketing/ HR/ strategic planning costs in HQ attributable to compass, Breda, or
Sodexo Netherlands
- Tend to appear in “operating expenses” = often called “overheads”
Fixed & variable costs
● FC: stay the same in the S-R, even if sales/business activity changes
- e.g. salaries, rent, insurance, interest on loans
● VC: these costs change as sales change
- e.g. cost of food, beer, cleaning materials, packaging, electricity, part-time
staff, etc.
FC are variable and VC are fixed!
Example:
FC is €1M p.a., there are 1000 students
AFC = €1m / 1000 = €1000 per student
if there are 10 students
AFC = €1m / 10 = €100.000 per student
VC = €900 per student
10 or 10000 students still get €900 per student
Semi-variable, or mixed costs
- these have an element of both fixed and variable costs e.g. phone has fixed line
rental plus charge for calls; vehicles have road tax + insurance but variable fuel &
maintenance costs.
, Marginal costs (MC)
● These are the same as variable costs with one subtle difference:
- they tell us by how much costs have risen if one extra unit is purchased
- and by how much costs have fallen if one less unit is produced
Contribution:
- this determines how much if any, units sold contribute towards paying FC or making a
profit
example Euros
sales A 100
minus variable cost B 60
equals contribution A-B 40
minus fixed costs C 50
equals profit (A-B) - C 10
1. FC = €5000, VC = €1 per unit, what are costs per unit?
- (5000/10000) + 1 = 1,5
- (5000/50000) + 1 = 1,1
2. the company produces 50000 units, but sells 10000 for €1,90?
- 10.000 x 1,9 = 19.000 profit 36.000 lost
Lecture: Absopting costing
Absorption costing is the process of allocating costs (V&F) to the appropriate department
- also known as overhead absorption (get this wrong and a lot of people are left
dissatisfied)
Full, or absorption costing
- So, how are these overheads or indirect costs allocated to the proper departments?
- proper allocation enables an organization to see how well or badly each department
is performing
- Problem is to select the correct method of allocation
Variable = COGS = Direct costs
Example Dining room snack bar Total
Sales REV €105.000 €45.000 €150.000
Direct costs €-75.000 €-39.000 €-114.000
Contribution €30.000 €6000 €36.000
overhead costs €-24.000
operating income €12.000
1. use percentage sales as a way of allocating overheads. Does this mean the snack
bar is a liability?
- 105.000/45.000 = 150.00
105.000/150.000 x 100% = 70%
45.000/150.000 x 100% = 30%
- dining room = 24.000 x 0,7 = 16800
- snack bar = 24.000 x 0,3 = 7200
= 24.000+
2. Use labour as department. Assume dining room had 8 FTE and snackbar had 2?
→ this means dining room will pay 80% of overheads and snackbar 20%
3. Use floor space. Dining room has 950m2 and snackbar 50m2
→ dining room will absorb 95% of overheads and snack bar 5%
