Management Accounting: Lesson 1 PDF

MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS PART 1: THE ECONOMIC-TECHNICAL CYCLE OF THE COMPANY...

MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS PART 1: THE ECONOMIC-TECHNICAL CYCLE OF THE COMPANY Departamento de Contabilidad y Gestión UNIVERSIDAD DE MÁLAGA LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS Versión 2.0 Septiembre de 2021 © Mariano Soler Porta MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 2 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS INTERNAL ACCOUNTING, COSTS OR MANAGEMENT: THE 1 ECONOMIC-TECHNICAL CYCLE OF THE COMPANY 1.1. CIRCULATION OF VALUES IN THE COMPANY Prior to the study of the details related to the phenomenology to be treated in this program, it seems that coming the delimitation of the conceptual and methodological framework in which the discipline we are going to study is inserted, under the name of "Management Accounting". To do this, we will use the “Scheme of the circulation of values” in the company proposed by Professor Schneider, on which, considering the company as a system, we can make four subsystems of transactions independent: Financing, Investment, Production and Disinvestment. Figure 1. Circulation of values Professor Schneider To develop this strategy, Professor Schneider uses 6 series of accounts: CAPITAL, MONEY, PURCHASES, MANUFACTURE, STORE AND SALES represented by a double line-each series includes several accounts related to the same phenomenology, for example Capital would include: Basic Financing (Required to Long Term and Non-Required), Money (Available, Realizable True and Compliant to Short Term), etc. Each of the arrows implies an accounting entry. The magnitudes that appear above the arrows (purchase, consumption, production, placed production and MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 3 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS sale) are physical magnitudes and the ones that appear below (expense, cost, value of production, cost of sales and income) are monetary magnitudes. The scheme starts with the financing when the company got money we use to buy all those factors we need to produce, by applying the production process all or part of them. As result of this application of production factors that we get to the store, here at cost-price, waiting to be sold. Once this is sold thereof will appear on the debit of the account sales at cost and the credit at sale price. If we consider the company as a system we can define within it, as we have already mentioned, 4 Subsystems, perfectly represented in the Schneider scheme: FINANCING SUBSYSTEM (F) INVESTMENT SUBSYSTEM (I) PRODUCTION SUBSYSTEM (P) DISINVESTMENT SUBSYSTEM (D) The financing subsystem includes all the phenomenology inherent in the search and obtainment of financial resources, that is, the financial accounts by their origin or by their application and their interrelations. The investment subsystem involves the application or immobilization of the money obtained through the financing for obtaining inputs (short -cycle and long -cycle) The incorporation of the investments for the obtaining of goods, will originate the to the production subsystem. Finally, the disengagement of pro ducts, which will allow the resources applied at the beginning of the cycle to be dismantled, constitutes the disinvestment subsystem. Precisely, the capture of all this problem can be done in two ways: - developing the entire accounting registry process with a single series of accounts for the four subsystems, that is, opting for a Monistic link system. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 4 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS - or, independently considering the different problems or grouping them according to different combinations, that is, according to a Pluralistic link system. Within pluralism there can be three approaches: dualistic links (dividing into two groups), trialist links (combining the four subsystems into three groups) and tetralist link (considering each subsystem separately). Of all of them, at present, there is a dualistic link, which brings together, on the one hand, the subsystems of financing, investment and disinvestment, which make up the External scope of the company and, on the other, the production subsystem, which individual way configures the Internal scope of the economic unit. The registration of these two areas will give rise to the external and internal Accounting, respectively. This leads us to break the continuity of Schneider's circulation of securities scheme in order to limit both areas: the debit of the Purchases account is valued at acquisition prices, while the credit part is valued at consumer prices. For their part, in the Sales, debits value at production cost prices, and in the case of sale prices, which, as can be seen, in both cases, fall within different spheres. However, the debit of some accounts in the books of external Accounting can not be carried out, and the internal debit, or vice versa, therefore, we will have to define, according to the doctrine, the limits of the two areas , remaining , the accounts of Purchases and Sales wholly integrated in the external field, as the internal, will be configured,exclusively, by the accounts of Manufacture and Store MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 5 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS 1.2. DEFINITION OF MANAGEMENT ACCOUNTING Before defining and presenting the general objectives of Management Accounting, we must emphasize that traditionally several terms have been used to describe it, such as : Cost accounting.- Fairly widespread but not entirely appropriate since it would be partial -costs and production-. Industrial Accounting.- Also partial since it is considered that there is production in industrial, commercial and service companies. Analytical Accounting.- No very appropriate since both external and internal accounting are analytical. Management Accounting or Exploitation.- Both accounts are responsible for the operation of the company but from different points of view. Internal Accounting.- Name of Professor Schneider and the most appropriate because it is the one that best defines the content of the same. Many authors point to Cost Accounting as a subset of Management Accounting and, to its core or a fundamental part of it. They consider also that is the Cost Accounting route of transmission between the bididirectional Financial Accounting and Management Accounting. However, other authors consider that changing the name of Cost Accounting to Management Accounting has only meant modernizing the concept and adapting it to the role it currently plays in organizations. Considering both terms as synonyms, we position ourselves in this last position, so we will combine the terms "management" and "costs" to identify the accounting system used for the management of the organization. Once you have a clearer idea of the discipline to be studied, proceed to enunciate a definition that serves to establish the study framework and the main characteristics of the subject. One of the most complete definitions of Management Accounting is that proposed by professor Requena Rodríguez, who MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 6 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS defines it as " that branch of applied accounting that, with respect to an economic micro-unit, allows us at all times the qualitative and quantitative knowledge of your economic reality -technical or internal, with the specific purpose of allowing the control of the production and the costs of said unit and the measure of the technical-productive efficiency of the same ". MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 7 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS 1.3. OBJECTIVES AND DEVELOP OF MANAGEMENT ACCOUNTING 1. PLANNING, EVALUATION AND CONTROL OF MANAGEMENT A. PLANNING is to quantify and interpret the effects of transactions and other economic events in t he future of the organization. B. EVALUATE is to judge the implications of historical events in relation to the planned, to help choose an optimal course of action. C. CONTROL is to monitor and measure the performance and induce any corrective action necessary for the activity to return to the desired course. 2. THE CALCULATION OF THE COST The management accounting system must calculate the cost in order to: A. VALUING INVENTORIES, that is, the assets involved in the production process, such as raw materials, products in the process of transformation, semi-finished and finished products. The valuation of stocks is also necessary to transfer this information to the Financial Accounting. B. CONTROL OPERATIONS, ie providing i nformation about the activities in the different work center s, s costs that this generates, for comparison with the data provided and check if done correctly. C. GET THE COST OF THE PRODUCT. This data is used to make decisions about prices, manufacture or buy or eliminate a line of products... Before focusing definitively on the discipline that occupies us this course, the Management Accounting, we must distinguish the main differences between the CONTABILITY OF MANAGEMENT AND FINANCIAL ACCOUNTING, summarized in the following table: MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 8 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING External and internal: Interns: workers, middle managers, shareholders, credit entities, managers and executives. Users regulatory agencies, the Treasury, managers and workers. Performance reports for interested Report internal decisions made by agents or groups employees and managers. Purpose Regulated: rules issued by Unregulated: systems and information generally accepted accounting determined by management to meet Restrictions principles and by the State their strategic and operational needs Mainly financial measures Financial, operational and physical Type of measures information Prima objectivity and reliability. Relevance and flexibility for decision Nature of The information is accurate and making are important. More subjective information auditable (verifiable) information (estimates) and discretionary Aggregate and global: reports on Disaggregated and specific: informs the whole organization (External about decisions and actions of Ambit scope) departments and segments of the organization (Internal scope) As we have already studied, in other subjects, the Financial Accounting measures and records the operations of the company, focusing on the presentation of reports to third parties (shareholders, customers, workers, suppliers and public bodies). The Financial Accounting tries to project an image of the global situation of the company, mainly of a financial nature and of the results of the management to any interest group related to the organization. The process of Financial Accounting, due to the diversity of agents involved, is regulated by the governmental authorities, which issue mandatory regulations, so that the financial reports must comply with the Spanish PGC and generally accepted accounting principles. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 9 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS However, this information is not enough to manage the day-to-day of the company. Managers need information that allows them to make routine decisions (for example, cost control and weekly billing of a chain of supermarkets, to plan and control operations) and non-routine (for example, the study of computer service costs for decide whether to do it outside or within the company), as well as answer questions that arise in their daily management, such as: is it worthwhile to carry out a certain activity or is it better to hire it? Which of my products is more profitable? How are productive resources being used? How is quality improved? Therefore, the company must design an information system oriented more towards its internal management. But we must bear in mind that each company has differences in the type of information it needs, so the size, the activity sector, the complexity of the processes or the technology used, among others, can be aspects that influence in the di s ENO of this system of management accounting. Managers must use this discretionary character to design systems that help them make the best decisions regarding the resources used (human, physical and financial), as well as their products, services, processes, suppliers and customers. This information should also serve to learn about the management carried out and correct possible erroneous actions. For this reason, Management Accounting is not subject to external regulation and the characteristics of the company and the needs of its members will influence the type of information offered. However, the information provided will have to be complemented with that of the Financial Accounting so that both can respond to the needs of the management. Although, as we have already pointed out, there is no regulation of Cost Accounting, we must point out that with independence of some initiatives with greater or lesser diffusion success, the first and only attempt of standardization of the Analytical Accounting for companies in Spain took place with the first General Accounting Plan, approved by Decree 530/1973, although Group 9. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 10 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS Analytical Accounting, dedicated to the development of internal accounting, sees the light with several years of delay, by Ministerial Order of August 1 of 1978, and whose application was always voluntary. The revision of the PGC approved by R D 1643/1990, leaves the group 9 undeveloped, indicating in the introduction that it may be used freely by the company, in whatever way is most convenient for its management. The last revision of the PGC approved by RD 1514/2007 does not develop the Internal Accounting (in this case group 9 has been assigned to the register of elements of external accounting). Thus, there is currently no group of "official" accounts that serves as guidance to Spanish companies for the development of their internal accounting, although the foregoing does not mean that a dissemination of the application of Group 9 of the PGC of 1973, in its original version or with different variants. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 11 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS 1.4. THE 3 BASIC CONCEPTS OF MANAGEMENT ACCOUNTING Focusing on the problems that affect the Internal Accounting we must point out that the process that defines the economic-technical cycle of the company responds to the following phenomenology: Figure 2. The economic-technical Cycle whose concretion determines the following concepts: ▪ Cost Classes ▪ Cost Locations ▪ Costs Carriers Cost Classes answer to an idea classification and correspond to the various elements that, from an economic point of view, integrated production, ie, will become part of the product or collaborate in the production process for its preparation. They are the productive factors. Example: to produce skirts yu will need cost classes as fabric, thread, labor, electric fluid, sewing machine, etc. These elements, through appropriate adaptation, will give rise to the products, and such adaptation will be carried out in a determined space of the company that constitute the places or cost centers. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 12 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS The Cost centers or Locations respond to an idea of location and are the basic cells where the homogenization of the different cost factors for their transformation into cost carriers takes place. There are four basic sections in the company: - Procurement or Purchasing: storage and maintenance of the factor. - Transformation: Product manufacture - Sales: Product placement - Administration: accounting, administration, etc. Said sections are formed by different cost places, such as, for example, within the Purchasing Section there may be the places of Warehouse of First Matters and Purchasing Service. In the Transformation Section may exist various places depending on the characteristics of the production process of each company. Sales Section, places like Sales Serv ice, Pdtos store. Finishes, etc. And finally, Management Section can exist places like Management, Accounting... The Objects of costs or Costs Carriers, on the other hand, respond to an idea of affectation, insofar as, in one way or another, depending on the model of assignment that is adopted, they incorporate all the costs generated in the process (production - finished, semi-finished, in progress, by-products and waste and others - indirect cost, cost of sales, administration cost, etc.-). In the event that there shall be no factors without using the imput ed from the external environment, its cost elements, cost centers and cost objects added up the same amount, but classified based on different criteria, otherwise, the surplus of factors without consuming, will be reflected, again, in the external environment in group 3 of existing cias If this point were to end the interest of the internal Accounting, this, would lose the opportunity of reali a series of controls and analysis of interest as well as calculating the Results, for which it will be necessary, introduce or reflect in the internal scope the magnitude, of the external scope, "Sales" and its monetary equivalent "Income", since this magnitude is generated in the AE This allows us to compare the Income with the cost stream and obtain the Result, which allows us to It will measure the technical-productive efficiency of the company. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 13  MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS PART 2: THE CONCEPT OF COST Departamento de Contabilidad y Gestión UNIVERSIDAD DE MÁLAGA LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS Versión 2.2 Septiembre de 2022 © Mariano Soler Porta MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 2 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS 2 THE CONCEPT OF COST Professor Pedersen defines the cost as "the consumption, valued in money, of goods and services necessary for the production that is the object of the company". We can make different classifications of the cost depending on the criteria adopted to make the distinction: 1. Based on their variability or behaviour, they are classified as FIXED AND VARIABLE COSTS. 2. Considering their ability to associate them with cost objects A distinction is made between DIRECT AND INDIRECT COSTS. 3. Considering the extent to which they have intervened in production they differ in COSTS OF ACTIVITY AND COSTS OF SUBACTIVITY OR EXCESS CAPACITY. 2.1. FIXED COST vs VARIABLE COST TOTAL COST.- The consumption valued in money of all the factors that in a period, intervene in obtaining a certain amount of production defines the total cost. Of all these factors, some are usually determined in invariable quantities: the consumption valued in money, these factors will be called FIXED COSTS being able to define them as those that are independent of the volume of production and exist even when there is none - they do not vary when the production varies- (Eg cost of a guard). Other factors involved in the production should not be determined in a fixed manner, the consumption, valued in money of these factors, will constitute the VARIABLE COSTS what will we define as those who are closely linked to the production volume and therefore to vary with it. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 3 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS Clearly, the dichotomy fixed costs-variable costs can be seen, characterized the former, because they are independent of the volume of production, and the latter, because they are linked to the volume of production, so that they are altered when production is varied. Although the previous analysis may leave clear the difference between fixed and variable costs, however, this distinction has been questioned, among others, by Prof. Schneider, who does not understand the excessive importance given to the question, contrary to Schmalenbach who considers it fundamental. But Schneider does not intend to deny such distinction, nor to end it, what he seeks, is, through a critical judgment, to give this dichotomy the importance it really deserves. That is, it aims to study and determine its true scope in terms of the treatment of the problem of costs in the company. THREE POINTS ON WHICH HIS CRITICISM ESTABLISHES: 1.- In the first place, he considers that it is not possible, a priori, in an absolute way, to establish the fixity or variability of a cost, since in his opinion, a cost will be fixed or variable depending on its relationship with one or more independent variables (a period of time, a certain production, a certain degree of employment, etc). An additional problem will arise when choosing the independent variable to use as a comparison term, since not only is there disagreement about the variable to choose, but there is also confusion regarding the concepts. There are four, according to the same author, the most used expressions: activity, production, occupation and productivity, terms on which there is no agreement, with the exception of the term "production" on which there is unanimity. In addition, for Schneider, "occupation" and "activity" are different words to describe production, in view of the use that different authors make of them. For all these reasons, Schneider concludes that the variable on which the fixity or variability of a cost must be defined must be production, an opinion in which Economic Theory also abounds. 2.- The second issue that Prof. Schneider points out is that it is not enough, for the determination of the fixity or variability of a cost, with the determination of an independent variable, to eliminate part of the subjective character of such differentiation, since in the company there are costs that behave as fixed at a given time, as a result of the decisions of the employer. The depreciation of fixed assets based on a straight-line system or fixed installments, means establishing the fixedness of such cost simply based on the decision to depreciate according to such system, and not according to the intrinsic nature of MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 4 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS depreciation, if the employer chooses by a variable amortization system, it would give the amortization the character of a variable cost. The cost of labor can also represent a FC or VC depending on the type of contract established (fixed salary or piece rate). Therefore, the decisions of the employer must also be taken into account when analyzing the fixed or variable behavior of a cost. 3.- The last question that Schneider presents is the abstract distinction between the short and the long term, when it is considered that the short term is that period of time in which some costs of the company remain constant, while the long term would be that time period in which all costs would be variable. In accordance with the above, Schneider does not consider such a distinction to be realistic, since the entrepreneur's decisions could be the ones that determine the short or long term. Example: The company always analyzes by periods. Therefore, if we analyze a period of 2 years (more than the short term of Economic Theory) in it we will consider FC and VC, while for the Economic Theory in that period, being greater than one year, all the costs they would be VC. For Schneider, therefore, the distinction between short and long term has an exclusively formal character, since the company works and functions in specific periods of time, and it is these periods that concern it, so that in those periods, and not in others, some costs will behave as fixed and others will vary, the question will be to analyze whether this fixity or variability is inherent to the intrinsic nature of each cost, or is determined by managerial decisions. We can conclude, then, by saying that the distinction between fixed costs and variable costs, while interesting, however, are less important for the study of business performance than some consider, as Professor Scheneider indicates. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 5 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS 2.2. CLASSES OF FIXED AND VARIABLE COSTS 2.2.1 CLASSES OF FIXED COSTS About fixed costs, we can distinguish two classes: - Costs in a stationary state or structural costs: those borne by the company, although no type of activity is developed, which are due to the structure of the company and its maintenance, provided that its fixed structure is maintained to production (it is necessary to qualify the difference between the unemployed state - temporary companies and inactivity in specific periods -a machine is broken, the company is in operation-). Ex: * Surveillance * A certain staffing * Certain taxes-sewerage- * Physical amortization or as a function of time - No functional or use depreciation. * A rental - Start-up or production preparation costs: will be those that arise as a result of the adequacy of the company to be manufactured, but any product unit reaches occur. Ex.: * payment of the corresponding license to start manufacturing. * Provision of a minimum staff, an administrative (a), in a blast furnace a worker for the boiler ignition and maintenance of the ideal temperature. * Minimum administrative structure- computers, ovens, etc. * Clean, etc. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 6 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS Therefore, the denomination of start-up costs is considered better than the preparation of the production because the company supports them even if it does not produce anything. 2.2.2 CLASSES OF VARIABLE COSTS Not all variable costs behave in the same way with respect to production changes. So, you can distinguish between: - Proportional costs: those that behave proportionally with respect to variations in production (they double if production is doubled), such as raw materials, or labor. In unit terms it would be constant. For example : if to make a trouser I need 2 meters of fabric, to make 2 I need 4 m. - Progressive costs: they vary more than proportionately This is due to variations in production, for example labor with overtime because overtime is paid more expensively than the others. In unit terms it would be growing. - Degressive costs: Those that grow with production but less than proportionally, in total terms, but in unit terms would be decreasing with respect to increases in production. For example: the cost of electricity, which has degressive rates, because as more kW are consumed, they become cheaper, increasing the CT but less than proportional. Therefore, when deciding on production increases, on the acceptance of certain orders, a detailed study must be made of the variable cost classes that make up MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 7 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS the company's productive structure: there is no problem with proportional costs , which would not affect the unit or average cost, but not the progressive costs that will increase the unit cost, which could conflict with the company's pricing policy and affect the expected benefits. On the contrary, degressive costs would decrease the unit cost, and this would improve profit. THE RECURRENT COSTS Prof. Schmalenbach speaks of another type of variable cost, which hardly appears in the accounting literature, the recurrent costs, such as those that decrease as production increases. They may do so proportionally, more than proportionally, or less than proportionately, being their CMa negative. Eg heating a movie theatre, the more people watching the movie, the less heating is needed. They should not be confused with degressive costs. In addition to the above costs, there is another type of variable costs, semifixes or variable jumps, which will be those that remain fixed at certain intervals, and then vary, they take a quantitative leap, to behave, again, as fixed in the next interval. They are irreversible costs, since they are not, in a clear way, variables. Finally, we have the so-called Mixed or Semi-variable Costs, that is, there are costs that are clearly fixed, others clearly variable and other Mixed or semi- variable that are those composed of 2 components: a fixed and therefore to support in any case, even when there is no activity and another variable, depending on this. As an example, we have the case of electricity, with a fixed component, depending on the energy contracted or installed, and another, variable, depending on consumption. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 8 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS 2.3. DIRECT AND INDIRECT COSTS This classification considers the possibility of allocating the costs to the so-called cost targets and which can be the activities, cost places and products. That is, the final cost objectives are usually the products produced by the company, although it can also be shared between the activities or between each of the so- called responsibility centers, which usually coincide with departments or parts of the organization. DIRECT COSTS, are those that can be assigned (affected) unequivocally and directly to the cost object. Therefore, they can be assigned without the need to use subjective distribution criteria. They can be fixed costs (fixed labor, amortization of a machine based on time...) and variable costs (materials, variable labor...) INDIRECT COSTS are those that are not known as carrying out their assignment to the cost object and, therefore, require subjective distribution criteria to be able to assign them. This is a consequence of being consumed simultaneously by two or more cost targets, so some distribution criteria must be used to be able to make the allocation. They can be fixed costs (amortization of the computer of the sales section on a time basis, the salary of the director...) and variable costs (electric power, telephone...) Direct costs are fully identified with an activity, product, department, etc. (For example, the salary of the sales director's secretary is a direct cost from the sales department). The costs can be direct in relation to a section, but indirect in relation to a product. Indirect costs can not be identified with a given product (for example, amortization costs and financial costs). MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 9 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS 2.4. ACTIVITY AND SUBACTIVITY COSTS ACTIVITY COSTS are those involved in the process of generating the business charges of the period because they are accurate for the level of occupation of the company, which is why they are usually known as costs of the activity. They are costs that are part of the level of production of the company, therefore to be originated in the production process, are costs of it and may affect the cost of the product. As part of the cost of the production, also contribute to the internal results. The SUBACTIVITY COSTS OR EXCESS CAPACITY according to Schneider, are those whose consumption has no relation to the production of the period, that is generated in the company but not in relation to their level of employment, also denominating costs dead or empty, being that of excess capacity that best defines them. The costs for excess capacity will affect the Total Result amount, reducing it, but they do not affect the Cost of production and neither the Cost of the product. This happen because they will not be part of the internal accounting, only in external, since in internal accounting is only recorded that is consumed. Thus, the excess capacity cost will influence the total result of the company - decreasing it-, but they do not participate in the internal result and, therefore, they will not be part of the cost of the production process. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 10 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS EXAMPLE Suppose the production of the company "X", with the following structure of costs corresponding to the machinery - the productive capacity of a machine is 100 uc and its amortization cost of 100€ Production Machines Amortization cost Consideration of Activity Costs 100 uc 1 100 € 100 € Activity cost 200 uc 2 200 € 200 € Activity cost 150 uc 2 200 € 200 € Activity cost 1st 100 € 100 € Activity cost 100 uc 2nd 100 € 100 € Cost for excess capacity For a production volume of 100 uc or less, the cost of the second machine is a cost for excess capacity. Arrival recession demand that forces to reduce production to 100 UCP or less, the depreciation costs of the second machine, which now I use do, and STARAN affecting the company but is considered n by overcapacity, but for 150 uc all the cost is for the activity. These costs related to factors that are not being consumed constitute costs overcapacity, and so as to, even if it means an expense amortization accounting outsourcing is not going to make an impact on the cost of the production process and therefore neither in the product. However, if we use the distinction between costs of the activity and costs for excess capacity, we will only take the costs of the activity to the cost of the product, affecting the unit cost thereof, while the costs for excess capacity do not affect in the product but only in the result of the company. Therefore, the company will not earn more, using this distinction, however if you plan to have more information and more accurate about what factors have actually affected in the manufacture of the product and on the competitiveness of its product, since the costs for excess capacity they are not passed on to the latter, which will make the costs of the product manufactured by the company comparable with that of others with the same characteristics. However, with respect to the result, the company that has an idle superstructure will earn less, since even if the excess MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 11 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS capacity costs are not attributed to the product, the result will decrease in the external environment. THE HYSTERESIS OF COSTS An important concept in relation to this distinction between costs of the activity and costs for excess capacity is that denominated, by Professor Pedersen, Hysteresis of costs, which can be defined as the irreversibility of certain costs, which are increasing when the cost increases. production, but not the other way around, that is, they are not reduced by decreasing production. Costs with these characteristics, as we have already mentioned, are called semifixes or jump variables - which should not be confused with semi-variable or mixed variables. In short, it is that certain costs that up to a certain point had behaved as fixed have undergone changes such as, for example, the expansion of some of the facilities (s), the need for a greater number of foremen. to direct a job, etc. to subsequently return to behave as fixed. When surpassing certain intervals in the production a Δ arises in the total sum of CF and they grow in jumps. Of these costs, it should be noted that its behavior is not analogous to the decrease in production, thus giving rise to the problem of cost hysteresis. The proposed distinction between costs of the activity and costs for excess capacity makes it possible, in part, to alleviate this problem of the hysteresis of the costs considering as excess capacity the cost incurred even if production decreases. However, this would not completely solve the issue, because it will not completely avoid irreversibility, but only jumps - provided we move at the extremes of the intervals. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 12  MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS PART 3: MODELS FOR ALLOCATION COSTS IN THE COMPANY Departamento de Contabilidad y Gestión UNIVERSIDAD DE MÁLAGA LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS Versión 2.1 Septiembre de 2022 © Mariano Soler Porta MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 2 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS 3 CONCEPT OF INCOME, MARGIN AND RESULT The development of any discipline makes it necessary for us to familiarize ourselves with a series of basic concepts that are frequently used in it. In this sense, in Management Accounting we will define three fundamental terms for it: income, margin and result. The income is the monetary equivalent of the sale which can be understood as any transfer of goods or provision of services. That is, it is the amount of the products sold by the company or the services it provides. It means margin the difference between the income generated by the sale of a product or service and the cost of the necessary to obtain production. In the context of cost accounting, different types of margins are established depending on the more or less broad sense given to the concept of production cost. Thus, for example, a classification is the one that includes the industrial (or technical or manufacturing) margin, as a difference between the sales income and the manufacturing cost of the products sold, and the commercial margin, which will be obtained by subtracting the previous the cost of its distribution and sale. The result is the surplus (gains or losses) obtained by differences between the income from sales and the costs corresponding to them, during a certain period of time. It can be referred to the company as a whole or to a segment of it (division, branch, etc.). The term margin is often used to refer to products, while the term result is used to refer to a period. It should be noted that the General Accounting Plan includes the results obtained from the comparison of income and expenses for the period in the Annual Profit MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 3 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS and Loss Account. These results are characterized because they refer to the company as a whole, not reflected in the Financial Accounting the results obtained by the different products or services that the company sells or, consequently, what is the structure or composition of the costs that have generated the benefits or losses of each product or service sold. Therefore, in the company you can get 2 results: One with the data of the Financial Accounting Other with the data of the Management Accounting A MBOs results do not coincide, since there are expenses and the Financial Accounting that are not costs in Management Accounting and conversely, ie costs Management Accounting are not expenses in Financial Accounting. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 4 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS 4 MODELS FOR ALLOCATION COSTS IN THE COMPANY The company develops in its operation an activity of application of factors (cost classes), in accordance with the appropriate treatment of the same, to obtain products in order to sell them later and obtain profits. As a consequence of this, the company, in the development of its activity, will be related to: With the external world, it does so through the purchase or allocation of factors, the sale or allocation of products, and through financing. For which it goes to its respective markets in which prices govern on which it will not normally be able to act. But it is also related to itself as a consequence of the development of its production activity acting in the system of own costs or internal prices. The company's ability to make a profit will depend on its ability to adapt its cost prices or internal prices to the external prices that are almost imposed on it. (In the case of companies that have the possibility of deciding on these external price systems, the internal ones are not usually controlled, as in monopolies, since improvements in profitability can be obtained, without management effort, by managing these external systems). It is, therefore, that the company has an adequate structure of internal prices so that when dismantling the finished products, at a price given by the market, it obtains benefits, and this will not be possible without adequate knowledge of its generation process. of costs in such a way that the lack of an objective cost determination policy or its development will not provide the company with the necessary information to adapt its internal cost systems to obtain maximum profitability. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 5 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS This need will raise two questions: 1. determine the type of costs that we want to incorporate the product, and so, we will set the focus or cost allocation model to use (if we include all costs or only variables...) 2. In what way are we going to carry out the capture and treatment of the cost generation process, and so we will choose the cost system we are going to adopt (historical, predetermined...) Regarding the first question, specifically, there are, from the point of view of the economics of the company, two approaches to assignee the cost: o Full cost models o Partial cost models Models to FULL COSTS, which are based on the distinction between fixed and variable costs are those charged to carriers’ costs, both fixed and variables (of all kinds) generated in the production process, models that Correspond in this group are: 1. FULL-COSTING OR COMPLETE OR TOTAL COST 2. FULL-COST ING EVOLUTIONARY OR PRODUCTION-COST ING OR DISCRIMINATION BETWEEN INTRINSIC COSTS (CI) AND COSTS TO REINTEGRATE (C to R) Models partial costs historically appear to correct deficiencies of model information to complete Full Cost. These models incorporate the carriers only part of the costs generated in the production process. The DIRECT- COSTING model belongs to this group in its different modalities. Its development will be carried out in its order of appearance, so the first one that we will see will be Full-costing. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 6 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS 4.1. FULL COST MODEL The first of the models at full costs was the FULL-COSTING according to which, the production is valued in such a way that each unit of quantity of product incorporates CF and CV, leaving no pending cost to incorporate. The Results account will be calculated by the difference between the income from sales and the cost of production sold (cost of sales), so that unsold inventories will include CF and CV, that is, production inventories will be performs at full cost. RSLT = Sales revenue – Cost of Total sales Figure 3. Schema for Full Costing without distinguish Cost-locations Figure 4. Schema for Full Costing with distinguish Cost-locations MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 7 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS Example: Total Cost = Fixed Costs + Variable Costs ( X ) Total Cost = 300 + 10X X (number of units manufactured) = 30 uc No. of units sold = 20 uc TIs (Total revenue from sales) = 1.000 € 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 300+10×30 600 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝐶 = = = = 20 €/uc 𝑋 30𝑢.𝑐. 30 As there are no initial stocks, the total cost of sales (TCs) is TCs = 20 €/uc x 20 uc = 400 € Results = Tis - TCs = 1.000 - 400 = 600 € This model raised a series of criticisms: 1.- An inventory of CF is produced, so that if nothing is sold, the Results = 0, it would not give rise to losses, since the income statement will not have income, but it will also have costs, since they are fully inventoried, and this does not make much sense. Results = 0€ – 0€ According to the detractors of this approach, is not logical, since the FC have to endure, whether or not it occurs, therefore, in their opinion, we should compensate them, in each period, as far as possible, which is why they are considered costs linked to time, not production MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 8 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS From this point of view, this inventorying of the FC will lead us to an overvaluation of the stocks 2. The occupancy level of the company will have an excessive influence on the unit cost of the product since with the same FC, oscillations in production will give rise to oscillations in prices (without real improvements or worsening of the production process). However, the cost cannot be made to depend on circumstances extrinsic to production. It is clear that if the company works efficiently, the unit price must be uniform (not only companies that do not have idle resources work at competitive prices). EXAMPLE: A company has a FC = 300€ and VC = 10 €/uc In the case that manufactures 30 uc: TC = 300€ + (100€/uc x 30 uc) = 300€ + 300€ = 600 €, 600 𝑈𝑛𝑖𝑡 𝐶𝑜𝑠𝑡 = = 20 €/𝑢𝑐 30 In the case that manufactures 50 uc: TC = 300€ + (100€/uc x 50 uc) = 300€ + 500€ = 800 €, 800 𝑈𝑛𝑖𝑡 𝐶𝑜𝑠𝑡 = = 16 €/𝑢𝑐 50 3. The relativism and subjectivity of the unit allocation of the FC, since, as there is no direct cost-product relationship with respect to the FC, we will have to resort to the imputation of this type of charges, to criteria that in some cases may be subjective , subtracting objectivity from the calculations, although it will depend on the criterion of the person in charge, and in any case, the important thing is that the criterion is rational, since internal accounting is, for the most part, MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 9 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS subjective. (Eg allocation to the product of the cost of the security guard, or the director's secretary, etc.) MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 10 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS 4.2. DIRECT-COST MODEL As a consequence of the criticisms made of the simplest full cost model, DIRECT- COSTING arises, which is a partial cost allocation model characterized by the fact that it only incorporates part of the costs generated in the production process into the carriers. At first, in this model, the distinction between Direct Costs and Indirect Costs was discussed, hence the name of the model. However, what was really done was to identify the Direct Costs with the Variable Costs and the Indirect Cost with the Fixed Costs, as if they were equal, but these concepts are not the same: There are two alternatives: - distinguish between FC and VC, incorporating only the latter to the carriers, - differentiate between direct or indirect costs due to their unequivocal incorporation, through an exact measurement of the amount of factor consumed, or not to the carrier. In the first case, the variable costs will be assigned to the product, only VCs being inventoried, with the FCs absorbed in the period in which they are generated with the margin resulting from deducting the variable costs corresponding to the production placed to the income of the period. Margin = Sales income - Sales variables Cost Results = Margin - Fixed Cost of period When the margin is zero M = SI - VC = 0, the coverage of the VCs will have been produced, it is therefore the minimum of the exploitation or threshold of production. It is about generating higher margins, until FCs are covered, at this point being the threshold of profitability or deadlock, after which the company will start to obtain benefits. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 11 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS EXAMPLE: Total Cost = Fixed Costs + Variable Costs (X) CT = 300€ + 10€/uc X (number of units manufactured) = 30 uc No. of units sold = 20 uc TIs (Total revenue from sales) = 1.000€ Margin = TIs - VCs = 1.000€ - (10€/uc x 20uc) = 1.000€ - 200€ = 800€ As there are no initial stocks, the Variable Cost of sales (VCs) is 10€/uc Results = Margin - FC = 800€ - 300€ = 500€ In case the company manufactures several types of products (i), it would not calculate a result for each type of product but a margin for each of them, and a single Result: Mi = Sales revenuesi - Sales variables Costi n Rdo. = M i =1 i − CF These models failed partial costs as cost allocation models, however manifest themselves very useful in analyzing profitability of product lines, especially in Commercial companies. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 12 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS Figure 5. Schema for Direct Costing without distinguish Cost-locations Figure 6. Schema for Direct Costing with distinguish Cost-locations If we compare Full-Costing and Direct-Costing, when all production is sold, the Results obtained according to the two cost allocation models will coincide. However, when stocks remain unsold or stocks are generated (Units Sold < Units Produced), the result obtained by Full-costing will be higher, because not all the fixed charges have been allocated to the period, since the Fixed Costs of units in stock have been inventoried. The valuation of the inventories will be higher in the models at full costs, producing a higher result in Full-costing than in Direct-costing when inventories are created, while it will be lower, in the event that inventories are destroyed or consumed (Units Sold > Units Produced). MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 13 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS 4.3. PRODUCTION-COST MODEL The improvement in allocation models led to the appearance of this other model at full costs, developed in Spain, mainly by Prof. CALAFELL, who called it the Model of Discrimination between Intrinsic Costs and Costs to be reintegrated. This model resulted in the differentiation of production and placement currents, and in the treatment of costs according to the functional nature of the cycle where they arise. Part of the fact that in the usual activity of the company two cycles can be differentiated: - The production cycle, which includes the series of transactions leading to increasing the value of its economic assets, which constitute investments for the company, consisting of the acquisition and application of means to obtain the manufactured products. - The marketing cycle, which includes transactions whose objective is to convert their economic asset into a financial asset, through the transfer of the products produced to the outside world, and which involve disinvestments. The values generated in both cycles must be calculated independently. I call the first Calafell "intrinsic costs ", and the second, "costs to be reintegrated". The intrinsic costs or production costs (Cost of Direct Materials + Cost of Provisioning + Cost of Transformation), intervene in obtaining production, in such a way that the higher the production, the more intrinsic costs. Therefore, the carriers will be included in their entirety, and the unsold stocks will be inventoried at intrinsic costs or production cost, (Fixed Cost and Variable Cost of the production cycle). The costs to be reintegrated, or also known doctrinally as marketing, are independent of production, and are related to the placement or sale of production MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 14 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS in the period. As they are considered costs linked to time, they will not be part of the cost of the product, and will go directly to results. Margin = Sales revenue – Intrinsic Cost of sales Results = Margin - Cost to be Reintegrated of the period Dead point => Margin = Cost to be Reintegrated => Results = 0 This approach is called "Full-costing evolved", "Production-costing " or Discrimination between Intrinsic Costs and Reintegrate. All the above is summarized in the following scheme: For the calculation of the Result, it also uses the concept of margin, which on this occasion will be determined by the difference between the total income of net completed sales during the period minus the intrinsic costs of sales or also known as production cost of the production sold. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 15 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS Figure 7. Schema for Production Cost Model Regarding previous criticisms of Full-cost : 1. As regards inventorying in Full Cost models, it occurs in this case as well, but with the exception that inventoried costs are inventoriable due to their intrinsic nature, regardless of their fixity or variability. 2. Regarding the influence of occupancy levels on unit costs, with the use of the Production-cost, it is eliminated, since only the costs actually applied to production are included, above all, as a result of the distinction between costs of the activity or necessary and costs of the sub-activity, due to excess capacity or not necessary. 3. There is no subjectivity in the allocation of Fixed Costs, since these are distributed in this model directly related to production. Nowadays it is the most used since according to the norm 10 of valuation of the PGC - valuation of existences - the existences must be valued at cost of production. Although in the domestic sphere, theoretically, you can do what you want, because there is no rule that forces us to anything, this is relative because in the AE the data have to be included in a certain way and therefore it will have to be given that way So, as long as the AE does not say anything incoherent, it MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 16 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS must be treated that both areas are coordinated and do not do double work without meaning. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 17 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS CAPTATION SYSTEMS AND ECONOMIC-ACCOUNTING 5 TREATMENT OF COSTS Regardless of cost allocation model used, some schemes uptake, processing will be needed in formation and emission, relative magnitudes operating internally, ie need cost systems. There are different cost systems, the choice of one or the other will depend on the options presented to elaborate the information. A) A first alternative, makes the distinction, taking into account the bearer cost allocation process and in this sense distinguishes between Organic systems and Inorganic systems. This distinction is based on the three fundamental concepts, basic pillars, of the productive process that are: Classes, Places and Cost Carriers. From this point of view, when the collection costs System contemplates three stages or concepts we face the Systems Organic Costs which are the factors that link the productive (Cost Classes) to the activity centers (Cost Plces), and at the same time, the activity with the product or service (Cost Carriers), according to is structure. When the cost system does not include the cost places, we will be faced with the called Inorganic cost systems, which are those that relate the value of the consumption of the factors directly with the carriers, ignoring the real structure of the training process of the cost, that is, the cost places. The incorporation of the cost generated in the production process is passed, from the registration point of view, from classes to cost carriers, which does not mean that the places do not exist in the company, but when dealing with them accounting it can be considered or not. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 18 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS B) The second alternative, based on the type of magnitudes used, distinguishes between Historical Cost Systems and Predetermined Cost Systems. Historical Cost Systems are those in which the magnitudes are determined after the period has elapsed, that is, with real or retrospective data. By responding to a retrospective approach, it can only provide us with information a posteriori. As a consequence, the company will have more or less exact information, but will not be able to establish control. In the Predetermined Cost Systems, the determination of the magnitudes is made from a cost forecast that serves as the basis for a later comparison with the achievements, analyzing the deviations and adopting the necessary corrective measures. As a consequence, in these cost systems, information is obtained that is used by the company to be able to establish control over what did not occur in the historical data. These predetermined magnituds are forecasts of a reality that has not yet happened but that responds to a scientific, economic-technological analysis, and objectively carried out to establish what the next reality should be in the event that the set of conditions of technical and economic efficiency. From the combination of these two classifications, the four basic systems for determining and analyzing costs are obtained. INORGANIC HISTORICAL ORGANIC COSTS SYSTEMS INORGANIC PREDETERMINATED ORGANIC MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 19 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS HISTORICAL INORGANIC MODELS: They only calculate real magnitudes and do not contemplate the information relative to the places of cost of the company, therefore, they only allow to obtain a posteriori information of the incidence of the different productive factors in the carriers. Eg Anglo-Saxon model of costs for orders or work orders PREDETERMINED INORGANIC MODELS: They ignore the existence of cost places in the company and work with predicted magnitudes, which allow, after the end of the period, to compare them with real ones and obtain deviations. Therefore, they suffer from the possibility of knowing the incidence of places in the carriers, however, it is possible to exercise a certain degree of control over the influence of the factors on the carriers. Eg Anglo-Saxon model of standard costs. HISTORICAL ORGANIC MODELS: They allow to capture the incidence of the factors in the places and of these in turn in the carriers, although working only with real magnitudes. They are more complete than the first, in that they reflect the real process of generating the cost in the company, although the information is only real. Eg Model of group 9 of the PGC of 1973 at historical costs. PREDETERMINED ORGANIC MODELS: These are the most complete models since, in addition to reflecting the real cost generation process in the company, they work with predicted magnitudes, which allow, after the end of the period, to compare the former with the real ones and obtain the deviations That occurs. Therefore, they provide maximum information and allow control to be exercised. Eg Model by section of Schneider or Model of group 9 of the PGC of 1973 at predetermined costs MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 20 LESSON 1: INTRODUCTION TO MANAGEMENT ACCOUNTING: BASIC CONCEPTS B BIBLIOGRAPHY REFERENCES - ÁLVAREZ-DARDET ESPEJO, C. y GUTIÉRREZ HIDALGO, F. (2009). Contabilidad de Gestión. Cálculo de costes. Pirámide. - REQUENA RODRÍGUEZ, J. Mª. Y VERA RÍOS, S. (2008): Contabilidad interna (Contabilidad de costes y de gestión). Cálculo, análisis y control de costes y resultados para la toma de decisiones (3ª edición). Ariel Economía. - SÁEZ TORRECILLA, Á., BROMWICH, M., FERNÁNDEZ FERNÁNDEZ, A., y GUTIÉRREZ DIAZ, G. (1994). Contabilidad de costes y contabilidad de gestión. McGraw-Hill. - BUZACOTT, J. A., CORSTEN, H., GÖSSINGER, R., y SCHNEIDER, H. M. (2012). Production planning and control: basics and concepts. Oldenbourg Verlag. MANAGEMENT ACCOUNTING Grado en Economía y Administración y Dirección de Empresas © Mariano Soler Porta - Dpto. Contabilidad y Gestión - Universidad de Málaga 21