Modul AA025 - ADDITIONAL NOTES PDF

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ADDITIONAL NOTES...

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AA025: ACCOUNTING MODULE

2019/2020

KOLEJ MATRIKULASI LABUAN ACCOUNTING 2: AA025 Topic 1: Introduction To Managerial Accounting Learning Outcomes 1.1 Comparison between managerial accounting and financial accounting (a) Explain the differences of managerial accounting and financial accounting: type of users, timing of report, purpose of report, type of report, focus of report, frequency of report, form of report produced and rules and regulation pertaining to report. 1.2 Functions of management and roles of accounting information in management (a) Explain the functions of management and roles of accounting information in management. 1.3 Characteristics of managerial accounting information (a) Explain the characteristics of managerial accounting information: accuracy, timeliness, understandability, relevance, cost effective and flexibility. 1.4 Roles of management accountant (a) Describe the roles and functions of management accountant to assist in executing the functions of management. 1.1 Comparison between managerial accounting and financial accounting (a) Explain the differences of managerial accounting and financial accounting: type of users, timing of report, purpose of report, type of report, focus of report, frequency of report, form of report produced and rules and regulation pertaining to report. i.

Definition of Managerial Accounting: Managerial accounting is the process of providing economic and financial information for internal users to help them in decision making.

ii.

Differences of managerial accounting and financial accounting

Aspect

Financial Accounting

Managerial Accounting

1. Type of User

 Internal and external users



Internal user

2. Timing of report

 Past data.  Focus on past data to evaluate the company's overall performance.

 

Past dan Future data. Focus on past data for preparing future reports such as budgets.

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AA025: ACCOUNTING MODULE

3. Purpose of report

 Reporting profit/loss and financial position.  Provide information for all users.

 

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Assisting in planning, control and decision making. Providing information for specific internal users.

4. Form of report produced

 Summary reports on the company  Very detailed and specific as a whole.

5. Focus of Report

 Focus on the past Company's overall reports.  Statement of Comprehensive Income and Statement of Financial Position.

 Focus on future reports by segments, departments and production lines.

6. Frequency of report

 Periodically.  Every six months or every year

 Frequent.  Depending on requirements such as daily, weekly or monthly.

7. Types of report

 Financial Statements

 Internal reports

8. Rules and regulations

 Required to follow GAAP

 Not required to follow GAAP

1.2 Functions of management and roles of accounting information in management (a) Explain the functions of management and roles of accounting information in management. Planning

Controlling

i.

FUNCTIONS OF MANAGEMENT Requires manager to look ahead and to establish objectives.

ii.

These objectives are often diverse: maximizing short-term profits and market share , maintaining a commitment to environmental protection and contributing to social programs.

i.

The process of keeping the company’s activities on track.

ii.

In controlling operations, managers determine whether planned goals are met.

iii.

When there are deviations from targeted objectives, managers decide what changes are needed to get back on track.

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Directing

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i.

Coordinating a company’s diverse activities and human resources to produce a smooth-running operation.

ii.

This function relates to implementing planned objectives and providing necessary incentives to motivate employees.

ROLES OF ACCOUNTING INFORMATION IN MANAGEMENT 1. Planning

 Plan and control regular business operations through budget preparation.  Adequate costing records provide a reliable basis for making estimates and quoting tenders.

2. Budgeting 3. Control and performance

evaluate

4. Decision Making

5. Determination of cost and prices of products

6. Stock valuation

1.3

 Assessing activities performance.

performance

and

employee

 Make long-term and short-term decisions.  Short-term decisions include decisions on pricing of goods, decisions on receiving special orders for goods or services and decisions on hiring and training of employees.  Long-term decisions include the decision to release a new product or open a branch.  Although the law of supply and demand to a great extent determines the price of the article, cost to the producer does play an important role. The producer can take necessary guidance from his costing records in case he is in a position to fix or change the price charged.  3. Cost accounting helps in making estimates Adequate costing  Cost accounting furnishes control which management requires in respect of stock of materials, work-in-progress and finished goods.

Characteristics of managerial accounting information (a) Explain the characteristics of managerial accounting information: accuracy, timeliness, understandability, relevance, cost effective and flexibility

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Accuracy Timeliness Understandability Relevance Cost-effective Flexibility

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The information provided must coincide with the needs of management functions. It must coincide with the time it is needed. Must be understood by managers where most managers have no accounting or financial background. Accounting information must provide different results for an activity. Benefits of information must outweigh the cost of providing it. Easily adaptable to the needs of the decisions to be made.

1.4 Roles of management accountant (a)

Describe the roles and functions of management accountant to assist in executing the functions of management . i.

Management accountant designs the frame-work of cost and financial accounts and prepares reports for routine financial and operational decision-making.

ii.

Management accountant plays an important role in forecasting future business and economic events for making future plans i.e., long-term plans, strategic management accounting, formulating corporate strategy, market study etc. The management accountant also uses these reports for taking important decisions.

iii.

Management accountant has a major role to play in raising of funds and their application. He has to decide about maintaining a proper mix between debt and equity. Raising of funds through debt is cheaper because of tax benefits.

iv.

The management accountant occupies a pivotal position in the organisation. He performs a staff function and also has line authority over the accountant and other employees in his office .

v.

Management accountant provides necessary information to management in taking short-term decision e.g., optimum product mix, make-or-buy, lease or buy, pricing of product, discontinuing a product etc. and long-term decisions e.g., capital budgeting, investment appraisal, project financing etc.

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KOLEJ MATRIKULASI LABUAN ACCOUNTING 2: AA025 Topic 2: Manufacturing Cost Concept And Components Learning outcomes: 2.1 The importance of cost information (a) Explain the importance of cost information to management 2.2 Difference between costs and expenses (a) Clarify the differences between costs and expenses. 2.3 Cost classification Explain the classification of costs according to: i. Function - manufacturing cost, selling expenses and administration expenses. ii. Cost behaviour – fixed, variable and mixed costs. iii. Other classification such as direct cost and indirect cost. 2.4 Manufacturing Costs (a) Calculate manufacturing costs, direct material, direct labour, and overhead: prime and conversion costs 2.5 Non-manufacturing costs (a) Calculate non-manufacturing costs: selling costs and administration expenses 2.6 Direct costs (a) Compute cost of direct material and cost of direct labour. 2.7 Indirect Costs (a) Calculate indirect costs: overhead, indirect labour and indirect material. 2.8 Product costs and period costs (a) Explain the differences between product costs and period costs, and compute both costs. 2.9 Statement of Costs of Goods Manufactured and Income Statement (a) Prepare Statement of Costs of Goods Manufactured and Income Statement. 2.1 The importance of cost information (a) Explain the importance of cost information to management Planning

Decision Making

Controlling

 Planning involves forecasting on the basis of available information, setting goals; framing polices determining the alternative courses of action and deciding on the program of activities.  It facilitate the preparation of statements in the light of past results and gives estimation for the future.  Management accounting makes decision-making process more scientific with the help of various modern techniques.  Information/figure relating to cost, price, profit and savings for each of the available alternatives are collected and analyzed accordingly which will provide a base for taking sound decisions  Management accounting tools e.g. standard costing and budgetary control are helpful in controlling performance. SYIRLEEN ADLYNA OTHMAN

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 Cost control is affected through the use of standard costing and departmental control is made possible through the use of budgets.  Performance of each and every individual is controlled with the help of management accounting. 2.2 Difference between costs and expenses (a) Clarify the differences between costs and expenses Cost -

Sacrifice of resources to acquire products/services which will benefit in the future. e.g : Cost to acquire machinery

Expenses -

Sacrifice of resources to obtain benefit in current period. e.g: Insurance Expense

2.3 Cost classification Explain the classification of costs according to: i.

Function - manufacturing cost, selling expenses and administration expenses.

Function Whether costs are related to manufacturing or non-manufacturing (selling & administration expenses) processes. Manufacturing Cost = Product Cost Non-manufacturing Cost = Period Cost Direct Direct Labour Manufacturing Selling Administrative Materials Expenses Expense Overhead It is defined as the wages paid to workers who are engaged in the production process whose time can be conveniently and economically traceable to units Example: Wood of products in a table Example: Assembly line wages It refers to those materials which become a major part of the finished product and can be easily traceable to the units.

Prime Cost

Consist of costs that are directly associated with the manufacturing of the finished product. Overhead cost also include manufacturing costs that cannot be classified as direct materials or direct labour.

Costs to market Administration of the finished products. cost organization that Example: cannot be assigned to either Advertising production or expenses selling. Example: Director’s salary

Example: glue, nail = Direct Material Cost + Direct Labour Cost SYIRLEEN ADLYNA OTHMAN

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AA025: ACCOUNTING MODULE

Conversion Cost

ii.

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= Direct Labour Cost + Manufacturing Overhead Cost.

Cost behaviour – fixed, variable and mixed costs. Cost Behaviour The feature of these costs is that the total costs remain same while per unit fixed cost is always variable. Examples: Depreciation expense Variable Cost These costs are variable in nature, i.e. they change according to the volume of production. Their variability is in the same proportion to the production Example: Direct materials Mixed Cost Contains both variable and fixed cost elements. Example: Electricity expense

i.

Fixed Cost

ii.

iii.

iii.

Other classification such as direct cost and indirect cost.

Direct Cost Cost that can be traced to a cost object. Example:Direct material and Direct labor

Indirect Cost Cost that cannot be traced to a cost object. Example for manufacturing: Manufacturing overhead Example for non-manufacturing: Advertising expenses

SUMMARY OF COST CLASSIFICATION Manufacturing Cost = Product Cost

Non- Manufacturing Cost = Period Cost

Raw Material Cost Direct Labou Manufacturing Overhead Selling Expens Administrative Expense

Direct Cost

Prime Cost

Indirect Manufacturing Cost

Indirect NonManufacturing Cost

Conversion Cost SYIRLEEN ADLYNA OTHMAN

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2.4 2.5 2.6 2.7 2.8

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Manufacturing Costs Non-manufacturing costs Direct costs Indirect Costs Product costs and period costs

EXAMPLE 1 Nora Sdn Bhd produced 1,000 refrigerators a month. The cost and expenses incurred are as below: a. Factory equipment rent 1,500 b. Factory building insurance

500

c. Raw materials

200,000

d. Factory utilities e. Office supplies

800 400

f. Assembly line wages

70,000

g. Depreciation on office equipment

400

h. Indirect materials i.

Factory property taxes

j.

Factory supervisory salaries

k. Advertising l.

Sales commission

m. Depreciation on factory building

10,000 125 1,700 1,250 80,000 900

Instructions: a)

Classify the above items into product costs, period costs, prime costs and conversion costs.

b)

Determine the total amount of manufacturing costs, product costs, nonmanufacturing costs and period costs.

c)

Determine the total amount of prime costs and conversion costs.

d)

Determine the total amount of direct costs and indirect manufacturing costs.

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Solutions: Product Cost COST ITEM a b c d e f g h i j k l m

Direct Material

Direct Labor

Period Cost

Prime Cost

Mfg Overhead / /

Conversion Cost

/ /

/

/ /

/ /

/

/

/

/ / / /

/ / / / /

/

/

a) Determine the total amount of manufacturing costs, product costs, non-manufacturing costs and period costs. Manufacturing Cost = Product Cost Items Raw Materials Assembly Line Wages Indirect Materials Factory Utilities Factory property taxes Factory supervisory salaries Depreciation on factory building Factory equipment rent Factory building insurance Manufacturing Cost/ Product Cost

RM 200,000 70,000 10,000 800 125 1,700 900 1,500 500 285,525

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Non-manufacturing costs = Period Cost Items Office Supplies Depreciation on Office Equipment Advertising Sales Commission Non-manufacturing costs

RM 400 400 1,250 80,000 82,050

b) Determine the total amount of prime costs and conversion costs. Items Raw Materials Assembly Line Wages Prime Cost

RM 200,000 70,000 270,000

Items Assembly Line Wages Indirect Materials Factory Utilities Factory property taxes Factory supervisory salaries Depreciation on factory building Factory equipment rent Factory building insurance Conversion Cost

RM 70,000 10,000 800 125 1,700 900 1,500 500 85,525

c) Determine the total amount of direct costs and indirect manufacturing costs. Direct Cost = Prime Cost = RM 270,000 Items Indirect Materials Factory Utilities Factory property taxes Factory supervisory salaries Depreciation on factory building Factory equipment rent Factory building insurance Indirect Manufacturing Cost

RM 10,000 800 125 1,700 900 1,500 500 15,525

Important: SYIRLEEN ADLYNA OTHMAN

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Sales unit = Beginning units of Finished Goods + Production Units – Ending Units of Finished Goods. 2.9

Statement of Costs of Goods Manufactured and Income Statement (a) Prepare Statement of Costs of Goods Manufactured and Income Statement STATEMENT OF COST OF GOODS MANUFACTURED AND STATEMENT OF COMPREHENSIVE INCOME STATEMENT (Company name) Statement of Cost of Goods Manufactured for the year ended RM

Direct Materials: Raw materials inventory, beginning (+)Raw materials purchased Raw materials available for use (-) Raw materials inventory, ending Direct Materials Used Direct Labor: Assembly line wages Manufacturing Overhead: Indirect Labor Indirect Materials Factory manager’s salary Total manufacturing overhead Total current manufacturing costs (+) Work in process, beginning Total cost of work in process (-) Work in process, ending COST OF GOODS MANUFACTURED*

RM

XXX XXX XXX (XXX) XXX XXX XXX XXX XXX XXX XXX XXX XXX (XXX) XXX

(Company name) Statement of Comprehensive Income SYIRLEEN ADLYNA OTHMAN

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for the year ended RM Sales (net) (-) COST OF GOODS SOLD: Finished goods inventory, beginning (+) Cost of goods manufactured * Cost of goods available for sale (-) Finished goods inventory, ending Cost of goods sold Gross profit (-) Operating expenses: Sales expenses Administrative expenses Net Profit

RM XXX

XXX XXX XXX (XXX) (XXX) XXX XXX XXX

(XXX) XXX

EXAMPLE 2 HCC Sdn Bhd has the following cost and expense data for the month ending March 31, 2019: RM Accounts receivable 20,000 Sales

90,000

Assembly line wages

22,000

Factory utilities

5,000

Factory supervisory salaries

2,000

Plant and equipment

111,000

Factory taxes

2,000

Raw materials, March 1

9,000

Raw materials, March 31

11,000

Finished goods, March 1

18,000

Finished goods, March 31

7,000

Work in process, March 1

18,000

Work in process, March 31

8,000

Factory maintenance

4,000

Advertising

3,000

Raw materials purchased

20,000

Sales commissions

5,000

Accumulated depreciation on pl...