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Outlining of the course in management accounting
Lecture 1; Introduction and economic relationships
Chapter 1-3, 5, 11
Lecture 2; Variable and fixed costs, cost-volume-profit analysis
Chapter 5, 6
Lecture 3; Product and service costing
Chapter 3, 4
Lecture 4; Budgets and budgeting
Chapter 8
Lecture 5; Capital investment decisions
Chapter 7
Lecture 4; Performance measurement and accounting for control (including standard costs)
Chapter 9, 10
Calculation exercises; 2 occations
Excell excercise; 1 occation (mandatory)
Excel- and calculate exercises; division into groups
Excel exercises are mandatory!
1st group (10.15-12.00)
2nd group (13.15-15.00)
Last group (15.15-17-00)
Write your name on the time-list, depending on what time you want to attend!
Management Accounting
Management Accounting = carried out within a business for its own internal uses, to assist management in controlling the business and in making business decisions.
Management Accounting processes are concerned with the provision of information of use internally, within the organisation, for functions such as decision-making by managers, and the control of business activities.
The process of management accounting g
Different ways to view the goals with a business
• Profit maximization model
• Managerial theories of the firm
• Administrative Behavior, model of satisfaction
• The stakeholder theory
Profit maximization model
Business goals: to maximate profit
Input Output
Porter’s value chain
Porter -85
Managerial theories of the firm
Managers goal is about maximizing their own utility (status, power, bonus)
By maximizing sales the owners can be satisfied.
Theorists:
William Baumol
Oliver Williamson
Administrative Behavior, model of satisfaction
Are developed from the “Behavioural theories of the firm”.
A business strives for satisfaction, instead of maximizing profit.
The profit has to be high enough to survive.
Theorist:
Herbert Simon
The stakeholder theory
Firm
Owner
Lenders
Customers
CompetitorsEmployees
Supplier
State
Economic terms & relationship
Profit planning
Defined as a set of steps that are taken by firms to achieve the desired level of profit.
Financial planning
Revenue, costs, income, cash inflows and cash outflows
Revenues & Costs/Expenses
Revenue– Increase in ownership generated from sale/delivery of
goods or services– Also called sales or turnover
Cost/Expenses– A sacrifice of resources for a particular purpose (produce
goods and services)– Measured by monetary units that must be paid for goods
and services
Matching– Relating revenues and costs/expenses (cost of good sold) to
a particular period for which a measurement of income is desired
Revenues & Costs/Expenses Revenue - Examples
Sales = Price per unit x Units sold/produced
Interest revenue
Cost/Expenses - Examples
Research & development
Material (raw material, custom, transportation etc)
Cost of goods sold
Tools
Employees (Salary and payroll tax)
Machines and Equipment (depreciation, maintenance and repairs)
Rent for premises
Interest cost
Marketing
Insurance
Distribution
Income/Result
Income
- An amount by which total assets increase in an accounting period. For income to be realized it must be related to actual business transactions (or contracted).
Cost /expenditure
- Decrease in ownership generated from delivery of goods or services or using up assets
Income/Result = Revenue – Costs/ExpensesIf Revenues > Costs/Expenses = Profit/GainIf Costs/Expenses > Revenues = Loss/Deficit
Operating income = Total revenues – Total costsNet income/profit = Operating profit + Interest revenue – Interest cost – Income
taxes
Cash inflow & Cash outflow
Cash inflow/Cash received– Money received by a firm as a result of its
operating activities, investment activities and financing activities
Cash outflow /Cash payment– Money paid by a firm as a result of its
operating activities, investment activities and financing activities
Profitability
Income/profit measures the outcome in absolute amountsIncome/profit has some limits Useless indicator of how well a company is doing
IncomeProfitability is a percentage: Return on investment = -----------
Invested capital
Measure of income in relation to the investment required to obtain that income
Profitability is therefore a better measure than income as an indicator of how well a company is doing
Effectiveness
Degree to which a predetermined objective or target is meetThe degree of effectiveness is high if a company reach its
target/targets
Value of outputEffectiveness = ---------------------
Value of input
Effectiveness is often measured in financial terms, e.g. profitability (return on equity):
Profit Profitability = -----------
Capital
Efficiency
A relative amount of inputs used to achieve a given level of outputOften measured in physical terms, i.e. quantity
Quantity output Efficiency = ----------------------- Quantity input
Number of customers served per dayQuantity material in kilograms per product unit
Budgeted income statement
Cash budget
Budgeted balance sheet
Financial status
Budgeted balance sheet
Plant assets Owners equityProperty Capital stockEquipment and fixtures Budgeted incomeCurrent assets Long term debtInventory Bank loan Accounts receivable Current liabilitiesCash Accounts payableTotal assets Total equity and liabilities
• Assets = Debt + Equity
•Expected assets and liabilities at a specific point of time
Budgeted income statement
•Revenue and costs/expenditure
•Accrual basis (relating revenues and expenses to the time period when they occur)
RevenueSales revenue
Operating expenses
Cost of goods sold
Gross incomeWages and commissions
Depreciation
Rent
Miscellaneous
Operating incomeInterest revenue
Interest cost
Net income
Cash budget
•Future cash inflows and cash outflows
•Time period (quarter-by-quarter, month-by-month or week-by week)
•Cash receipts depends on the credit terms extended to customers
•Purchases depend on the credit terms extended by suppliers
Cash balance, Beginning
Cash inflows
Sales (Collection from customers)
Borrowings
New issues of shares
Total cash inflows
Cash out flows
Cost of goods sold
Wages
Equipment purchase
Loan payments
Interest
Overhead
Dividend
Total cash outflows
Cash balance, ending