Week 1 - Sustainability
Corporate Sustainability Framework – (Guides sustainability reporting):
Sustainability is based on the concept of sustainable development where the needs of today are met without compromising the ability of future generations to meet their own needs. Involves
generating profits in a way that minimises damage to the economy, environment and community – both now and in the future.
Sustainable development focuses on achieving a sustainable economy, a sustainable environment and a sustainable society.
Corporate social responsibility (CSR) involves firms considering the social and environmental impact of their activities when making decisions.
- CSR reporting or Triple Bottom Line (TBL) reporting involves the disclosure of information to stakeholders regarding the economic, environmental and social performance of a firm’s operations.
- Firms report on their social and environmental impacts for the benefit of the stakeholders of the firm and ultimately to increase the value of the firm:
Sustainability Reporting:
- Formal reporting of information about corporate sustainability, that describes the economic, environmental and social impact of an organisations activities.
Week 4 – Standard Costs for Control (Pt. 1: Material and Labour)
Standard Costing:
1. Standard costs are set.
2. The actual costs are measured.
3. Standard cost variances are identified.
How to Set Standards:
There are several methods for setting standards:
- Analysis of historical data: Useful in a mature production process, where there is much production experience. Cheap and easy way to set standards. However, historical data becomes irrelevant very quickly if production process is changed, prices of supplies change or worker’s and processes become more efficient.
- Engineering methods: Emphasis is on what a product should cost in the future instead of what it did cost in the past. Management and engineers work together to determine exactly how much DM should be used as well as how much machinery and DL hours are required.
Standard definitions:
- Standard material quantity: The total amount of direct material required to produce one unit of product.
- Standard material price: The total delivered cost of DM required to produce one unit of product.
- Standard direct labour: The number of labour hours normally needed to manufacture one unit of product
- Standard labour rate: The total hourly cost of wages, including on-costs.
Standard Cost Variances (calculations):
- Direct material price variance: Measures the effect on cost of purchasing at a price that is different from standard.
o = PQ (AP-SP)
PQ = quantity purchased, AP = actual price, SP = standard price
o Can also sometimes be calculated using AQ (Actual quantity used) instead of PQ.
- Direct material quantity variance: measures the effect of using a different quantity of material in production compared with standard.
o = SP (AQ – SQ)
SP = standard price, AQ = Actual quantity used, SQ = standard quantity used (at actual output level).
- Direct labour rate variance: measure of the effect on cost of paying a different labour rate compared to standard.
o = AH (AR – SR)
AH = actual hours used, AR = actual rate per hr, SR = standard rate per hr
- Direct labour efficiency variance: measure of the effect on cost of using a different number of direct labour hours compared to the standard.
o = SR (AH – SH)
AH = actual hours used, SH = standard hours allowed (at actual output), SR = standard rate per hr
Meaning of Significant Variances:
Have to consider whether variance is favourable or unfavourable. The size of the variance (significance). Recurrence of variances. Trends over time. Whether or not the variance can be controlled by manager. Cause of variance -> benefits and costs from variance cause.
- Direct material price variance: positive value is unfavourable. Means that the actual price paid was higher than the standard price set. Could mean:
o F – because lower quality products were purchased at a cheaper price. Won’t actually be favourable for the firm because will make product lower quality.
Increase wastage and returns.
o U – could be due to an external cause such as change in supplier or shortage.
Not necessarily unfavourable to the business if needed to ensure quality is kept up. Better quality could also lead to higher efficiency by workers.
- Direct material quantity variance: positive value is unfavourable.
- Direct labour rate variance: positive value is unfavourable.
- Direct labour efficiency variance: positive value is unfavourable.
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Control of Costs via Responsibility Assignment:
Week 11 – Managing Costs & Performance: Activity-Based MGMT
Cost Management:
Cost management is the improvement of an organisation’s cost effectiveness through understanding and managing the real causes of costs.
Difference to traditional approaches:
Conventional Approaches Cost Control & Contemporary Cost Management
Drivers of Costs
- Managers control costs by bringing them into line with a predetermined goal (eg budgeted costs).
- Focus on cost results &
outcomes.
- Identifies the factors that really drive costs.
- Reduces costs by identifying wasted resources and
eliminating this waste.
Strategic Perspective
- Focused on controlling costs within an organisation (INTERNAL PERSPECTIVE).
- Focused on controlling costs within an organisation (INTERNAL PERSPECTIVE) - AND concerned with aceiving value for customer (STRATEGIC PERSPECTIVE).
Process Perspective
- Control costs by reporting results for responsibility centres based on functional areas of a business
(production, marketing, admin…)
- Recognises that customers’
needs are met by processes that flow across the business &
b/w functional areas.
Activity-Based Management:
Activity-based management (ABM) refers to the process of using information from activity-based costing to analyse activities, cost drivers and performance so that customer value and profitability are improved.
Activities must be redefined for ABM to improve activity analysis.
- Activities must be identified at a greater level of detail to reflect individual tasks/steps (eg split factory management into program production, expediting orders, management of plant). This allows better identification of non-value-added activities.
- Total cost of each activity includes OH, DL & DM.
- Activity analysis goes beyond factory door in both activity identification and cost inclusion.
Four steps to determine the real cause of costs, eliminate costs & manage costs:
- Identify the major opportunities for cost reduction: This is done by splitting activities into either value-added or non-value-added activities. Value-added activities provide
essential value to the customer or are essential for the operation of the business. Non- value-added
