BUSI 2152 Management Accounting
- Analyses the deviations from budget, enabling costs to be controlled efficiently. Generally
applied to manufacturing activities with repetitive operations and clear specified output
- Standard costs are predetermined costs under efficient operating conditions.
- – entire activity operation; – per unit activity
- :
o Standards should be set for the quantities and prices of materials, labour and services to
be consumed in performing each operation associated with a product. Product standard
costs are derived by listing and adding the standard costs of operations required to
produce a particular product.
▪ Past historical records – estimate labour and material usage
▪ Engineering studies – detailed study of each operation is undertaken under
controlled conditions, based on high levels of efficiency, to ascertain the quantities
of labour and materials required. Target prices are then applied based on efficient
purchasing to ascertain the standard costs.
o the standard costs for the actual output are recorded for each operation for each
responsibility centre;
o actual costs for each operation are traced to each responsibility centre;
o the standard and actual costs are compared;
o variances are investigated and corrective action is taken where appropriate;
o standards are monitored and adjusted to reflect changes in standard usage and/or prices
o Job Costing
▪ Operations for specific/customised orders
▪ “Job” Environment
o Process Costing
▪ Sequence of continuous/repetitive operations to make identical units
▪ “Process” Environment
▪ Indirect costs in a job costing system may be regarded as direct in process costing
system. Eg. Supervision and depreciation will be treated as direct cost of that
process
- :
o Produces identical units at high volume
o Output of a process becomes an input of another process till completion (potato chips)
o Unlikely to identify specific costs units (averaging out)
o Work in progress at an end of a period
o May suffer losses during the process
o Final output maybe single product or by-product (came out incidentally)
,o Setting out Selling Price
o Evaluate efficiency
o Planning future costs
o Valuing stock (finished goods) and COGS (WIP)
o Motivate, Evaluate, Reward
▪ Profit and loss
▪ Equivalent units
▪ Valuing closing stock of FG and WIP
▪ By-products
▪ Joint products
▪ Common Costs
▪ Normal Loss (uncontrollable) – treat as process cost (so counted in stock valuation
also, can say let customer bear)
▪ Abnormal loss or gain (controllable-arise from inefficiencies) -treat as period cost,
self bear the losses
▪ Scrap value of loss
o Assigns material, labour & OH to products and provide a mechanism to compute unit
costs
o Job costing: accounting information to facilitate the management of each job
o Process costing: accounting information to facilitate the management of each process
stage
Total production costs
o Product cost per unit = Total quantity produced
o Methods
▪ First-in-first-out method
▪ Weighted Average method
• Taking an average over 2 periods, assume all the current-period production
as being started in the current period
, ▪ Resources put in for each fully completed units >
resources put in for each partly completed units
o Derive a common measurement unit to spread the costs
▪ Expressed WIP units in terms of smaller number of fully completed units
o 6 units that are 50% WIP may be regarded as equivalent to 3 units that is fully completed
▪ Resources added evenly throughout the process: use equivalent units
▪ Resources added at the beginning of the production process: cannot use equivalent
units
▪ Ignore the Opening WIP, as we only care about output
▪ Indicator for areas of improvement
▪ Business performance (financial and non-financial)
▪ Recoverability of the losses
▪ Inherent losses (perfume evaporation) vs. Avoidable losses
▪ = expected (normal loss)
▪ > expected (abnormal loss)
▪ < expected (abnormal gain)
▪ Losses need to be foreseen so Selling Price set should be able to cover Normal Loss
▪ Expected output only need to bear normal loss
▪ Closing WIP need to bear a portion of this loss if it has passed the stage of loss
▪ : the sale of scrap will reduce the total production costs per unit before
the costs are treated
Total production costs−Revenue from scrap
▪ Product cost per unit =
Total quantity produced
▪ : will increase the total production costs before the costs are treated
▪ The abnormal loss is removed from the process costs and reported separately as a
loss in the abnormal loss account. Abnormal expenses will be period costs and not
included in inventory. This way the manager can focus on losses that may be
controllable.
▪ : will be dealt with separately for the unexpected units only in its own
period cost accounts (decrease the cost level of these units)
- Analyses the deviations from budget, enabling costs to be controlled efficiently. Generally
applied to manufacturing activities with repetitive operations and clear specified output
- Standard costs are predetermined costs under efficient operating conditions.
- – entire activity operation; – per unit activity
- :
o Standards should be set for the quantities and prices of materials, labour and services to
be consumed in performing each operation associated with a product. Product standard
costs are derived by listing and adding the standard costs of operations required to
produce a particular product.
▪ Past historical records – estimate labour and material usage
▪ Engineering studies – detailed study of each operation is undertaken under
controlled conditions, based on high levels of efficiency, to ascertain the quantities
of labour and materials required. Target prices are then applied based on efficient
purchasing to ascertain the standard costs.
o the standard costs for the actual output are recorded for each operation for each
responsibility centre;
o actual costs for each operation are traced to each responsibility centre;
o the standard and actual costs are compared;
o variances are investigated and corrective action is taken where appropriate;
o standards are monitored and adjusted to reflect changes in standard usage and/or prices
o Job Costing
▪ Operations for specific/customised orders
▪ “Job” Environment
o Process Costing
▪ Sequence of continuous/repetitive operations to make identical units
▪ “Process” Environment
▪ Indirect costs in a job costing system may be regarded as direct in process costing
system. Eg. Supervision and depreciation will be treated as direct cost of that
process
- :
o Produces identical units at high volume
o Output of a process becomes an input of another process till completion (potato chips)
o Unlikely to identify specific costs units (averaging out)
o Work in progress at an end of a period
o May suffer losses during the process
o Final output maybe single product or by-product (came out incidentally)
,o Setting out Selling Price
o Evaluate efficiency
o Planning future costs
o Valuing stock (finished goods) and COGS (WIP)
o Motivate, Evaluate, Reward
▪ Profit and loss
▪ Equivalent units
▪ Valuing closing stock of FG and WIP
▪ By-products
▪ Joint products
▪ Common Costs
▪ Normal Loss (uncontrollable) – treat as process cost (so counted in stock valuation
also, can say let customer bear)
▪ Abnormal loss or gain (controllable-arise from inefficiencies) -treat as period cost,
self bear the losses
▪ Scrap value of loss
o Assigns material, labour & OH to products and provide a mechanism to compute unit
costs
o Job costing: accounting information to facilitate the management of each job
o Process costing: accounting information to facilitate the management of each process
stage
Total production costs
o Product cost per unit = Total quantity produced
o Methods
▪ First-in-first-out method
▪ Weighted Average method
• Taking an average over 2 periods, assume all the current-period production
as being started in the current period
, ▪ Resources put in for each fully completed units >
resources put in for each partly completed units
o Derive a common measurement unit to spread the costs
▪ Expressed WIP units in terms of smaller number of fully completed units
o 6 units that are 50% WIP may be regarded as equivalent to 3 units that is fully completed
▪ Resources added evenly throughout the process: use equivalent units
▪ Resources added at the beginning of the production process: cannot use equivalent
units
▪ Ignore the Opening WIP, as we only care about output
▪ Indicator for areas of improvement
▪ Business performance (financial and non-financial)
▪ Recoverability of the losses
▪ Inherent losses (perfume evaporation) vs. Avoidable losses
▪ = expected (normal loss)
▪ > expected (abnormal loss)
▪ < expected (abnormal gain)
▪ Losses need to be foreseen so Selling Price set should be able to cover Normal Loss
▪ Expected output only need to bear normal loss
▪ Closing WIP need to bear a portion of this loss if it has passed the stage of loss
▪ : the sale of scrap will reduce the total production costs per unit before
the costs are treated
Total production costs−Revenue from scrap
▪ Product cost per unit =
Total quantity produced
▪ : will increase the total production costs before the costs are treated
▪ The abnormal loss is removed from the process costs and reported separately as a
loss in the abnormal loss account. Abnormal expenses will be period costs and not
included in inventory. This way the manager can focus on losses that may be
controllable.
▪ : will be dealt with separately for the unexpected units only in its own
period cost accounts (decrease the cost level of these units)
