MGT223 - Management Accounting I

The Role of the Professional Accountant in Value Creation Plays a key role in decision making and managing employees across various functional areas of an organization. Management Accounting – Provides info to managers for use in planning and controlling operations and for decision making. Determining and developing internal accounting info as a tool for managers’ business decisions. Reports compare results to plans, provide timely updates, or help in investigations of problems. 1) Describe th

1) Identify and give examples of each of the three basic manufacturing cost categories. Manufacturing Costs Direct Materials – Those materials that become an integral part of a finished product can be conveniently traced to it. i.e. Passenger seats, electronic components in a stereo. Indirect Materials – small items of material that may become an integral part of a finished product but whose costs of tracing exceed the benefits. i.e. Solder and glue. Direct Labour – Factory labour costs that ca

1) Describe how fixed and variable costs behave and how to use them to predict costs. Cost behaviour – How a cost will react or change as changes take place in the level of business activity. Essential for cost prediction under different circumstances. Cost structure – The relative proportion of fixed, variable, and mixed costs found in an organization. Variable Costs Variable Cost – The one whose total dollar amount varies in direct proportion to changes in the activity level. i.e. double act

1) Explain how changes in activity affect contribution margin and operating income. Cost-volume-profit (CFP) analysis helps managers understand the relationships among cost, volume, and profit and how profits are affected by five elements: Prices of products Volume or level of activity Per unit variable costs Total fixed costs Mix of products sold for multi-product companies. The Basics of CVP Analysis Examine changes in activity levels, selling prices, variable costs per units, or fixed costs,

Absorbing Costing – A costing method that includes all manufacturing costs – direct materials, direct labour, and both fixed variable and fixed overhead – as part of the cost of the finished unit of product: synonymous with full costing. 1) Distinguish between process costing and job-order costing and identify the production or service processes that fit with each costing method. Process Costing A costing system used in manufacturing situations where a single, homogenous product flows in a con

Job Costing – Used in situations where different jobs/products are worked on each period. Process Costing – Used in industries that produce essentially homogenous products. i.e. utilities, conversion of raw materials like toilet paper, or bulk transactions in the service industry, Similarities Both systems have the same basic purposes – to assign materials, labour, and overhead costs to products and to provide a mechanism for computing unit costs. Both systems use the same basic manufacturing a

Objective 1 - Explain the activity-based costing model and how it differs from a traditional costing system. Activity-Based Costing – A costing method based on activities designed to provide managers with cost info for strategic or other decisions that may affect capacity (fixed costs). Most companies have 2 costing systems – The Official Costing System and the ABC system for internal decisions. Treatment of Costs Under the Activity-Based Costing Model Differences between traditional cost vs A

Objective 1 - Identify how variable costing differs from absorption costing and compute unit product costs under each method. Absorption Costing Absorption costing assigns both variable costs and fixed costs to products. Consisting of Direct Materials, Direct Labour, and both fixed and variable manufacturing overhead. Known as full costing. Variable Costing A costing method that includes only variable manufacturing costs – direct materials, direct labour, and variable manufacturing overhead –

Objective 1 - Explain why organizations budget and describe the processes they use to create budgets. The Basic Framework of Budgeting Budget - A detailed plan for the future typically expressed quantitatively. Budgeting – Act of preparing the budget. Budgetary Control – Use of budgets to control a firm’s activities. Master Budget – A summary of a company’s plans in which specific targets are set for sales, production, distribution, administrative, and financing activities. It culminates in a c

Standard Costs – Management by Exception Standard – Benchmark for measuring performance, relating to the quantity and cost and are set for each major input. Quantity Standards – Specify how much of an input should be used to make a unit of product or provide a unit of service. Cost (price) Standards – Specify how much should be paid for each unit of the input. Management by Exception – A system of management in which standards are set for various operating activities that are then periodically c

Decision making involves leading to outcomes that contribute to achieving performance goals in the organization’s strategic objectives. Relevant Cost – Cost that differs among the alternatives in a particular decision and will be incurred in the future. A.k.a. Avoidable Cost or Differential Cost Objective 1 – Distinguish between relevant and irrelevant costs in decision making. Cost Concepts for Decision Making Identifying Relevant Costs and Benefits Costs and benefits that differ in total amo