1
ACCT20001 COST MANAGEMENT NOTES
Page Lecture 1
Accounting Information for Management and The Value Chain
2
Lecture 2
Fundamental Cost Concepts, Different Costs for Different Purposes Resource Flow and Basic Cost Classification
3
Lecture 3
Cost-Volume-Profit Analysis, Revenue and Pricing
6
Lecture 4
Job Costing and Process Costing
7
Lecture 5
Activity-Based Costing (ABC) and Management (ABCM)
10
No lecture in week 6 -
Lecture 7
Activity Analysis and Tine Driven ABC
11
Lecture 8
Relevant Costing and Decision Making: outsourcing (make or buy);
special orders.
12
Lecture 9
Budgeting and Planning (1): flexible budgets and variances
20
Lecture 10
Budgeting and Planning (2)
20
Lecture 11
ABC, structured data and analysis
21
2 LECTURE 1
FA vs MA
Industry value chain
Org value chain
Value chain
è consists of the key activities engaged in by an
organisation or industry
• Focuses on activities.
• Encourages a broader organisational view.
• Breaks down more traditional representations of organisational activity.
• Externalises thinking by incorporating suppliers and customers.
• Reflects value chain relationships in terms of costs Value chain analysis Supply chain
è flow of resources from the initial suppliers through the delivery of goods and services to customers and clients
Value-added activity
è one that is necessary and that the customer would normally be prepared to pay for
Non-value-added activity
è one that is wasteful (unnecessary) and that the customer would not normally be prepared to pay for
Structural cost driver (big picture)
è Business strategic choices about an organizations’ underlying economic structure
Activities Cost driver
Building of plants Number of plants, scale of centralisation
Grouping of employees Number and type of work units Eg scale and scope of operations, use of tech, complexity of products Executional cost driver
(small picture)
è Execution of business activities
Activities Cost driver
Financial Accounting Management Accounting
1. Users Primarily Primarily
External Internal
2. Time focus Historical perspective Future emphasis 3. Verifiability vs. Emphasis on Emphasis on relevance relevance verifiability to mgmt decision making 4. Precision vs. Emphasis on Emphasis on
timeliness precision timeliness
5. Subject Primary focus is on Focuses on segments the whole organization of an organization 6. GAAP Must follow GAAP Need not follow GAAP
and prescribed formats or any prescribed format
7. Requirement Mandatory for Not
many corporations Mandatory
3 Using of employees Degree of involvement
Providing plant layout Plant layout efficiency
Eg utilization of employees, provision of quality service, product design, manufacturing
LECTURE 2 Cost object
è Anything for which a separate
measurement of costs is required
Examples:
o Products and/or Services o Customers
o Projects
o Particular processes
o Segments of the value chain o Divisions / Departments o An organisation as a whole 2 cost measurement
Accumulation ->
Assignment
Accumulation
• Recording of costs
• Organization into different cost categories (direct labour, direct materials etc.)
Assignment
• To various cost objects
• 2 broad approaches to assign costs - Trace (direct cost)
- Allocate (indirect cost)
Trace Allocate
More accurate Less accurate
Assignment is by determining exact quantities used by each cost object and then multiply by the price per quantity
Assignment is via estimation using an allocation base
Per loaf of bread:
• cost of flour
• cost packaging
• cost of gas, electricity, water, depreciation of equipment
Direct Costs (traced) Physically traceable and make economic sense to trace
• Direct materials
– Usually these become a physical part of the product.
• Direct Labour
– Work done to produce a given product or service.
Indirect Costs (allocated) • Indirect materials
– e.g. lubricants, cleaning materials, fuel, other items consumed in mfg. or delivery of services.
• Indirect labour
– Supervision, maintenance, security, etc.
• Other
– Licences, rent, insurance, utilities, depreciation of factory equipment etc.
