Introduction class
Two types of accounting information:
1. Financial accounting
= managers preparing and providing financial information to external
stakeholders
2. Management accounting
= managers collecting, analysing, and using information to support internal
decision-making, planning, and control within an organization
Management control system (MCS) = an integrated use of different
mechanisms to gather and use the information about organizational performance
Volume-based costing -> allocating production costs based on the number of
products produced
Activity-based costing -> allocating production costs based on the individual
activities a company performs to produce the products
Lecture 1 – Volume-Based Costing
, Direct costs = materials, labour, depreciation, and utilities that can be directly
traced to a cost object
Overhead costs = product costs that cannot be directly traced to a cost object
Death spiral = when a company drops ‘loss-inducing’ products, which in turn
increases the overhead costs for the other products making them ‘loss-inducing’
as well. This continues until the company stops existing
When do you use volume-based costing (VBC)?
▪ the production processes are largely standardized
▪ costs incurred are mainly driven by the volume
Manufacturing costs Direct materials Product materials
Direct labour Product labour
Overhead costs All other product
manufacturing costs
Non-manufacturing Marketing/Selling costs All costs incurred to
costs secure customer orders
and get the products into
the hands of the
customers
Administrative costs All costs associated with
general management of
the organization as a
whole
Contribution margin = Revenues – Variable costs
Gross margin ($) = Revenues – Direct costs – Manufacturing overhead
Gross margin (%) = (Revenues – Direct costs – Manufacturing overhead) /
Revenues
Cost-Volume-Profit (CVP) relationships -> examining the behaviour of total
costs, total revenues, and total profits as changes occur in variables such as the
output level, sales price, variable costs, fixed costs, etc.
Two types of accounting information:
1. Financial accounting
= managers preparing and providing financial information to external
stakeholders
2. Management accounting
= managers collecting, analysing, and using information to support internal
decision-making, planning, and control within an organization
Management control system (MCS) = an integrated use of different
mechanisms to gather and use the information about organizational performance
Volume-based costing -> allocating production costs based on the number of
products produced
Activity-based costing -> allocating production costs based on the individual
activities a company performs to produce the products
Lecture 1 – Volume-Based Costing
, Direct costs = materials, labour, depreciation, and utilities that can be directly
traced to a cost object
Overhead costs = product costs that cannot be directly traced to a cost object
Death spiral = when a company drops ‘loss-inducing’ products, which in turn
increases the overhead costs for the other products making them ‘loss-inducing’
as well. This continues until the company stops existing
When do you use volume-based costing (VBC)?
▪ the production processes are largely standardized
▪ costs incurred are mainly driven by the volume
Manufacturing costs Direct materials Product materials
Direct labour Product labour
Overhead costs All other product
manufacturing costs
Non-manufacturing Marketing/Selling costs All costs incurred to
costs secure customer orders
and get the products into
the hands of the
customers
Administrative costs All costs associated with
general management of
the organization as a
whole
Contribution margin = Revenues – Variable costs
Gross margin ($) = Revenues – Direct costs – Manufacturing overhead
Gross margin (%) = (Revenues – Direct costs – Manufacturing overhead) /
Revenues
Cost-Volume-Profit (CVP) relationships -> examining the behaviour of total
costs, total revenues, and total profits as changes occur in variables such as the
output level, sales price, variable costs, fixed costs, etc.
