Managerial Accounting coursera PDF

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Managerial accounting 1. Helps compile the costs of the organizations products and services? - what products or services should we offer? -how much should we charge? -should we outsource the making of a product to other organization 2. Helps in planning future actvties -budgets -investments 3. Assist in monitoring actual performance by comparing to planned results

3 books Financial books-FS- external users-in accordance with standards US GAap/IFRS/PFRS Mgmt books-budget reports, product profitability- internal audience-to facilitate mgmt decision making in the org- no rules because mgmt has the authority Tax books-tax return-tax authpritie

Financial acctg- past performance-often too aggregated based on historical cost-- annually or quarterly not enough to make daily management decision Mgmt acctg - no standards - compiled for a specific purpose or mgmt decision for the futurei-- need current or future cost when making decisions Managers use different costs for diff decisions 3 classification 1. Direct/indirect--direct can be traced easily to individual cost object Ex. Make tshirts Direct-raw material-direct material, labor-direct labor, sales rep commission to sale of tshirt Indirect cost/Overhead- electricity, cost of equip, rent, maintenance, sales rep salary or allowance 2. Product/manufacturing or Period/non manufacturing costs Product- direct and indirect cost related to manufacturing prpcess--- seen as inventory in balance sheet-variable cost, if prpduce-COGS/// if resale, Period-costs not associate with the manufacturing of the product, ---administrative, selling , finance costs--fixed cost, salary, rent, depreciation, interest-expense on Income Statement as incurred

Service companies do not have product costs, only period costs

Business that has no operation will not incur product cost but will incur period costs 3. Variable /Fixed Based on how they behave in response to activity Variable- fabric, sales comm for everyunit sold Fixed- salary of sales rep Example... is a product /service is profitable? How much does it cost to serve that customer

Cost Behavior- relationship between cost and cost driver. Or how a cost respond to change in activity Cost driver- causing costs to be incurred 4 general patterns: 1. Variable 2. Fixed- rent do not increase regardless of production 3. Mixed- have both variable and fixed Sales rep salary and commission --- salary- fixed, commission- variable Electricity- it is likely that they incur costs regardless of production because of lighting, but may also incrrase as it runs equupment more to produce more 4. Step costs- increase new step as activity increases to a new range of activity Had to hire additional people due to increase in sales of number of tshirts 3 tools for estimating cost function 1. Scatter plot- graph of past cost and activity data whrre each observation is represented by a dot -Use to get behavior of a cost -assess whether relationship between a cost and units can be captured by a line -assess whether data points are representative of normal relationship bet cost and activity --can notice outliers (special cade not a representative of a normal relationship)

Y=mx+b M= slope -- change in cost/change in unit X=no.ofunits B= y intercept or fixed cost Y=variable cost B 500000 M = 1500000 20000 1000000 10000 500000/10000= 50 Y=50x+500000 Pure estimation-- estimated cost function

2. High-low method 3. Least square regression-uses sophisticated statistical approach Costs may vary based on units /variable or other activity such as revenue (sales comm), batches of units (set up or inspection cost), prpduct line (R&D, adv cost) Cost volume analysis or CVP Analysis -uses components of profit equation- price, volume, cost structure and profit to assess impact of alternative mgmt decision How many units does a company need to sell to achieve the profit . How much does a company need to reduce the cost to achieve a profit of Functional income statement Revenue - manufacturing cost=gross margin- nonmanufacturing cost=profit Grouped accdg to behavior -- Contribution Margin(incremental profit of selling one more unit) Revenue- variable cost = contribution margin -fixed cost =profit ----- used in mgmt decisions Break even-revenue is equal to costs 1. Determine breakeven quantity- or the quantity that a company needs to sell to breakeven 2. Determine breakeven price To solve for the volume/quantity FC divided by (Sales per unit-variable cost per unit) To solve for the price FC + VC divided by units

Sales mix-- relative proportion of sales unit for each product To compute for how many of each unit is needed to sell to breakeven CM/unit times no.of units in sales mix + CM/unit times no.pf unit in sales mix divided by total number of units= Average CM/unit

FC divided by Ave.CM/unit = no.of units to be sold to breakeven Then ckmpute in proportion if 2:1 or 3:2

Cost objects --- term for products Cost pool--- a group of costs used in indirect cost Allocating overhead 1. Determine the total amount to be allocated or the cost pool 2. Choose an allocation base 3. Calculate an allocation rate 4. Use allocation rate to allocate overhead as products or cost objects are being made 1. Allocate by estimates based on the budget As a sidenote, we hope that our estimates in the budget are accurate Relative good estimates Budgeted overhead allocation rate is == budgeted overhead divided by budgeted allocation base...