Professional Documents
Culture Documents
Course slides
Syllabus
A B C D E F
Slide 6
Format of the Exam 1 mark question 10 questions Paper based exam: All multiple choice with a choice of 2 or 3 answers. Predominantly wordy questions.
Marks 10
2 mark questions
40 questions
Paper based exam: All multiple choice with a choice of 4 answers including words and calculations.
80
Total
Slide 7
90
Slide 8
Chapter 1
Purpose
Slide 10
Slide 11
Slide 12
Decision-making
What to produce/how should we finance it etc
Planning
Assessment of business requirements/budgeting
Control
Assessing inefficiencies
Performance Evaluation
Comparison to targets
Slide 13
Chapter 2
Cost classification
Introduction
Arrange costs into logical groups
By function e.g. production, admin, finance By nature e.g. labour, materials, stationery
Grouping by function:
Pool of costs
Production costs
Slide 15
Introduction
Grouping by nature:
Pool of costs
materials
Labour
Expenses
Slide 16
Cost classification
Production costs X
Direct Prodn cost Indirect Prodn cost Admin costs Selling & Distribution
X X
Slide 17
Cost classification
Direct Production costs Direct materials Direct labour Direct expenses Indirect Production costs Indirect materials Indirect labour Indirect expenses Total Production costs Non-production costs Administration costs Selling and distribution costs TOTAL COSTS
Slide 18
X X X X X X X
X X X
15.00 18.00
33.00
Slide 19
Terminology
Cost object
Cost unit
Divisional structures
Cost centre Profit centre Revenue centre Investment centre
Slide 20
Chapter 3
Cost behaviour
output
Hi-Low Method
Four step approach 1. Find the highest and the lowest output and the total costs at these levels of output. 2. Find the difference in output units and total cost. 3. Calculate the variable cost per unit (VC/unit). 4. Calculate the fixed cost by substitution.
Slide 23
Chapter 4
(y)
dependent variable
y = a + bx
Slide 25
Linear regression
Finds the mathematical line of best fit y = a + bx
b = n xy - x y
n x2 - ( x)2 a= y-b x n n
Slide 26
Correlation coefficient
r= n xy - x y
- no correlation
Coefficient of determination
The amount of variation in y which appears to be explained by variation in x Does NOT prove cause and effect Coefficient of determination = r2
Slide 28
Expected Values
Long term weighted average of possible outcomes: Expected Value (EV) = np
If +ve EV = accept If -ve EV = reject
Slide 29
Chapter 5
Spreadsheets
Definition
Electronic piece of paper
Slide 31
Uses of spreadsheets
Preparation of management accounts
Slide 33
Presentation of spreadsheets
Split into sections; Inputs, Calculations and Results
Use titles and column and row headings State data source and purpose of spreadsheet
Chapter 6
Material costs
Purchase order
Slide 36
__
X
__
X
Slide 37
Slide 38
Purchase costs
PxD
+
Order costs C x D/Q
+
Holding costs H x Q/2
=
TOTAL COSTS WANT TO MINIMISE THESE
Slide 39
EOQ
2CoD Ch
Given in Exam
Slide 40
Discounts
Available above a certain order quantity
Is it worth ordering above the EOQ to get the discount? Steps:
Calculate EOQ Recalculate EOQ if it falls within a discount band Calculate total costs at EOQ Calculate total costs at the lower boundary of each discount band
Slide 41
Similar to EOQ but factors in replenishment rate Total EBQ never held in stock as stock is being replenished during the period
Slide 42
Given in Exam
Q D 1 Ch 2 R
D Co Q
Slide 43
Chapter 7
Labour costs
Method of remuneration
Time-based systems
Piecework systems
Bonus/incentive schemes
Slide 45
Slide 46
Slide 47
Labour turnover
The rate at which employees leave the company
Reasons may be controllable or uncontrollable by the company
Slide 48
Chapter 8
Cost card
Aim to find the full cost of one unit $/unit
Direct materials 4kg @ $2/kg Direct labour 3 hrs @ $7/hr Prime cost Overheads X X X X 3 Steps Allocate
Slide 50
Production 1
Allocate
Production 2 Production 2
3. Absorb
Service
2.Reapportion
Production 1
COST UNIT
Slide 51
Overheads step 1
Total Production Costs Direct Costs
Production 1
Allocate
Production 2
Service
COST UNITS
Slide 52
Overheads step 2
Total Production Costs Direct Costs
Production 1
Allocate
Production 2 Production 2
Service
2.Reapportion
Production 1
COST UNITS
Slide 53
Reapportionment
To reapportion service cost centre overheads to production cost centres there are 2 methods Direct Method Reciprocal Method
Overheads step 3
Total Production Costs Direct Costs
Production 1
Allocate
Production 2 Production 2
3. Absorb
Service
2.Reapportion
Production 1
COST UNIT
Slide 55
3. Absorb
The final step is to charge these overheads to cost units. This is called absorption.
OAR (overhead absorption rate) =
_______________
Activity level
Production overhead
Slide 56
3. Absorption bases
(a) Per unit (b) Per labour hr (c) Per machine hr (d) % Direct Labour cost OAR/unit OAR/lab hr
OAR/mach hr
OAR/$ labour
OAR/$ mats
OAR/$ prime cost
Pre-determined OARs
Businesses estimate (or pre-determine) their OAR at the start of the year OAR = Production Overhead __________________
Activity level
BECOMES.. Pre-determined OAR = Budgeted overhead _________________ Budgeted activity level
Slide 58
Cont.
Businesses want to record overheads regularly during the year Overhead = Actual Activity x Absorbed (eg labour hrs) Pre-determined OAR
Slide 59
Cont.
At the end of the year actual overheads will be known Overhead Absorbed Actual Overhead
Slide 60
Budgeted overhead
Actual overhead Expenditure variance
Slide 61
OAR =
X 100
Production overhead
Slide 62
Chapter 9
Direct labour
Variable overhead Marginal cost Fixed overheads
X
X X X
Used to value stock under Marginal costing Used to value stock under Absorption costing
Slide 64
Contribution
Contribution = selling price less ALL variable costs
$ X X X
(X) X
Slide 65
$ X
(X) ____ X
$ X X
X X
Closing Stock (@ Full cost) (X) Overhead = Actual Activity X OAR Adjustment for under/(over) absorption X/(X) Absorbed _____ (X) ____
Gross Profit X Non production costs (sales, distribution, admin) ____ X Net Profit X
Slide 67
Reconciliation proforma
Year 1 $ Absorption costing profit Add: Fixed overhead in opening stock Less: Fixed overhead in Closing stock Year 2 $
Slide 68
Reconciling profits
Difference in profit = Change in stock X OAR/unit
But which profit is higher AC profit Or MC Profit? Production Closing stock AC Profit
Slide 69
Chapter 10
Process Costing
However
Will you get the full 100 pints from your barrel?? We only actually expect to get 95 pints
Cont.
So how have we found the cost of a pint to charge our party goers? Cost per unit = ________________________________ Input costs - Scrap value of normal loss
But
What about unexpected losses?? At the end of the party we realise that we didnt get the 95 pints we expected we only got 85.
Finally.good news
What if losses werent as much as we expected? At the end of the party we realise that instead of the 95 pints we were expecting we actually got 98 pints from the barrel.
Normal Loss
Normal loss = expected loss
Good output
Inputs
Process 1
Normal loss
Slide 77
Process 1
Normal loss
Slide 78
Units calculation
Input units = Good output + NL +/(-) AL/(AG)
4
Slide 79
Introduction to WIP
Input costs - Scrap value of normal loss ________________________________ Cost per unit = Input units - Normal loss units
Slide 80
Introduction to WIP
Finished unit
WIP units
Equivalent units
Output from process includes:
unit
unit
1 whole unit
Previous processes
Process I
Process II
Slide 83
Units calculation
Opening WIP + Input = Good output + NL +/(-) AL/(AG) + Closing WIP
Set up the process account and complete as far as possible Complete statement of equivalent units Calculate cost per equivalent unit Valuations & transfer to process account
3
4 5
Slide 84
Chapter 11
Joint products
forestry By product
Slide 86
Inputs
Product 2
Separation point
By-product
Slide 87
Joint products
Substantial sales value
By-products
Relatively low sales value Secondary to process
Do not allocate costs USUAL occurrence: reduce process costs ONE-OFF: misc income
Slide 88
Chapter 12
Slide 90
Direct materials
Direct labour (hrs @ $/hr) Variable overheads (hrs @ $/hr) Prime cost Fixed overheads Total cost Profit Selling price of job
X
X X X X X X X
Slide 91
Cost structures
If profit is 20% of cost Selling price Costs Profit 120% 100% 20% If profit is 20% of sales price Selling price Costs Profit 100% 80% 20%
MARK - UP
Slide 92
MARGIN
Slide 94
No charge Total actual cost Standard absorption cost Variable cost Opportunity cost Cost plus a margin for profit
Chapter 13
Budgeting
Control - variances
Actual operations
Slide 98
Preparation of budgets
Budget period Budget manual Budget committee
Slide 99
Slide 100
Chapter 14
Standard Costing
For example:
Direct materials 3kg x $2/kg $6
Based on standard usage ie 3kg / unit Based on standard cost / kg ie $2 / kg
Slide 102
Lecture example 1
Ideal standard
Current standard Basic standard Expected standard
Slide 103
Chapter 15
Variances
actual results
DIFFERENCES = VARIANCES
expected results
Can be FAVOURABLE
Slide 105
Variances
actual results
DIFFERENCES = VARIANCES
expected results
Or ADVERSE
Slide 106
Cost variances
Materials usage variance Materials price variance
3kg x $2 / kg 4hrs x $6 / hr
$8
Marginal cost
Slide 107
$38
x x x
Slide 108
x kg x kg x kg $x
Slide 109
Volume variance
Efficiency variance Capacity variance
Slide 110
Causes of variances
C A U S E
ontrollable expenditure ccuracy measurement of data ncontrollable expenditure tandard type xpectations unrealistic standard
Slide 111
Interdependence of variances
Variances may affect each other
e.g.
Cheaper materials Inferior quality Favourable price variance Adverse usage variance (& labour efficiency?)
Slide 112
Interdependence of variances
Variances may affect each other
e.g.
Increase in sales price Fall in demand
Slide 113
Chapter 16
Operating statement MC
Budgeted contribution Sales volume variance Flexed budgeted contribution Sales price variance Variable cost variances Actual contribution Budgeted fixed o/h Fixed o/h expenditure variance Actual fixed o/h Actual profit x x/(x) x x/(x) x/(x) x
x x/(x) (x) x
Slide 115
Operating statement
Reconcile between budgeted profit and actual profit
Slide 116
Operating statement AC
Budgeted profit
Sales volume variance Flexed budgeted profit Sales price variance Cost variances (including fixed overheads
x
x/(x) x x/(x) x/(x)
Actual profit
Slide 117
Chapter 17
Cost-volume-profit Analysis
Introduction
Must be EQUAL
Profit
Slide 119
Slide 120
Margin of safety
Margin of safety (in units) =
OR
Margin of safety (as %) = Budgeted sales volume breakeven sales volume __________________________________________ X 100 Budgeted sales volume
Slide 122
Breakeven chart
Total Revenue (TR)
TR = SP/unit x Q
TR = $8/unit x Q
if Q = 0, TR = 0
if Q = 5000, TR = 40,000
Slide 123
Breakeven chart
Total Cost (TC)
TC = FC + VC/unit x Q
TC = $5,700 + $6.50/unit x Q
if Q = 0, TC = 5,700
if Q = 5000, TC = 38,200
Slide 124
Breakeven chart
$ TR
40,000
38,200 30,400
Profit
TC
Margin of safety
Slide 125
$1,800
$0
3,800
5,000
Slide 126
Slide 127
Chapter 18
Relevant Costs
What is a relevant cost?
FUTURE
INCREMENTAL
CASHFLOW
Only cash
e.g. need 500kg of material for new project have 300kg in stock (cost $3/kg)
Not in stock
Just have to buy it
Relevant cost = current purchase price
No other use
If take from stock wont have to replace
Scarce
Spare capacity
Relevant cost = nil
Full capacity
Relevant cost = opportunity cost
Slide 132
E.g. labour is currently working on product A Product A Lose $ $ Sales revenue 50 Lose revenue 50 Materials (3) Save materials (3) Labour (1hr) (5) _____ Labour (1hr) _____ Contribution Loss to business 47 42
What do we lose if we take the labour away to work on a new product B?
Slide 133
Relevant cost
E.g. labour is currently working on product A Alternative calc. Product A $ $ Sales revenue 50 Lost contn 42 Materials (3) Add back labour 5 _____ Labour (1hr) (5) _____ Loss to business 47 Contribution 42 Relevant cost
Slide 134
Deprival value
How to find the relevant cost of an asset
Lower of..
Replacement cost
Higher of..
Value in use
3 4 5
Slide 136
Chapter 19
Linear programming
Limited resources
A business needs to identify the optimal production plan for utilising its resources to maximise profit
2 techniques
Single limiting factor Linear programming (>1 limiting factor)
Slide 138
Example
A business manufactures 2 products garden gnomes and garden statues. Information for one unit of each product is given below:
Gnome Contribution Material Labour $6 2kg 5 hours Statue $9 4kg 6 hours
There are only 80 kg of material available and 180 hours of labour. Demand for the statues will not be above 10 units per week.
Slide 139
Define variables
let g = number of gnomes produced per week let s = number of statues produced per week let k = contribution per week
Slide 140
Establish constraints
Materials Labour Demand Non-negativity 2g + 4s 5g + 6s s 10 g,s > 0 80 180
subject to:
Max k = 6g + 9s
Slide 141
Find co-ordinates
Labour
5g+6s=180
When g=0, s= 30 s=0, g=36
Demand Non-negativity
s = 10 g,s > 0
Slide 142
s
30
Materials: 2g + 4s = 80
20
10
0
Slide 143
10
g
20 30 40
20
10
C D
10 20 30
A
0
Slide 144
g
40
Linear programming steps Plot objective function and identify optimal point
Slide 145
s
30
Materials: 2g + 4s
80
20
10
C D
A
0
Slide 146
10
20
30
g
40
Materials Labour
Materials
(i) (ii)
Rearrange (i) to get g on own Substitute in (ii) Labour 5g + 6s = 180 (ii) 5(40 2s) + 6s = 180 200 10s + 6s = 180 200 180 = 4s s=5 Slide 147