Samenvatting Management Accounting Bedrijfskunde EUR - en

Management Accounting Summary – book & lectures
Module 1
L1: Introduction (C1, C3)
Strategy: plan that outlines the purpose & long-term direction of a firm.
 Competitive strategy: (combi of both = lowest success)
- Production differentiation: focuses on offering superior or unique products/services
to foster brand loyalty and higher prices
- Cost leadership: emphasizes producing at the lowest cost to achieve lower selling
prices
- Measuring and assessing results are crucial, and management accounting plays a
strategic role by providing metrics and tools for this purpose

Cost classification
 Cost allocation: direct vs. indirect costs (‘estimating products/service costs’)
- Direct costs (easily traced to cost objects) & indirect/overhead costs (can’t be
directly traced)
- Cost assignment: tracing direct costs & allocating indirect costs using a cost
driver/allocation base
- Cost object: item/entity for which the cost is being determined

Cost assignment example
1. OH rate = OH/ sum base (can be DL € or DL hours)
2. OH rate * cost driver usage each type

Cost behavior: fixed vs. variable costs (financial planning)
 Variable costs: change in proportion with volume of a cost driver, such as
production/sales quantity
 Fixed costs: don’t change in proportion with volume of a cost driver, at least not
within the relevant range

Fixed: depreciation, CEO compensation, assembly line labor
Variable: CEO compensation, assembly line labor, plant electricity, salesforce commissions

Piecewise Linear Variable Costs
 ‘Variations in the cost driver explain variations in total costs’
 ‘Cost behavior is approximated by a linear cost function within the relevant range’




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,MC (x) = increase in costs from producing an additional unit of output at point x (first
derivative of function)

Cost functions: depict how costs change with changes in cost driver

Fixed costs over the long-term
- Fixed costs aren’t always fixed on the long term, since firms react on the business
activity




- Relevant range: range in which the relationship between the activity/volume level
and the respective cost is constant
- When business activity declines, firms divest to eliminate excess capacity
- When business activity increases, firms invest to increase capacity
- Over the long-term fixed costs behave like step-functions

Cost relevance: relevant vs. irrelevant costs (‘internal decision making’)
 Relevant costs and revenues are those that
1. Differ between alternative courses of actions and;
2. Affect future cash flows
 Irrelevant costs: sunk costs, are already incurred costs

Cost recording: product vs. period costs (for external financial reporting)
 Product costs: include expenses necessary for manufacturing or purchasing and
transporting product for sale, such as DM, DL, & factory overhead.
 Period costs (non-product costs): all other expenses related to managing or selling
the product, incl. selling expenses. & administrative expenses.
Flow of product and period cost




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,Manufacturing company
 Raw materials are purchased and (as soon as production starts) then moved to
material inventory.
 When production begins, the raw materials are used and transferred in the WIP
inventory.
 Once the products are finished, they are recorded as COGS manufactured and stored
in the finished goods inventory.
 When the products are sold, they are recognized as COGS

C1: Cost Management & Strategy
 Cost management – by management accounting who reports to controller- is
essential for success
 Development strategy: plan to achieve competitive success
Management Accounting & Role of Cost management
- Cost management information: financial & non-financial information
- Main focus: usefulness and timeliness
 Cost management: development & use of cost management information

Management accounting vs. financial accounting
 MA: decision making, intern, detailed, long timespan, no rules, future
 Financial Accounting: external, summarizing, many rules (GAAP, CPA/IFRS)

Value chain – in this, information is developed & utilized




Management functions – rely on cost information for effective decision-making
 Strategic management (!): involves developing and implementing a competitive
position through specific goals and actions plans
 Planning & Decision-making: encompass budgeting, profit planning, cash flow
management, & other business-related decisions
 Management & Operational control: consists of evaluating middle-level managers
(management control) by upper level & operating-level managers (operational
control) by middle level.
 Preparation of financial statements: relevant for all 3 functions

Cost management is relevant for all types of organizations:
 Merchandising firms: resale firms (wholesaler & retailer).
- Cost Management information: inventory control, distribution, & customer service
 Manufacturing firms: focus on converting raw materials & labor into product.
- Cost Management information: control of production costs.

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,  Service firms: provide convenience, freedom, safety, or comfort
- Cost Management information: selecting profitable services & managing service-
related expenses.
 Government agencies & nonprofits: provide services without a direct correlation
between payment amount & service itself.

Public goods: geen echte/typische markt; onmogelijk consument uitsluiten van consumptie

Competitive firm
 Anticipates regulatory changes
 Customer driven
 Recognized the cultural, social, politic, complex environment
 Utilized advanced production & information technologies
 Anticipates the impact of changing regulatory requirements and customer
preferences

Cost management: focuses on identifying Critical Success Factors (CSFs) (measurement).
1. Basic internal transaction reporting systems (internal)
2. External financial reporting for reliably financial reports
3. Track key activity data & development accurate and relevant cost information for
decision-making
4. Incorporating strategic cost information
- Management accountants report to the management team, aiding in strategy
implementation & identifying CSFs for competitive position

Modern management techniques
Direct focus on strategy implementation & include the following:
 Balanced Scorecard (BSC): accounting report that incorporates critical success
factors such as financial performance, customer satisfaction, internal processes, and
learning & growth. It provides a more comprehensive view by considering non-
financial information.
Strategy maps: help understand how improvements in certain (crucial) measures
contribute to better business goals and financial outcomes
 Value chain analysis: method for identifying specific steps in delivering a
product/service to customers. It helps fain insights into competition, cost reduction
opportunities, & potential areas for outsourcing.
 Activity-based costing and management: detailed cost analysis based on specific
business activities. Activity-based accounting improves cost analysis precision, while
activity-based management focuses on enhancing product value & competitive
positioning.
 Business intelligence: the use of data by management accountants to understand
and analyze business performance, incl. regression and correlation analysis for
predicting customer behavior.
 Target costing: determining product costs based on desired profits and competitive
factors. It promotes competitiveness, encourages price differentiation, and may
drive product redesign.


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