lOMoARcPSD|12798044
Management Accounting -TiU
Hoorcollege 1
Inleiding
Management accounting measures and reports financial and non-financial information and helps and
motivates managers to make good decisions to fulfill an organization’s goals.
Management accounting is a value-adding continuous improvement process of planning, designing,
measuring and operating both nonfinancial information systems and financial information systems
that guides management action, motivates behavior, and supports and creates the cultural value
necessary to achieve an organization’s strategic, tactical and operating objectives.
Cost accounting measures and reports financial and non-financial data that relates to the cost of
acquiring or consuming resources by an organization.
Decision facilitating and decision influencing
Decision facilitating > management accounting is belangrijk om de link tussen strategie en financiële
controle te versterken. MA kan expertise inzetten om scenario’s of strategische opties te vergelijken
Decision influencing >
Principal-agent problems:
- Moral hazard > how to motivate people into the organization to provide effort for the
principal?
> Bonus pay-outs
> Targets after contract signed
> Variance analyses – budgets
> Non-financial – monitoring
- Adverse selection > how to attract the right workers to my company to make sure they are
willing to work?
> Screening / referral / observation
> Ex-ante targets
> Interviewing / personality tests
Guide people toward creating value for the
firm:
- Motivating employees: management accounting provides a selection of best alternative
methods of doing things. It motivates employees to improve their performance by
setting targets and using incentive schemes
- Coordinating among departments: management accounting is helpful in coordinating
the departments of an organization by applying thorough functional budgeting and
providing reports for the same to the management on a regular basis
- Controlling performance: in order to assure effective control, various techniques are used
by a management accountant such as budgetary control, standard costing, management
audit, etc. Management accounting provides a proper management control system to the
management. Reports are provided to the management regarding the effective and
efficient use of resources.
, lOMoARcPSD|12798044
Management accounting in actie
Decide on company’s goals, decide how to attain these goals, plan resource
usage and allocation, predict results
Cost accounting decisions
- Costs for inventory and external reporting
- Cost accounting for important decisions to assist marketing, operations,…
> Evaluation profitability of products, customers, etc.
> Cost data for pricing, quality investments,
outsourcing decisions.
> Cost reduction, break-even for start-ups or new ventures
Management control – evaluation towards goals
- Translate plans into concrete actions > budgets, responsibility centers
- Deviations of operations against original plan > variance analyses, BSC
- Performance management and evaluation > bonus / compensation
Management accounting vs. Financial accounting
Management accounting is meer
strategisch, meer lange termijn, en
meer niet-financieel naast financieel.
Strategic management accounting
= a type of accounting that focuses not only on internal factors of a company, but factors that are
external. This includes industry-wide financials, averages and upcoming trends > balanced scorecard
Next to costs, we
- Look at market trends: what are our customers willing to pay and does our cost need tot
go down?
- Look at predictors for financial results
- Examine what do we need to achieve on both financials and non-financials in order to
realize our strategy
- Study risk management: which risk factors are we exposed to and how can we manage them?
- Have a long term perspective: not only on current profits, but what about customer life
time value, customer profitability, long term pricing
, lOMoARcPSD|12798044
Hoorcollege 2
Cost accounting
Wat zijn kosten?
- Resource sacrificed to achieve a given objective
- Usually expressed in monetary terms
- Goal: find out the true costs (e.g. of producing car) > crucial for decision making
Terminology
- Part of cost = giving up an alternative, also called opportunity cost
- Actual vs. budgeted costs (schatting van kosten)
Responsibility accounting
If decentralized organization structure > responsibility centers Different
types of responsibility centers
- Cost center: accountable for costs, bijv. Onderhoud, it-support > ondersteunende diensten,
want ze hebben vaak niet veel te maken met de verkoop maar zijn wel belangrijk
- Revenue center: accountable for revenues
- Profit center: accountable for revenues and costs, bijv. Starbucks
- Investment center: accountable for revenues, costs and investments, bijv. Headquarters
Choice of responsibility centers is based on the controllability principle = keep managers/employees
accountable for the items they can control
Idea: who has the best information/knowledge to explain deviations from targets?
> not: who can we blame for deviations from targets?
Examples:
- Management
- Support staff
- Energy and rent
Cost object
= thing for which cost information is needed
Examples:
- Products or product lines
- Departments or business unit
- Projects or programs
- Service
- Activity or process
- Customers
Depends on individual situation or interest
Cost = Σ monetary values of all resources needed to achieve the cost object = complex
Cost accumulation > stage 1 > bookkeeping
, lOMoARcPSD|12798044
Cost assignment > stage 2 > tracing and allocating
Complex: Assigning to departments (cost object) is already difficult, To the product level even more
complex e.g. Philips, Siemens
e.g. IT kosten
verdelen naar
HRM, Dept.
Finance,
Accounting,
Economics, etc.
Direct vs. indirect costs
- Related to particular object
- Tracing economically feasible/not
too costly
-
Related to particular object
-
Tracing economically not
feasible/too costly
- Allocation bases on (arbitrary?)
criteria determined by the
company
Cost driver > is factor, such as level of activity or the quantity, that causally affects totals cost over
a given time span
Change in level cost driver > change in total cost of cost object Examples: # labor hours, # units,
distance to customer, etc.
Indirect/direct > Depends on cost object. E.g. wage production manager direct if cost object is prod.
department, wage production manager indirect when cost object is product (e.g. car)
Variable vs. fixed costs
Do costs vary proportionally with quantity or are they independent of the quantity?
Time span > classification depends on the time horizon Costs
can be classified as fixed in short run, but variable in the long
run
Relevant range > costs can be variable in a certain range, but
require additional fixed costs when range is exceeded
Product cost vs. period cost
Management Accounting -TiU
Hoorcollege 1
Inleiding
Management accounting measures and reports financial and non-financial information and helps and
motivates managers to make good decisions to fulfill an organization’s goals.
Management accounting is a value-adding continuous improvement process of planning, designing,
measuring and operating both nonfinancial information systems and financial information systems
that guides management action, motivates behavior, and supports and creates the cultural value
necessary to achieve an organization’s strategic, tactical and operating objectives.
Cost accounting measures and reports financial and non-financial data that relates to the cost of
acquiring or consuming resources by an organization.
Decision facilitating and decision influencing
Decision facilitating > management accounting is belangrijk om de link tussen strategie en financiële
controle te versterken. MA kan expertise inzetten om scenario’s of strategische opties te vergelijken
Decision influencing >
Principal-agent problems:
- Moral hazard > how to motivate people into the organization to provide effort for the
principal?
> Bonus pay-outs
> Targets after contract signed
> Variance analyses – budgets
> Non-financial – monitoring
- Adverse selection > how to attract the right workers to my company to make sure they are
willing to work?
> Screening / referral / observation
> Ex-ante targets
> Interviewing / personality tests
Guide people toward creating value for the
firm:
- Motivating employees: management accounting provides a selection of best alternative
methods of doing things. It motivates employees to improve their performance by
setting targets and using incentive schemes
- Coordinating among departments: management accounting is helpful in coordinating
the departments of an organization by applying thorough functional budgeting and
providing reports for the same to the management on a regular basis
- Controlling performance: in order to assure effective control, various techniques are used
by a management accountant such as budgetary control, standard costing, management
audit, etc. Management accounting provides a proper management control system to the
management. Reports are provided to the management regarding the effective and
efficient use of resources.
, lOMoARcPSD|12798044
Management accounting in actie
Decide on company’s goals, decide how to attain these goals, plan resource
usage and allocation, predict results
Cost accounting decisions
- Costs for inventory and external reporting
- Cost accounting for important decisions to assist marketing, operations,…
> Evaluation profitability of products, customers, etc.
> Cost data for pricing, quality investments,
outsourcing decisions.
> Cost reduction, break-even for start-ups or new ventures
Management control – evaluation towards goals
- Translate plans into concrete actions > budgets, responsibility centers
- Deviations of operations against original plan > variance analyses, BSC
- Performance management and evaluation > bonus / compensation
Management accounting vs. Financial accounting
Management accounting is meer
strategisch, meer lange termijn, en
meer niet-financieel naast financieel.
Strategic management accounting
= a type of accounting that focuses not only on internal factors of a company, but factors that are
external. This includes industry-wide financials, averages and upcoming trends > balanced scorecard
Next to costs, we
- Look at market trends: what are our customers willing to pay and does our cost need tot
go down?
- Look at predictors for financial results
- Examine what do we need to achieve on both financials and non-financials in order to
realize our strategy
- Study risk management: which risk factors are we exposed to and how can we manage them?
- Have a long term perspective: not only on current profits, but what about customer life
time value, customer profitability, long term pricing
, lOMoARcPSD|12798044
Hoorcollege 2
Cost accounting
Wat zijn kosten?
- Resource sacrificed to achieve a given objective
- Usually expressed in monetary terms
- Goal: find out the true costs (e.g. of producing car) > crucial for decision making
Terminology
- Part of cost = giving up an alternative, also called opportunity cost
- Actual vs. budgeted costs (schatting van kosten)
Responsibility accounting
If decentralized organization structure > responsibility centers Different
types of responsibility centers
- Cost center: accountable for costs, bijv. Onderhoud, it-support > ondersteunende diensten,
want ze hebben vaak niet veel te maken met de verkoop maar zijn wel belangrijk
- Revenue center: accountable for revenues
- Profit center: accountable for revenues and costs, bijv. Starbucks
- Investment center: accountable for revenues, costs and investments, bijv. Headquarters
Choice of responsibility centers is based on the controllability principle = keep managers/employees
accountable for the items they can control
Idea: who has the best information/knowledge to explain deviations from targets?
> not: who can we blame for deviations from targets?
Examples:
- Management
- Support staff
- Energy and rent
Cost object
= thing for which cost information is needed
Examples:
- Products or product lines
- Departments or business unit
- Projects or programs
- Service
- Activity or process
- Customers
Depends on individual situation or interest
Cost = Σ monetary values of all resources needed to achieve the cost object = complex
Cost accumulation > stage 1 > bookkeeping
, lOMoARcPSD|12798044
Cost assignment > stage 2 > tracing and allocating
Complex: Assigning to departments (cost object) is already difficult, To the product level even more
complex e.g. Philips, Siemens
e.g. IT kosten
verdelen naar
HRM, Dept.
Finance,
Accounting,
Economics, etc.
Direct vs. indirect costs
- Related to particular object
- Tracing economically feasible/not
too costly
-
Related to particular object
-
Tracing economically not
feasible/too costly
- Allocation bases on (arbitrary?)
criteria determined by the
company
Cost driver > is factor, such as level of activity or the quantity, that causally affects totals cost over
a given time span
Change in level cost driver > change in total cost of cost object Examples: # labor hours, # units,
distance to customer, etc.
Indirect/direct > Depends on cost object. E.g. wage production manager direct if cost object is prod.
department, wage production manager indirect when cost object is product (e.g. car)
Variable vs. fixed costs
Do costs vary proportionally with quantity or are they independent of the quantity?
Time span > classification depends on the time horizon Costs
can be classified as fixed in short run, but variable in the long
run
Relevant range > costs can be variable in a certain range, but
require additional fixed costs when range is exceeded
Product cost vs. period cost
