Cost & Management Accounting Techniques

download Cost & Management Accounting Techniques

If you can't read please download the document

Embed Size (px)

description

COST AND MANAGEMENT ACCOUNTING TECHNIQUES: MUST FOR EFFECTIVE DECISION MAKING

Transcript of Cost & Management Accounting Techniques

  • Cost & Management Accounting Techniques Must for Effective Decision Making BY: A AMIR INSTITUTE OF COST & MANAGEMENT ACCOUNTANTS OF PAKISTAN
  • CONTENTS
    • Cost & Management Accounting
    • Cost & Management Accounting Techniques
    • Conclusion
  • Cost & Management Accounting
    • The Process of
        • Identifying
        • Measuring
        • Analyzing
        • Interpreting
        • Communicating Information
  • Techniques
    • The Make or Buy Decision
    • Just-In-Time
    • Inventory Management
    • Budgeting
    • Variance Analysis
    • Const-Volume-Profit Analysis
    • Activity Based Costing
    • Linear Programming
    • Enterprise Cost Management
  • The Make or Buy Decision
    • A decision concerning whether an item should be produced internally or purchased from an outside supplier is called a Make or Buy decision.
    • Lets look at the Astech Company example.
  • The Make or Buy Decision
    • Astech manufactures part 4A that is used in one of its products.
    • The unit product cost of this part is:
  • The Make or Buy Decision
    • Equipment used to manufacture part 4A has no resale value.
    • Total general factory overhead, which is allocated on the basis of direct labor hours, would be unaffected by this decision.
    • The $30 unit product cost is based on 20,000 parts produced each year.
    • An outside supplier has offered to provide the 20,000 parts at a cost of $25 per part.
    • Should we accept the suppliers offer?
  • The Make or Buy Decision 20,000 $9 per unit = $180,000
  • The Make or Buy Decision The special equipment has no resale value and is a sunk cost.
  • The Make or Buy Decision Not avoidable; irrelevant. If the product is dropped, it will be reallocated to other products.
  • The Make or Buy Decision Should we make or buy part 4A?
  • The Make or Buy Decision
    • DECISION RULE
    • In deciding whether to accept the outside suppliers offer, Astech isolated the relevant costs of making the part by eliminating :
      • The sunk costs.
      • The future costs that will not differ between making or buying the parts.
  • Techniques
    • The Make or Buy Decision
    • Just-In-Time
    • Inventory Management
    • Budgeting
    • Variance Analysis
    • Const-Volume-Profit Analysis
    • Activity Based Costing
    • Linear Programming
    • Enterprise Cost Management
  • Impact of JIT Inventory Methods In a JIT inventory system . . . Production tends to equal sales . . . So, the difference between variable and absorption income tends to disappear.
  • Techniques
    • The Make or Buy Decision
    • Just-In-Time
    • Inventory Management
    • Budgeting
    • Variance Analysis
    • Const-Volume-Profit Analysis
    • Activity Based Costing
    • Linear Programming
    • Enterprise Cost Management
  • Inventory Management
  • Qunatity Discounts Avoid Disturbance Reduce number of ordering / setup Hedge against inflation Meet Unexpected Demands Quantity Discounts When to order How much to order Buffer Stock Maximum Inventory How often to review stock E O Q R O P
  • Techniques
    • The Make or Buy Decision
    • Just-In-Time
    • Inventory Management
    • Budgeting
    • Variance Analysis
    • Const-Volume-Profit Analysis
    • Activity Based Costing
    • Linear Programming
    • Enterprise Cost Management
  • Budgeting Define goal and objectives Uncover potential bottlenecks Coordinate activities Communicating plans Think about and plan for the future Means of allocating resources
  • Techniques
    • The Make or Buy Decision
    • Just-In-Time
    • Inventory Management
    • Budgeting
    • Variance Analysis
    • Const-Volume-Profit Analysis
    • Activity Based Costing
    • Linear Programming
    • Investment Decision
    • Robust Decision
    • Enterprise Cost Management
  • Variance Analysis
    • Material Variances
    • Labor Variances
    • Factory Overhead Variances
  • Techniques
    • The Make or Buy Decision
    • Just-In-Time
    • Inventory Management
    • Budgeting
    • Variance Analysis
    • Const-Volume-Profit Analysis
    • Activity Based Costing
    • Linear Programming
    • Investment Decision
    • Robust Decision
    • Enterprise Cost Management
  • CVP Graph Units Dollars Fixed expenses Total Expenses Total Sales
  • CVP Graph Units Dollars Profit Area Loss Area Break-even point
  • Equation Method Profits = Sales (Variable expenses + Fixed expenses) Sales = Variable expenses + Fixed expenses + Profits OR At the break-even point profits equal zero.
  • Techniques
    • The Make or Buy Decision
    • Just-In-Time
    • Inventory Management
    • Budgeting
    • Variance Analysis
    • Const-Volume-Profit Analysis
    • Activity Based Costing
    • Linear Programming
    • Investment Decision
    • Robust Decision
    • Enterprise Cost Management
  • Activity Based Costing (ABC)
    • ABC is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore fixed costs.
    I agree! ABC is a good supplement to our traditional cost system
  • Techniques
    • The Make or Buy Decision
    • Just-In-Time
    • Inventory Management
    • Budgeting
    • Variance Analysis
    • Const-Volume-Profit Analysis
    • Activity Based Costing
    • Linear Programming
    • Investment Decision
    • Robust Decision
    • Enterprise Cost Management
  • LP Applications
    • Development of a production schedule that will
      • satisfy future demands for a firms production
      • while minimizing total production and inventory costs
    • Selection of product mix in a factory to
      • make best use of machine-hours and labor-hours available
      • while maximizing the firms products
  • LP Applications
    • Determination of grades of petroleum products to yield the maximum profit
    • Selection of different blends of raw materials to feed mills to produce finished feed combinations at minimum cost
    • Determination of a distribution system that will minimize total shipping cost from several warehouses to various market locations
  • Techniques
    • The Make or Buy Decision
    • Just-In-Time
    • Inventory Management
    • Budgeting
    • Variance Analysis
    • Const-Volume-Profit Analysis
    • Activity Based Costing
    • Linear Programming
    • Enterprise Cost Management
  • ECM
  • CONCLUSION
    • Corporate Decision-Makers Rely on
    • Cost &amp