ZCMA 6022 : MANAGERIAL ACCOUNTING
ASSESSMENT ASSESSMENT AMONG THE ACTIVITIES Individual Activities 1 2 3 4 5
Exercise 1,2,3,4 5% each 20% 2 Group Project Individual Assignment I,II,III, IV, V 6% each 30% 3 Group Oral Presentation 10% Group 5% 4 Final Write Up 40% Group Assignment I,II,III 15% Individual Assignment I,II,III, IV, V 25% 5 TOTAL 100% AMONG THE ACTIVITIES Group Project Individual Assignment I,II,III, IV, V
Each Individual Assignment will consists of THREE MAIN COMPONENTS 1 Preparation/ Calculation/ Concept & Analytical Review 2% 2 Comparative to another type of organization: Eg: Service Company vs Manufacturing Company 3 Role Play As BOD what information will I be looking at on Sales Budget? TOTAL 6% Group Project Final Write Up Group Assignment I,II,III
Marks TOTAL FINAL MARKS 1 Company Background 10 2 5% 2 Master Budget 3 Cost-Volume-Profit Analysis TOTAL 15% Group Assignment is part of Final Write Up. Failing to work as a team will result in points being deducted Group Project Final Write Up I,II,III, IV, V [Individual]
Each Individual Assignment will consists of THREE MAIN COMPONENTS Marks 1 Company Background 10 2 Planning 25 3 Directing Operation 35 4 Decision Making 15 5 Performance Evaluation (Control) 6 Summary Total Marks 75 TOTAL FINAL MARKS (75 3) 25% Where are we? Where are we heading? What are we doing today?
PLAN DIRECTING OPERATION DECISION MAKING CONTROL Where are we heading? What are we doing today? MANAGERIAL ACCOUNTING
MODULE 2 Managerial Accounting : Costing Part 1 Prepared by: Nasuha Nordin ZCMA 6022 : Managerial Accounting Topics for Module 2 Product Cost Process Cost Cost Behavior
Cost Estimation Costing Topics for Module 2 WEATHERMASTER WINDOW SDN BHD
MAIN OPERATION In bound Process Out bound SUPPORTING ACTIVITIES HR MARKETING GENERAL ADMINISTATION Operational Flow WEATHERMASTER WINDOW SDN BHD
MAIN OPERATION In bound Process Out bound RAW MATERIAL : FRAME FRAME DIVISION LOGISTIC WAREHOUSE WIP FINISHED GOODS : FRAMED WINDOW GLASS DIVISION RAW MATERIAL : WINDOW GLASS Manufacturing Cost Flows
3-11 Manufacturing Cost Flows BALANCE SHEET COST INCOME STATEMENT Material Purchases Raw Materials Manufacturing Overhead Work inProcess Direct Labor Finished Goods Cost ofGoods Sold Part I All raw materials, work in process, and unsold finished goods at the end of the period are shown as inventoriable costs in the asset section of the balance sheet. Part II As finished goods are sold, their costs are transferred to cost of goods sold in the income statement. Part III Selling and administrative expenses are not involved in making the product; therefore, they are treated as period costs and reported in the income statement for the period the cost is incurred. Selling and Administrative Period Costs WEATHERMASTER WINDOW SDN BHD
MAIN OPERATION In bound Process Out bound RAW MATERIAL WORK IN PROGRESS FINISHED GOODS BALANCE SHEET ASSET - INVENTORIES WEATHERMASTER WINDOW SDN BHD
MAIN OPERATION In bound Process Out bound RAW MATERIAL WORK IN PROGRESS FINISHED GOODS INCOME STATEMENT COST OF GOODS SOLD WEATHERMASTER WINDOW SDN BHD
MAIN OPERATION IN BOUND COST OF PURCHASE: FRAME WINDOW GLASS RAW MATERIAL COST OF PURCHASE BALANCE SHEET : INVENTORY INCOME STATEMENT : COST OF GOODS SOLD ` WEATHERMASTER WINDOW SDN BHD
MAIN OPERATION PROCESS COST OF PURCHASE: FRAME WINDOW GLASS WORK IN PROGRESS COST OF LABOUR BALANCE SHEET: INVENTORY COST OF RAW MATERIAL INCOME STATEMENT : COGS ` MANUFACTURING OVERHEAD WEATHERMASTER WINDOW SDN BHD
MAIN OPERATION PROCESS COST OF PURCHASE: FRAME WINDOW GLASS FINISHED GOODS INCOME STATEMENT : COST OF GOODS SOLD BALANCE SHEET: INVENTORY ` WEATHERMASTER WINDOW SDN BHD
MAIN OPERATION In bound Process Out bound SUPPORTING ACTIVITIES HR MARKETING GENERAL ADMINISTATION Operational Flow WEATHERMASTER WINDOW SDN BHD
MAIN OPERATION In bound Process Out bound ALL COST THAT IS ASSIGNED TO GOODS THAT WERE EITHER PURCHASED OR MANUFACTURED IS PRODUCT COST WEATHERMASTER WINDOW SDN BHD
SUPPORTING ACTIVITIES HR MARKETING GENERAL ADMINISTATION ALL COST THAT IS NOT PRODUCT COST IS PERIOD COST Activity 1 : Group Discussion
You may discuss with yourGroup Project groups on yourown Operation Flow DIRECT COST INDIRECT COST PRODUCT COST Product Cost PRODUCT COSTING Cost Accumulation Cost Measurement Cost Assignment
Record Costs Classifies Costs Assigns costs to Cost Objects Purchase materials Direct material Product 2 Product 1 Assemblers wages Finishers wages Direct labour Manufacturing overhead Supervisory salary Factory depreciation Other Factory depreciation COST ACCUMULATION : - Refers to recognition and recording of costs - Source documents are require as evidences to record costs and to keep track of product costs as they occur. E.g. Material requisition form - to determine total material used in production ( direct material, indirect material) COST MEASUREMENT: - Refers to cost classification that determines the dollar amount of direct materials, direct labours and manufacturing overhead used in the production. - Two ways to measure Actual costing Normal costing Non-Profit Organization
Non Manufacturing DM, DL, DOH Merchandising cost of buying and transporting merchandise Service cost of providing service (eg: cost of cashierstaff, cost of fuel to provide transportationservice) Non-Profit Organization cost of organizing non-profit events (eg: cost floodrelief activities) Objective: To determine product cost or unit costs of product /service Product Cost Non-Profit Organization
Non Manufacturing Selling expenses, General and & Admin expenses Merchandising Service Non-Profit Organization Process Cost Why do need to know product cost?
Objective: To determine product cost or unit costs of product /service How do we calculate product cost?
COST MEASUREMENT: Refers to cost classification that determines the dollar amount of direct materials, direct labours and manufacturing overhead used in the production. Two ways to measure Actual costing Normal costing COST MEASUREMENT: ACTUAL VS NORMAL
Direct Material Actual Direct Labour OH Predetermined ONLY KNOWN AT END OF THE ACCOUNTING PERIOD, IN WHICH MAY NO LONGER BE RELEVANT INFORMATION FOR DECISION MAKING OR PLANNING KNOWN BEFORE END OF ACCOUNTING PERIOD In practice, normal costing is more preferable than actual costing Actual costing is not known until after the end of the accounting period therefore, cost of product would not available in a timely fashion Variations in production due to seasonal factors causes the manufacturing overhead cots per unit fluctuate ACTUAL VS NORMAL COSTING EXAMPLE Normal Costing Actual Costing
WEATHERMASTER WINDOW SDN BHD SCHEDULE OF COST OF GOODS MANUFACTURED FOR THE MONTH OF NOVEMBER 20X1 Normal Costing Actual Costing $ Manufacturing Overhead (actual) Frame Division 18,050 Glass Division 11,000 29,050 Manufacturing Overhead (normal) 17,895 10,905 28,800 UNDER APPLIED BY $250 Budgeted manufacturing overhead cost
How do we get thePredetermined Overhead? Budgeted manufacturing overhead cost COST TRACING AND ALLOCATION/APPLICATION
COST ASSIGNMENT BUDGETED MANUFACTURING COST DM + DL COST TRACING AND ALLOCATION/APPLICATION Direct costs cost tracing to products Indirect costs cost allocating to products using arbitrary method Traditional methods: single plant wide rate and departmental rate Activity based costing DOH What is JOB COSTING? Product Cost is a general application of cost assignment, when : The company only has a few product that is almost similar The company has easy to manage job orders The company has a simple overall structure Another way of looking at product costing is by using job costing Job order costing accumulates thecosts for a specific customersorder because the orders tend tovary from customer to customer JOB COSTING Product Cost is a general application of cost assignment, when : The company only has a few product that is almost similar The company has easy to manage job orders The company has a simple overall structure Another way of looking at product costing is by using job costing Job-Order Costing POHR
The total direct material, direct labor, and manufacturing overhead costs assigned to Job A-143 is $236. Since this particular job included 2 units of production, the average cost per unit is $118. We calculated the average cost by dividing the total cost of $236 by the 2 crates produced. JOB COSTING What is POHR ?
Product Cost is a general application of cost assignment, when : The company only has a few product that is almost similar The company has easy to manage job orders The company has a simple overall structure Another way of looking at product costing is by using job costing OVERHEAD APPLICATION Overhead is applied to jobs using a PREDETERMINEDOVERHEAD RATE (POHR) based on estimates made atthe beginning of the accounting period. POHR= Budgeted manufacturing overhead cost Budgeted amount of cost driver (or activity base) Based on estimates, and determined before the period begins Actual amount of the allocation base, such as direct labor hours, incurred during the period Overhead applied=POHR Actual activity Job-Order Costing - Document Flow Summary
3-36 Job-Order Costing - Document Flow Summary Materials used may be either direct or indirect. Direct materials Job Cost Sheets COST ALLOCATION COST TRACING Materials Requisition Indirect materials From Manufacturing Overhead Account Job-Order Costing - Document Flow Summary
3-37 Job-Order Costing - Document Flow Summary An employees time may be either direct or indirect. Direct Labor Job Cost Sheets COST ALLOCATION COST TRACING Employee Time Ticket Indirect Labor Manufacturing Overhead Account Job-Order Costing - Document Flow Summary
3-38 Job-Order Costing - Document Flow Summary COST ALLOCATION Employee Time Ticket Indirect Labor COST TRACING Other Actual OH Charges Manufacturing Overhead Account Applied Overhead Job Cost Sheets Indirect Material Materials Requisition COST ALLOCATION LETS LOOK AT AN ILLUSTRATION Job Costing : Service Company
Product Cost is a general application of cost assignment, when : The company only has a few product that is almost similar The company has easy to manage job orders The company has a simple overall structure Another way of looking at product costing is by using job costing Activity 2 : Exercise 2 Job Order Costing in Consulting Firm
Please complete the Question Distributedand Submit before you leave using softcopyin IFOLIO or Handwritten Hardcopy Job Order Costing in Consulting Firm (40 minutes) Problem 3-48 (Hilton and Platt 2015) 5% of total Assessment Marks Good Luck! ANSWER MANAGERIAL ACCOUNTING
MODULE 2 : Managerial Accounting : Costing Prepared by: Nasuha Nordin ZCMA 6022 : Managerial Accounting What is Process Costing? Process costing is used inrepetitive productionenvironments where largenumbers of identical or verysimilar products aremanufactured in a continuousflow Process Cost MANUFACTURING OVERHEAD FINISHED GOODS INVENTORY
DIRECT MATERIAL DIRECT LABOUR MANUFACTURING OVERHEAD Job 2 Job 1 Job 3 FINISHED GOODS INVENTORY COST OF GOODS SOLD JOB COSTING FINISHED GOODS INVENTORY MANUFACTURING OVERHEAD
JOB COSTING Job 2 Job 1 Job 3 DIRECT MATERIAL DIRECT LABOUR FINISHED GOODS INVENTORY COST OF GOODS SOLD MANUFACTURING OVERHEAD WIP Inventory Prodn Dept A
WIP Inventory Prodn Dept B Finished Goods Inventory PROCESS COSTING Cost of Goods Sold Main difference JOB COSTING PROCESS COSTING
Cost areaccumulatedby job order Cost areaccumulatedby department Main difference What Have We Learn So Far? How do we identify cost,we first must know thevarious behavior of cost
Cost Behavior VARIABLE COST VS. FIXED COSTS COST CLASSIFICATIONS FOR PREDICTING COST BEHAVIOR
3-51 COST CLASSIFICATIONS FOR PREDICTING COST BEHAVIOR How a cost will react tochanges in the level ofactivity within therelevant range. Total variable costs changewhen activity changes. Total fixed costs remainunchanged when activitychanges. Quite frequently, it is necessary to predict how a certain cost will behave in response to a change in activity. For example, a manager may want to estimate the impact that a 5% increase in sales would have on the companys total electric bill. Cost behavior refers to how a cost will react to changes in the level of activity within the relevant range. The most commonly used classifications of cost behavior are variable and fixed costs. Your total texting bill is based on how many texts you send.
3-52 VARIABLE COST Your total texting bill is based on howmany texts you send. Number of Texts Sent Total Texting Bill A variable cost varies in direct proportion to changes in the level of activity. For example, if you dont have a texting plan on your cell phone, text messaging costs 5 cents per text.Your total texting bill increases with the number of texts you send. The cost per text sent is constant at
3-53 VARIABLE COST PER UNIT The cost per text sent is constant at 5 cents per text. Number of Texts Sent Cost Per Text Sent Although variable costs change in total as the activity level rises and falls, variable cost per unit is constant. For example, the cost per text message sent is constant at 5 cents per text. FIXED COST Monthly Cell Phone Contract Fee
3-54 FIXED COST Your monthly contract fee for your cell phone is fixedfor the number of monthly minutes in your contract.Themonthly contract fee does not change based on thenumber of calls you make. Number of Minutes Used Within Monthly Plan Monthly Cell Phone Contract Fee A fixed cost is constant within the relevant range. In other words, fixed costs do not change for changes in activity that fall within the relevant range. For example, your monthly contract fee for your cell phone is a fixed amount for a certain number of minutes.The monthly contract fee does not change based on the number of calls you make. Of course, if you go over your monthly minutes allotment, you have exceed the relevant range for your monthly contract and will be charged above and beyond your monthly contract fee. FIXED COST PER UNIT Monthly Cell Phone Contract Fee
3-55 FIXED COST PER UNIT Within the monthly contract allotment, the average fixed costper cell phone call made decreases as more calls are made. Number of Minutes Used Within Monthly Plan Monthly Cell Phone Contract Fee However, when expressed on a per unit basis, a fixed cost is inversely related to activitythe per unit cost decreases when activity rises and increases when activity falls.For example, the average fixed cost per cell phone call made decreases as more calls are made in the month. COST CLASSIFICATIONS FOR PREDICTING COST BEHAVIOR
3-56 COST CLASSIFICATIONS FOR PREDICTING COST BEHAVIOR It is helpful to think about variable and fixed cost behavior in a 2x2 matrix, as illustrated here.Take a few minutes and review this summary of cost behavior for variable and fixed costs. Total cost remains constant within a narrow range of activity.
Step-Variable Costs Total cost remains constant within a narrow range of activity. Cost Some costs are nearly variable, but they increase in small steps instead of continuously.Such costs, called step-variable costs, usually include inputs that are purchased and used in relatively small increments.For a narrow range of activity, the total cost remains the same.For example, the hourly rate for cashiers at a local grocery store is constant.During hours when there are few customers only 3 cashiers are needed.Therefore, at these low activity levels, the total cost for cashiers is the same.(LO2) Activity Step-Variable Costs Total cost increases to anew higher cost for the next higher range of activity. Cost But when the number of customers increases, the number of cashiers required increases.The hourly rate, or cost per unit, stays the same but the total cost increases at the next higher range of activity.(LO2) Activity Step-Fixed Costs Continue
Example: Office spaceis available at a rentalrate of $30,000 per yearin increments of 1,000square feet.As thebusiness grows morespace is rented,increasing the total cost. Some costs remain fixed over a wide range of activity but jump to a different amount for activity levels outside that range. Such costs are called step-fixed costs. (LO2) Continue Rent Cost in Thousands of Dollars
Step-Fixed Costs Total cost doesnt change for a wide range of activity, and then jumps to a new higher cost for the next higher range of activity. 90 60 Rent Cost in Thousands of Dollars A company may rent office space at the cost of $30,000 per 1,000 square feet.But it is only available in increments of 1,000 square feet.The rent remains $30,000 regardless of activity.As business increases, more square footage is needed.The next 1,000 square feet costs another $30,000.As the company expands, another 1,000 square feet is needed, costing another $30,000.(LO2) 30 01, , , Rented Area (Square Feet) Slope is variable cost per unit of activity.
Semi-variable Cost Slope is variable cost per unit of activity. Total semivariable cost VariableUtility Charge Total Utility Cost The companys monthly bill would always be at least $1,500, the fixed portion of the lease.The total cost would rise from $1,500, depending on how hours were used.Therefore, the slope of a total cost line is the variable cost per unit of activity.(LO2) Fixed Monthly Utility Charge Activity (Kilowatt Hours) OTHER COST BEHAVIOR Engineered Cost Committed Cost Discretionary Cost
Bears a definitive physical relationship to theactivity measure (eg: material cost) Committed Cost Results from an organization ownership or usefacilities (eg: rental, income tax) Discretionary Cost Result of a management decision to spend aparticular amount of money for some purpose,which can be changed in the short run (eg: OTHER COST BEHAVIOR OTHER COST BEHAVIOR Controllable Cost Uncontrollable Cost
A cost that a manager can control or heavilyinfluence the level of cost (eg: cost of food usedin restaurant) Uncontrollable Cost A cost a manager has no control or influenceover (eg: advertising cost allocated by HQ) OTHER COST BEHAVIOR Activity 3 : Class discussion
Lets have a quick discussion onCost Behavior of differentorganization How do we estimate cost? Cost Estimation Cost Estimation TABLE GRAPH Account-Classification Visual-Fit Method
High-Low Method Least Square Regression Method Multiple Regression Method Engineering Method TABLE GRAPH What is the use of Cost Estimation? Cost Estimation Account Classification :
Classifies ledger accounts to either Fixed cost Variable cost Semi-variable cost Cost Estimation Visual-Fit Method Suitable for semi-variable cost
Plot observation Scatter diagram Intercept = FC VC = Semi-Variable Cost (-) FC Cost Estimation High-Low Method
Use for semi-variable costapproximation Variable Cost Per unit = (HIGHEST COST - LOWEST COST )/ (HIGHEST ACTIVITY - LOWEST ACTIVITY Cost Estimation Least Square Regression Method Y = a + b1X1 Cost Estimation Multiple Regression Method Y = a + b1X1+ b2X2 Cost Estimation Engineering Method
How much needed and how muchit cost Not relying so much on historicaldata Account Classification
Cost Estimation Account Classification Engineering Method easy to use for simpleorganization more complex to explainwithout in depth experienceon the expenditure may get varied analysis dueto dependencies ofprofessional judgement forward looking comprehensive informationof activities involved and costinvolved lack of objectivity : eg: twocost analyst may give todifferent report Time Consuming andexpensive Account Classification
Cost Estimation Account Classification Visual-Fit Method easy to use for simpleorganization more complex to explainwithout in depthexperience on theexpenditure may get varied analysisdue to dependencies ofprofessional judgement Easy to explain with sufficientknowledge, analyst isable to spot outliers lack of objectivity : eg:two cost analyst maygive to different report Cost Estimation High-Low Method Visual-Fit Method
easy to use for simpleorganization only uses high and lowpoints of data lack of objectivity Easy to explain with sufficientknowledge, analyst isable to spot outliers lack of objectivity : eg:two cost analyst maygive to different report Least Square Regression Method
Cost Estimation Visual-Fit Method Least Square Regression Method Y = a + b1X1 Easy to explain with sufficientknowledge, analyst isable to spot outliers Make use of all availabledata lack of objectivity : eg:two cost analyst maygive to different report Easy to explain with sufficient knowledge,analyst is able to spot outliers Make use of all available data objective outcome economic plausibility Goodness of fit (R2) Economic plausibility : whether the regression line makes sense : whether x causes y (these can be determined through literature review or professional judgement and experience) Goodness of fit : Least Square Regression Method
Cost Estimation Multiple Regression Y = a + b1X1+ b2X2 Least Square Regression Method Y = a + b1X1 Easy to explain with sufficient knowledge,analyst is able to spot outliers Make use of all available data objective outcome economic plausibility Goodness of fit (R2) Easy to explain with sufficient knowledge,analyst is able to spot outliers Make use of all available data objective outcome more complex and requiresmore statistical capabilities economic plausibility Goodness of fit (R2) Economic plausibility : whether the regression line makes sense : whether x causes y (these can be determined through literature review or professional judgement and experience) Goodness of fit : R sqr >0.8 goodness of fit is ok Cost Estimation can be used in allstages of managerial accounting:
Plan Decision Making Directing Operation Control Cost Estimation Cost Estimation also helps toascertain the behavior of costso that an estimation of costcan or cant be allocated Cost Estimation Scenario: Donuts bakery need to identify the behavior of Utilities cost using cost estimation techniques Cost Estimation Cost Behavior Identify relevant cost behaviors to your organization Identify the cost/ expense to be analyzed Cost Estimation Identify relevant cost estimation methods Ascertain whether the cost is FC, VC, Semi-Variable, Step FC, Step VC Use the Cost Estimated Cost estimated Fixed -> cost cant be allocated directly to specific job and the cost will not be effected by level of activities Variable -> cost may be allocated directly to specific job and the cost is expected to varies with level of activities / production Semi-Variable -> cost consists of both fixed and variable, hence a portion cant be directly allocated and the other can be directly allocated and the cost is expected to have unvaried portion and varied portion Cost Behavior The relevant cost behaviors are : Fixed Cost, Variable Cost, Semi-Variable Cost Cost to be analyzed : Utilities Cost Estimation Cost Estimation Methods : Account-Classification OR Visual-Fit Method OR High-Low Method OR Least Square Regression Method OR Engineering Method Use of Cost Estimated Cost estimated Using Method above: (1) Utilities is found to be Semi-Variable Cost, and (2) Utilities FC = $1,500 VC = $0.05/unit Activity 4 : Group Project Individual Assignment II
Team Name: Team Member Cost Estimation Team Member Name 1 Accounting Analysis 2 Engineering Method 3 High Low Method Visual Fit Method 5 Least Square Regression Method Lets get busy! Costing Absorption Costing ABC Target Costing Life Cycle Costing COSTING When seeking to make profit on a product it is essential that the total revenue arising from the product exceeds total costs, whether the costs are incurred before, during or after the product is produced ACCA Global, 2015 Life Cycle Costing Life Cycle Costing Target Cost = Target Price (-) Target Profit There are 7 key principles to target Cost:
Price led costing Focus on customer Focus on product design Focus on process design Cross functional teams Life cycle costs Value chain orientation Target Cost Price led costing Focus on customer Focus on product design Focus on process design Cross functional teams Life cycle costs Value chain orientation Which Approach should Target cost take on. Traditional costing. ABC
Which Approach should Target cost take on? Traditional costing? ABC? Engineering costing? Target Cost Price led costing Focus on customer Focus on product design Focus on process design Cross functional teams Life cycle costs Value chain orientation ABSORPTION VS. VARIABLE COSTING
Absorption Costing Sales Cost of good sold Beginning inventory + Cost of goodmanufactured Goods available forsale - Ending inventory Gross margin Selling &administrativeexpenses Net operating income Variable costing Sales Variable costs Variable Costs of good sold Beginning inventory + Cost of goodmanufactured Goods available for sale - Ending inventory Selling& administrative Contribution margin Fixed costs Manufacturing overhead Selling & administrative Net operating income