Lecture 9
• Management accounting refers to 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
• Resources- can be financial or non-financial, including: information, work processes, employees, loyal customers and committed suppliers
• Management functions:
1. Planning=> looking ahead and establishing short-term and long-term objectives 2. Directing and motivating=> implementation of plans by coordinating diverse
activities and human resources
3. Controlling=> the process of keeping the entity's activities on track
• manufacturing costs are associated with converting raw materials into finished goods
• Major manufacturing cost classifications are:
o direct materials
• Cost of raw materials directly traceable to the finished products
o direct labour
• Wages and salaries paid to employees whose time and costs can be traced directly to products
o manufacturing overheads
• Indirectly associated with the manufacture of finished product it includes, indirect materials(do not physically become part of finished product) and indirect labour(cannot be directly traced to specific goods)
• All costs= production costs +period costs
• Product costs: Costs that are necessary and integral part of producing the finished product
• Period costs: costs that are identified with a specific time period rather than with a saleable product
• Conversion costs: direct labour and manufacturing overhead are incurred in converting direct materials into finished goods (the total of direct labour and manufacturing overhead)
• Prime costs: the major costs associated with producing a product (the total of direct materials and direct labour)
• Budgeting is a formal written statement of managements plans for specified future time period, express in financial terms
• Budgets
o Express managements goals and objectives in financial terms
o Translates managements plans into monetary terms
o Provide means of communicating plans to all areas of responsibility
• Accountants
o Play a key role in budgeting process
o Prepare periodic budget reports
o Compare actual results with planned financial objectivise
Lecture 10
• Variable costs: costs that vary in total directly and proportionately with changes in the activity level (cost per unit is constant; total cost increase with volume increase)
• Fixed costs: costs which remain relatively constant regardless of the activities level(
total cost is constant; cost per unit decreases with volume increase) fixed cost per unit= total cost divided by units of activity level
• CVP analysis
o CVP=cost-volume-profit
o CVP analysis can answer the following questions: entity's breakeven point, impact on sales volume and profit of increased costs, sales level needed to make a profit, impact of changes in selling price, most profitable sales mix
o 5 basic assumptions of CVP: costs and revenues are linear within the relevant range, all costs are identifiable as variable or fixed, costs are affected only by changes in activities level, all units produced are sold, sales mix is constant if there is more than one product
o 4 key areas:
• contribution margin
§ Contribution margin per unit /unit selling price= contribution margin ratio
§ Indicates the proportion of each sales dollar available to cover fixed costs and earn a profit
• break-even point
§ BEP is the point at which the level of activity will result in zero profit
§ Can be expressed in terms of sales dollars or sales units
§ Break even sales= variable costs + fixed costs
§ Break even point in unit= fixed costs / contribution margin per unit
§ Break even point in dollars= fixed costs/ contribution margin ratio
• margin of safety
§ The difference between actual sales and breakeven sales
§ Gives a feel for how close projection operations are to the break even point--> indicates the amount by which sales can drop before a loss is incurred
• target point
§ A profit objective for the product line
§ Break even analysis is expanded by adding target net profit to total costs
§ Required sales= variable costs+fixed costs+target profit
§ (Fixed costs+target profit)/contribution margin ratio= required sales
Lecture 11
• Sustainable development is development that meets the needs of the present without compromising the ability of future generation to meet their own needs
• The need for sustainability focus: competition for resources, climate change, economic globalisation and, connectivity and communication
• Sustainable development
o It puts emphasis on three pillars:
1. Environmental protection
2. Social equity
3. Economic performance
• Limitations of traditional accounting:
o Focus on economic performance
o Remain silent on social and environmental issues labour
o How is success calculated? Profitable business or socially responsible business
o What do we try to do now? Explore unmarked unreported voices in social and environmental issues and the attributing consequences
• Environmental accounting:
o Carbon emissions:
• Emissions trading scheme(ETS) are designed to control emissions by allowing participants to trade excess emissions permits
• Carbon tax where a levy is paid based on the amount of emissions of greenhouse gases
o Water accounting
• Australian water accounting standards6= provide guidance and explanatory material to assist in preparing, presenting and assuring general purpose accounting reports
