Kế toán, kiểm toán - Chapter 12: Management accounting, cost - Volume - profit examined and applied

CHAPTER 12Management Accounting, Cost-Volume-Profit Examined and Applied1Learning ObjectivesExplain the need for planning by management and the control cycle.Identify the major difference between financial and management accounting.Explain the difference between variable and fixed costs.Use the high-low method to determine the cost formula for a mixed cost.Examine the contribution margin income statement format.Explain the contribution margin and use it in CVP analysis.Explain the meaning and significance of the break-even point.212Learning ObjectivesExplain the concept of operating leverage.Discuss the meaning and application of the terms: differential, allocated, sunk and opportunity.Discuss how costs are determined to be relevant for short-run decisions. Determine a special pricing decision when a firm is operating at full capacity.Analyse relevant costs in the make or buy decision.3Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynPlanning by Management and the Control CyclePLANNINGProcess of planning, organisation and control of an entity’s activities.To accomplish the entity’s purpose.4Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynPlanning by Management and the Control CycleStrategic, Operational,and Financial PlanningPlanning and control cycleExecuting operational activities (Managing)Revisit plansPerformance analysis: Plans vs actual results (Controlling)Implement plansData collection andperformance feedback5Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynManagement Accounting vs Financial AccountingManagement Accountingsupports the internalplanning (future-oriented)decisions made by management.Financial Accounting hasmore of a scorekeeping,historical orientationthat provides informationto owners and othersoutside the organisation.6Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynManagement Accounting vs Financial Accounting7Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn Relationship of total cost to volume of business activity.Cost Behaviour Patterns Total variable costs change when activity changes.Total fixed costs remain unchanged when activity changes.8Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCost Behaviour Patterns TOTAL VARIABLE COSTExample: Raw Materials Increased number of units produced results in an increased total cost of raw materials.Units of productionRM Cost $9Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynDep’n Cost $ TOTAL FIXED COSTSUnits of productionExample: Factory building depreciationWill not change with level of production.Cost Behaviour Patterns10Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn FIXED COSTSGeneral rule: do not unitise fixed expenses as they do not behave on a per unit basis.Cost Behaviour Patterns11Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynTypical variable costs: Raw materials Direct labor Factory water, light, electricity Sales commissions Delivery costs.Typical fixed costs: Land tax Insurance Supervisory salaries Depreciation Advertising.Cost Behaviour Patterns12Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCost Behaviour Patterns1. Behaviour is only true within a relevant range.2.Cost behaviour pattern is linear.ASSUMPTIONS13Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCost Behaviour PatternsSEMI-VARIABLE COSTSSome costs are partly fixed and partly variable. Also known as mixed costs.Total cost = fixed cost + variable costTotal cost = fixed cost + (variable rate per unit * level of activity)14Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn Cost Behaviour PatternsFixed monthlyElect. chargeVariable Elect. chargeActivity (kilowatt hours) Total Electricity CostXYTotal semi-variable cost SEMI-VARIABLE COSTSExample: electricity costs15Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynValuable tool, but must keep in mind these assumptions: Cost-Volume-Profit Analysis1. Cost behaviour is only true within a RELEVANT RANGE.2. Cost behaviour pattern is LINEAR.16Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCost-Volume-Profit AnalysisExample: Office space is available at a rental rate of $30,000 per year in increments of 1,000 square metres. As the business grows, more space is rented, increasing the total cost.FIXED COSTS AND THE RELEVANT RANGEThe relevant range is the level of activity over which a particular cost behaviour pattern exists17Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynFIXED COSTS ANDTHE RELEVANT RANGERent cost in $000 1,000 2,000 3,000  Rented area (square metres)306090 Relevant RangeTotal cost does not change for a wide range of activity, and then jumps to a new higher cost for the next higher range of activity.Cost-Volume-Profit Analysis18Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn Cost-Volume-Profit AnalysisLINEARITYActivityTotal CostActual cost behaviour pattern19Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn Cost-Volume-Profit AnalysisLINEARITYActivityTotal CostActual cost behaviour patternRelevant rangeAssumed cost behaviour patternA straight line closely approximates a curvilinear cost line within the relevant range. 20Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCost-Volume-Profit Analysis- By analysing cost and activity over a period of time. How can cost behaviour patterns be estimated?Techniques?ScattergramHigh-low methodSimple and multiple regression.21Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn Cost-Volume-Profit AnalysisThe following example will illustrate how the high-low method can beused to determine the cost formula for a cost that has a mixed behaviour pattern.22Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn The High-Low Method 23Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn The High-Low MethodPlot points on a scattergram48121620123456Total units produced (000)Cost ($000)MayJanuaryAprilFebruaryMarchJuneIgnore as outside patternLowHigh24Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe High-Low MethodExtract data for high and low volume of production: Using these two levels of activity, compute:: the variable cost per unit; the fixed cost; and then express the costs in equation form Y = a + bX. 25Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe High-Low Method Unit variable cost =Change in costChange in unitsUnit variable cost =300012000Unit variable cost =$0.25 per hour26Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe High-Low MethodFixed cost = Total cost – Total variable costFixed cost = $5000 – ($0.25 ph × 18000 hours)Fixed cost = $5000 – $4500Fixed cost = $500Can be calculated using high or low set of data.27Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe High-Low MethodTotal cost = Fixed cost + Variable cost Y = a + bX Y = $500 + $0.25X 28Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Contribution Margin FormatCONTRIBUTION MARGINDifference between sales revenue and variable expenses.The contribution to fixed costs and operating income from the sale of a product or provision of a service.Useful in the planning, control and evaluation processes applied to a firm’s operations.29Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Contribution Margin FormatThe contribution margin format emphasises cost behavior. Contribution margin covers fixed costs and provides for income.30Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynUsed primarily forexternal reportingUsed primarily bymanagementThe Contribution Margin Format31Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynContribution margin ratioThe Contribution Margin Format32Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Contribution Margin FormatContribution Margin RatioPortion of each sales dollar that remains after covering the variable costs and available to cover fixed costs or provide for profit.33Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Contribution Margin FormatWhat questions can management answer using contribution margin and CVP analysis?What volume of sales is needed to cover total costs?What would be the impact of a change in selling price?If there is a change in either FC or VC, what impact would that have on the sales volume needed to cover costs?What sales volume must be achieved to reach a targeted profit?34Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Contribution Margin FormatFORMULA to solve questionsSx = VCx + FC + pS = selling price per unitVC= variable cost per unitFC = fixed costs P = profitx =volume of unitsWhere:35Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynSimplified equation for CVP and Break even issuesBE = Fixed costs + (NP=0) CMBE (units req’d to be sold) = Fixed costs + (NP=0) CM per unitBE (Sales req’d $)= Fixed costs + (NP=0) % CM36Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Contribution Margin FormatExample: How much profit will be made?Sx = VCx + FC + pS = $ 15 per caseVC= $ 9 per caseFC = $ 40 000P = profit = ?x = 9 000 cases37Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Contribution Margin FormatExample: How much profit will be made?15 (9000) = 9 (9000) + 40000 + pP= 135 000 – 121 000P = $14 000 S = $15 per caseVC= $9 per caseFC = $40 000P = profit = ?x = 9 000 cases38Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Contribution Margin FormatHow many units must be sold to cover the fixed costs (break even)?Answer: $30,000 ÷ $4 per unit = 7,500 unitsExample39Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBreak-even Point AnalysisWe have just seen one of the basic CVP relationships – the break-even calculation. At break-even there is no profit.Break-even point in units Fixed costsContribution margin / unitUnit sales price less unit variable cost ($4)=40Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBreak-Even Point AnalysisThe break-even formula may also be expressed in sales dollars.Break-even point in dollars Fixed costsContribution margin ratio Unit contribution margin Unit sales price=41Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBreak-even Point Analysis Break-even formulas may be adjusted to show the sales volume needed to earnany amount of operating profit. Unit sales = Fixed costs + Desired profitContribution margin per unit Dollar sales = Fixed costs + Desired profitContribution margin ratio42Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynBreak-even Point GraphTotal expensesVolume in unitsCosts and revenuein dollarsTotal fixed expenseBreak-even pointProfitLossRevenueTotal variable exp43Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynOperating LeverageA measure of how sensitive net profit is to percentage changes in sales.With high leverage, a small percentage increase in revenue can produce a much larger percentage increase in profit. A small percentage decrease in revenue can also cause a much greater percentage fall in profit.44Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynOperating LeverageThe higher a firm’s contribution margin ratio, the greater its operating leverage.Management can influence the operating leverage of a firm by its decisions about incurring variable versus fixed costs. It can increase leverage by replacing variable costs with fixed costs.45Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynDecision makingDecision making involves the entire planning and control cycle.Short runAllocation of resources for discretionary itemsLong runStrategies for products and pricesCapital budgeting46Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynCost Classifications for Other Analytical Purposes Cost concepts used in the decision making process:47Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynShort-run Investment DecisionsDecisions affecting the next few days, weeks or months, for example:• utilisation of resources not otherwise active.• the opportunity to reduce costs by outsourcing the production of components.• ability to improve profits by selling a product at a certain point in the production process.Relevant costs - future costs that represent differences between the decision alternatives.48Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Special Pricing DecisionThe special pricing decision requires an understanding of where the firm is operating relative to its capacity. Compare excess capacity to idle capacity49Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Special Pricing DecisionMicro Tech Ltd sells laptop computers.Current selling price: $2,400 eachSales commission: 5% Budgeted production: 4,400 unitsProduction capacity: 5,000 units50Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Special Pricing DecisionWorld University offers to buy 500 laptops from Micro Tech at $1,800 each.At first glance, Micro Tech should reject the offer as the cost of each laptop is $2,120 ($2,000 plus $120 commission- which is based on $2,400 x 5%).But what are the relevant costs for Micro Tech?51Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Special Pricing DecisionRelevant costsIrrelevant costsMicro Tech has 600 units of idle capacity, so it is able to consider adding the extra 500 units without incurring additional fixed costs.Sales commission would not be paid on the sale.52Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Special Pricing Decision500 units @The special order will add $150,000 to operating profit and should be accepted.53Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Make or Buy DecisionShould we make or buy? Our production costs are $350, but we can buy for $300, plus delivery of $5.In a make or buy decision, the relevant cost is the cost that can be avoided by outsourcing.54Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Make or Buy DecisionMicroTech currently makes the motherboardsused in its laptop computers.It is also able to buy them from anoutside supplier, Integrated Technology. There is no other use for the production resources being used.20% of the fixed overhead represents the cost of a production manager who would not be retained if motherboards were not produced.55Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Make or Buy DecisionManufacturing costs need to be analysed to identify avoidable and unavoidable costs.56Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Make or Buy DecisionThe avoidable costs should then be compared with the cost of buying the product.In this case there is an advantage to make the product.57Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Make or Buy DecisionIf MicroTech buys the motherboards from the outside supplier, the idle facilities could be used to expand production of flat screen monitors that have a contribution margin of $50 each.Does this information change MicroTech’s decision?58Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van RhynThe Make or Buy DecisionThe real question to answer is, “What is the best use of MicroTech’s facilities?” The opportunity cost of facilities changes the decision. 59Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Accounting: What the Numbers Mean 2e by Marshall, McCartney & Van Rhyn