Week 8.ppt

CHAPTER 8 MANAGEMENT ACCOUNTING: THE INTRODUCTION Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 2  Learning Objectives Understand in principle the natu...

CHAPTER 8 MANAGEMENT ACCOUNTING: THE INTRODUCTION Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 2  Learning Objectives Understand in principle the nature and purpose of management and cost accounting. Know about some of the principal features of management and cost accounting. Appreciate the usefulness of management and cost accounting in helping management to make decisions, and to plan, control and monitor business activity. Define the meaning of each type of cost and classify the cost according to their functions, behavior and tracing method Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 3  INTRODUCTION What is Management Accounting? – the provision of financial data and advice to a company for use in the organization and development of its business Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 4  INTRODUCTION concerned with the provision of information to people within the organization to help them make better decisions and improve the efficiency and effectiveness of existing operations. Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 5  FUNCTIONS OF MA 1) Planning - Planning is concerned with 'what', 'how, and 'when' of performance. - It is deciding in the present about the future objectives and the courses of action for their achievement. Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 6  FUNCTIONS OF MA 2) Controlling - function of ensuring that the divisional, departmental, sectional and individual performances are consistent with the predetermined objectives and goals. Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 7  FUNCTIONS OF MA 3) Decision-making - managers must allocate resources effectively in the best possible manner so that the returns or profit of the organization can be maximized Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 8  OVERVIEW Cost Management Material Labour Overhead Cost and Valuation Cost Allocation TRADITIONAL METHOD LIFO Direct Method FIFO Step Method Weighted Average Reciprocal Method Inventory Management Activity-Based Costing  EOQ Cost Application  Re-Order Point Actual Costing  Safety Stock Normal Costing  JIT Standard Costing (Chapter 11) Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 9  Cost Terminology Cost: utilization of assets’ resources in order to obtain another asset (usually cash) Prime Cost: cost which is made up all the direct costs, the direct material cost and direct labor cost Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 10  Cost Terminology Conversion costs: costs used to convert raw materials into finished goods Overhead costs: costs of other than raw material and direct labor that are used to determine the value of the product and inventories Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 11  Cost Classification According to Behaviour 1) Fixed cost - costs that remain fixed or constant although there are changes in output in a given relevant range Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 12  Cost Classification According to Behaviour 2) Variable cost - costs that vary according to variation in unit of output Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 13  Cost Classification According to Behaviour 3) Semi-Variable cost - combination of variable costs and fixed costs Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 14  Cost Classification According to Tracing & Allocation 1) Direct cost - costs that can be traced to a business activity, for example, direct materials cost used or direct labor cost as total job hour can be determined based on a product or service offered Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 15  Cost Classification According to Tracing & Allocation MATERIAL LABOUR EXPENSES Flour Chef Halal certification Water Cashier Rent of shop Sugar Other workers Telephone Eggs Electricity Chocolate rice Water bills Utensils Other cost items that do not fall under the categories of material and labour Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 16 CHAPTER 9 ACCOUNTING FOR MATERIALS Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 17  INTRODUCTION Management of material or raw material involves ordering, delivering and receiving material from supplier; storing material in the warehouse and withdrawing material from there when it is requested by production department. Each activity needs documentation to ensure the effectiveness of internal controls in an organization. Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 18  MATERIAL VALUATION Raw material needs to be evaluated for two reasons: – For product costing. – For inventory assessment. Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 19  MATERIAL VALUATION The raw materials purchased always has different prices, some of it is at low price and some of it is at a high price, depending on the type of raw materials, the supplier and time of purchase. Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 20  MATERIAL VALUATION  For costing purposes, businesses will use either one of the following methods: First-In-First-Out (FIFO); Weighted average cost method, and Last-In-First-Out (LIFO) Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 21  Material Valuation Example 9.1 2017 June 1 MAD3 at the start of inventory (inventory from previous period), total 500 units at the cost of RM 10 per unit. 7 Received 1,000 units of MAD3 at the cost of RM12 per unit. 9 Withdrew 200 units of MAD3 to production department 23 Withdrew 400 units of MAD3 to production department Fundamental of Business Accounting second edition All Rights Reserved © Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 22