managerial accounting series 1
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MANAGERIAL ACCOUNTING COST BEHAVIORS, SYSTEMS, AND ANALYSIS
with Gary Hecht
Introduction to Managerial Accounting and Costing Concepts
Course Introduction and Concept Overview
LESSON 1-1 OBJECTIVES
You will understand:
What managerial accounting is
Why managerial accounting is important
Contemporary issues
WHAT IS MANAGERIAL ACCOUNTING?
“The process of obtaining, creating, and analyzing relevant information to help achieve organizational goals.”
COMMON CONCEPTIONS
Tax returns
Financial statements
FINANCIAL STATEMENT USERS
Investors and potential investors
Creditors and potential creditors
Tax authorities
Regulatory agencies
Suppliers, customers,
other partners
Competitors
Organization
WHAT’S THE DIFFERENCE?
Financial accounting Internal and external users General, aggregated financial statements Reporting of the past; historical Guided by principles, standards, and rules (generally accepted accounting principles)
Managerial accounting Internal users Detailed, specialized for a specific decision, setting, etc. Designed for future decisions Case-specific; best practices
WHY IS MANAGERIAL ACCOUNTING IMPORTANT?
Facilitates decisions Creates, organizes, and shares the right information to allow for the best decision
Guides/Influences decisions Helps align managers’ and employees’ decisions with what is best for the firm
BY THE WAY . . .
What types of organizations? “Information”?
Focus on measurement Quantitative Currency-based
Alternatives?
CONTEMPORARY ISSUES
Global organizations
Value chain and strategic alliances
Social considerations
Ethics
WHAT WE’VE LEARNED IN LESSON 1-1
Definition and distinction of managerial accounting
Purpose of managerial accounting within organizations
Contemporary issues
Costing Concepts
LESSON 1-2 OBJECTIVES
You will understand:
Basic terminology
How to organize costs according to type
Cost behavior basics
TERMINOLOGY
Cost Just money?
“Usage of resources”
Cost Object
Product
Can be anything
COST FRAMEWORK 1 OBJECTS Organization of costs by relation to cost object
Direct costs Materials Labor
Indirect costs
Necessary, but difficult/infeasible to trace to the cost object
“Catch-all” category
INDIRECT COSTS
Example scenario
Overhead
In multiple-product scenarios, how overhead is allocated to products influences the perceived cost of the product
If arbitrary or inaccurate, may lead to poor decisions
COST FRAMEWORK 2 BEHAVIOR
For decision making, we’ll often find it useful to classify costs based on “cost behavior”
That is, how costs are associated with some activity of interest
ROLE OF COST BEHAVIOR
Determine product profitability (i.e., choose among potential products to produce) Determine whether to change product price Determine whether to add/drop a product line Determine whether to outsource
BASIC IDEA
Total Cost = Fixed Costs + Variable Costs
Variable Costs Per “Activity” x Volume of “Activity”
EXAMPLE SCENARIO
Variable cost per unit = $1
Fixed costs are $100,000
Production volume = 1 to 100,000
COST BEHAVIOR – TOTAL VARIABLE COSTS
CO
ST
PRODUCTION VOLUME
Total variable costs increase with production volume
Unit variable costs do not change with production volume
COST BEHAVIOR – UNIT VARIABLE COSTS
UN
IT C
OS
T
PRODUCTION VOLUME
COST BEHAVIOR – TOTAL FIXED COSTS
Total fixed costs do not change with production volume
TOTA
L C
OS
T
PRODUCTION VOLUME
COST BEHAVIOR – UNIT FIXED COSTS
CO
ST
PRODUCTION VOLUME
Unit fixed costs vary with production volume
EVERYTHING’S LINEAR?
Unit variable costs do not change with production volume
COST BEHAVIOR – UNIT VARIABLE COSTS
UN
IT C
OS
T
PRODUCTION VOLUME
COST BEHAVIOR – TOTAL FIXED COSTS
Total fixed costs do not change with production volume
TOTA
L C
OS
T
PRODUCTION VOLUME
EVERYTHING’S LINEAR?
Normal activity range
Relevant range for which linear
patterns are valid
TOTA
L C
OS
TS
UNITS PRODUCED
WHAT WE’VE LEARNED IN LESSON 1-2
Terminology Even the most basic concepts – such as “costs” – are not that simple
Different ways to organize cost information
Relationship with cost object (direct vs. indirect) Relationship with activity of interest (behavior)
WHAT WE’VE LEARNED IN MODULE 1
Definition, purpose, and distinction of managerial accounting
Contemporary issues
Basic concepts
How to organize cost information according to multiple cost frameworks
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