Cost Management and Analysis January 12, 2023 postadmin Post in Uncategorized SUBJECT OUTLINE 22753 Cost Management and Analysis Subject coordinator Dr Matthew Peters Senior Lecturer, Accounting Discipline Group Location: CM05.D3.57, city campus Phone: 9514 3284 Email: [email protected] Teaching staff Dr David Bedford Lecturer, Accounting Discipline Group Location: CM05.D3.57, city campus Phone: 9514 3669 Email: [email protected] Dr Paul Brown Lecturer, Accounting Discipline Group Location: CM05.D3.57, city campus Phone: 9514 3436 Email: [email protected] Mr Allan North Accounting Discipline Group Email: [email protected] Subject description Management accounting information systems are one of the main decision-support systems in organisations. This subject introduces students to quantitative and qualitative techniques for the analysis of business operations using accounting and financial management measurement and analytical tools. This subject equips students with the skills and knowledge to design and use effective management accounting information for planning and controlling organisational activities. Topics include forecasting revenues and costs, cost behaviour and cost-volume-profit analysis, business planning and cost control using budgeting and variance analysis. Data analysis and conversion to information products utilising information technology productivity tools is applied to practical ‘real-life’ decision situations confronting managers, paying particular emphasis on building sustainable organisations. Course area UTS: Business Delivery Spring 2014; City Credit points 6cp Requisite(s) 22747 Accounting for Managerial Decisions OR 22784 Accounting: Concepts and Applications These requisites may not apply to students in certain courses. There are also course requisites for this subject. See access conditions. Result type Grade and marks 17/07/2014 (Spring 2014) © University of Technology, Sydney Page 1 of 6 Subject objectives Upon successful completion of this subject students should be able to: 1. critically analyse the role of management accounting in modern organisations 2. apply quantitative techniques to investigate and analyse business operations and use this information for cost behaviour analysis and the preparation of forecasts of business activity 3. apply and critique the application of a range of different analysis and decision models used to enable managers to cost products and services, solve problems, and control and evaluate performance within an organisational context 4. apply information technology productivity tools for data analysis in the development of quantitative information thereby providing decision support for strategic management. Contribution to the development of graduate attributes This is a specialised management accounting subject that examines business information generated by accounting practices and techniques used in the development of information products to support management decisions and action. This course provides a useful set of concepts, skills and techniques for all potential managers in organisations, and for those who wish knowledge and skills beyond the basic cost management applications. In addition, students are required to demonstrate a proficiency in the use and application of information technology for the preparation and analysis of management accounting information. Management accounting information plays an important role in planning and controlling organisational activities. Traditionally, management accounting systems have tended to produce primarily financial information for managers. However, with increased competition, the nature of management accounting systems has been extended to encompass both quantitative and qualitative non-financial information to help not just managers but also workers (employee empowerment) to plan and control their operations. The subject brings together skills acquired in the areas of accounting, management, marketing, finance and economics (through prior studies in the core subjects of Graduate level programs) and utilises these techniques for the development of decision support models for resource allocation problems confronting managers in the determination of the strategic direction of the business organisation. Content 1. Fundamentals of management accounting and business analysis 2. Basic statistical analysis and forecasting using excel 3. Cost estimation techniques and cost–volume profit analysis 4. Costing systems and analysis including activity-based costing 5. Analysis and development of key performance indicators 6. Investment analysis and budgeting 7. Business analysis and sustainability Additional information Specific Teaching Strategies: As a student of this subject, you are required to: 1. Attend all scheduled lectures and seminars. 2. Complete all subject assessments. 3. Check for announcements on UTS Online regularly. 4. Read the entire subject outline. Act in an ethical manner in the completion of the requirements of this subject and to not engage in any malpractice that will provide you with an unfair advantage over other students. In particular, the University has strong policies regarding plagiarism and cheating, which can lead to severe penalties or expulsion. 5. To pass this subject the teaching staff recommends that students take the following approach to learning: 1. Read the relevant chapter(s) of the textbook or relevant material before attending the lecture. 2. Attend the lecture, listen and take notes and actively participate in seminar activities. Review the lecture and attempt provided study questions after class to gain an understanding of the theoretical concepts. 3. 4. Be active in asking questions and participating in discussions. 17/07/2014 (Spring 2014) © University of Technology, Sydney Page 2 of 6 While all these steps are important to passing this subject, the teaching staff would like to emphasise the third step. Of critical importance to passing the subject is an understanding of theoretical concepts, which allow you to solve practical problems. Modes of Offering: This subject is presented in two formats: (i) Normal semester mode – comprising 3 hour weekly lectures / workshops offered during Spring and Autumn Semesters (ii) Block (intensive) mode where the subject is taught over 6 days comprising two 3 day blocks during the semester. This subject will be presented in lecture / seminar format, the order of proceedings for each class will be as follows: Formal Lecture: 1 hour. The lecture provides the structure of the topic area, discussion of the theory and some practical examples. Seminar workshop: 2 hour seminar. Students will be required to apply the concepts introduced and developed in the lecture to practical problems simulating business situations encountered by managers in the workplace. 17/07/2014 (Spring 2014) © University of Technology, Sydney Page 3 of 6 Assessment Assessment task 1: Mid-semester Exam (individual) Objective(s): This addresses subject learning objective(s): 2 and 4 Weight: 30% Task: 140 multiple choice questions in a 3 hour exam format, made up of: a) 100 multiple choice questions that cover the first 6 topics (20%). b) 40 multiple choice questions for the Excel Spreadsheeting Knowledge Test (10%). Assessment task 2: Group Assignment (group) Objective(s): This addresses subject learning objective(s): 2 and 3 Weight: 20% Task: The group assignment task (20%) has three components: 1. cost modelling in Excel. 2. preparing a management report in Word. 3. preparing a PowerPoint presentation Groups must only contain 3 or 4 students, from the same class. The assignment will be made available to students early in the semester. Each student will rate the relative contribution of each group members – to encourage all group members to contribute equally to the workload. Assessment task 3: Final Exam (individual) Objective(s): This addresses subject learning objective(s): 1 and 3 Weight: 50% Task: The final exam is in the Computer Laboratories, with the majority of answers entered into an Excel spreadsheet template. Practice exam questions and templates will be provided. Minimum requirements Students must achieve at least 50% of the subject’s total marks. Required texts Course Textbook: Langfield-Smith, K., Thorne, H. and Hilton, R.W. (2012), Management Accounting: Information for Managing and Creating Value, 6e, McGraw-Hill. The following text for Topic 11 will be provided on UTS Online: Simons, R. (2000). Performance Measurement and Control Systems for Implementing Strategy, Prentice Hall. For the assignment students should refer to: UTS Business School Guide to Writing Assignments: www.uts.edu.au/node/50946/ 17/07/2014 (Spring 2014) © University of Technology, Sydney Page 4 of 6 Academic liaison officer Dr Maria Ossimitz, Accounting Discipline Group, telephone 9514 3069 Mr Harry Tse, Economics Discipline Group, telephone 9514 7786 / 9514 5456 Dr Otto Konstandatos, Finance Discipline Group, telephone 9514 7758 Dr Paul Wang, Marketing Discipline Group, telephone 9514 3692 Dr Daryl Adair, Management Discipline Group and BBus (Kuring-gai), telephone 9514 5498 Dr Jonathan Pratt, Management Discipline Group, telephone 9514 8436 Any arrangements should be negotiated within the first six weeks of semester. Support Student Services Unit/Counselling: Student Services provides a range of free and confidential professional services to support different aspects of your life and learning at UTS ( www.ssu.uts.edu.au). These services include counselling for personal and learning problems or issues. If you are experiencing difficulties with your overall study program, for whatever reason, phone 9514 1177 (City campus) or 9514 5342 (Kuring-gai campus). Students with disabilities or ongoing medical conditions: If you are a student who has a disability or ongoing medical condition that requires support services you are encouraged to contact the disability support officers or Special Needs Service (phone 9514 1177; www.ssu.uts.edu.au/sneeds/) for a confidential interview. Supporting documentation regarding your disability or ongoing medical condition is required if you wish to apply for assessment adjustments, including alternative assessment conditions. Each faculty has appointed academic liaison officers (ALOs) who are responsible for approving assessment adjustments. Meeting with the disability support officers or Special Needs Service before seeking assessment adjustments from your ALO is required. Improve your academic and English language skills: Marks for all assessment tasks such as assignments and examinations are given not only for what you write but also for how you write. If you would like the opportunity to improve your academic and English language skills, make an appointment with the HELPS (Higher Education Language and Presentation Support) service in Student Services. HELPS (Higher Education Language and Presentation Support): HELPS provides assistance with English language proficiency and academic language. Students who need to develop their written and/or spoken English should make use of the free services offered by HELPS, including academic language workshops, vacation intensive courses, drop-in consultations, individual appointments and Conversations@UTS (www.ssu.uts.edu.au/helps). HELPS is located in Student Services, on level 3 building 1 at City campus and via the Student Services area at Kuring-gai (phone 9514 2327 or 9514 2361). Study skills / learning support: If you are experiencing difficulty with your studies or need to develop the necessary study skills you require for your course, there is a host of useful information and websites to help you on the UTS Business School, Teaching And Learning website. Links on how to write better, study more effectively, available support services/staff to help, how to complete assignments; as well as tips for successful study and online study skills resources can all be accessed ( www.uts.edu.au/current-students/current-students-information-uts-business-school-0/study-and-assessment-resources-5). Careers Service: The UTS Careers Service aims to actively support the career development needs of all UTS students (www.ssu.uts.edu.au/careers/). Statement about assessment procedures and advice Assessment of coursework subjects All staff and students involved in the assessment of coursework subjects at UTS are subject to the Policy for the Assessment of Coursework Subjects. The policy is applicable to the assessment of all coursework subjects. This policy does not apply to thesis subjects that are taken by students enrolled in research degrees, but does apply to any coursework subjects undertaken by research degree students. It does not describe policy that relates to academic progression through a course of study. The policy should be read in conjunction with the Procedures for the Assessment of Coursework Subjects. Both are available at: www.gsu.uts.edu.au/policies/assessment-coursework.html 17/07/2014 (Spring 2014) © University of Technology, Sydney Page 5 of 6 Statement on copyright Australian copyright law allows you as a student or researcher to copy and use limited amounts of other people’s material in your study or research without their permission and free of charge. This applies to any sort of published or unpublished work, and includes written material, tables and compilations, designs, drawings (including maps and plans), paintings, photographs, sculpture, craft work, films (such as feature films, television programs, commercials and computer video games), software (such as computer programs and databases), sound recordings, performances and broadcasts (including podcasts and vodcasts of these) and text, including books, journals, websites, emails and other electronic messages. It is important to remember that you can only use a limited amount for your study or research purposes and that you need to correctly acknowledge the author and reference their material when you use it in your work. Incorrect or improper use of copyright protected material could result in breaking Australian copyright law, for which significant penalties apply. Incorrect or improper use of copyright protected material at UTS would result in consideration under the UTS Student Misconduct rules. UTS Rules and the UTS Student Charter require that students familiarise themselves and comply with UTS student policies and procedures. The copyright information advising what you can copy and how much you can use can be seen at: www.uts.edu.au/about/utsweb-statements/copyright-statement Statement on plagiarism Plagiarism is a broad term referring to the practice of appropriating someone else’s ideas or work and presenting them as your own without acknowledgment. Plagiarism is literary or intellectual theft. It can take a number of forms, including: copying the work of another student, whether that student is in the same class, from an earlier year of the same course, or from another tertiary institution altogether copying any section, no matter how brief, from a book, journal, article or other written source, without duly acknowledging it as a quotation copying any map, diagram or table of figures without duly acknowledging the source paraphrasing or otherwise using the ideas of another author without duly acknowledging the source. Whatever the form, plagiarism is unacceptable both academically and professionally. By plagiarising you are both stealing the work of another person and cheating by representing it as your own. Any instances of plagiarism can therefore be expected to draw severe penalties and may be referred to the Faculty Student Conduct Committee. Cheating means to defraud or swindle. Students who seek to gain an advantage by unfair means such as copying another student’s work, or in any other way misleading a lecturer about their knowledge or ability or the amount of work they have done, are guilty of cheating. Students who condone plagiarism by allowing their work to be copied will also be subject to severe disciplinary action. Avoiding plagiarism is one of the main reasons why the UTS Business School is insistent on the thorough and appropriate referencing of all written work. Statement on UTS email account Email from the University to a student will only be sent to the student’s UTS email address. Email sent from a student to the University must be sent from the student’s UTS email address. University staff will not respond to email from any other email accounts for currently enrolled students. 17/07/2014 (Spring 2014) © University of Technology, Sydney Page 6 of 6 CMA – WORKSHOP PROGRAM a PROGRAM Week/Session Dates Description 28/7/2014 LECTURE: Topic 1 – Introduction to Cost Accounting 1) Understand key differences between financial accounting and management accounting. 2) Understand the concept of the control cycle. 3) Classify costs as direct or indirect. 4) Analyse costs using the classifications common in manufacturing. 5) Understand the different definitions of product costs used in external accounting reports and for internal decision making. 6) Understand in detail the cost flows in a manufacturing business and prepare a schedule of cost of goods manufactured, a schedule of cost of goods sold and an income statement for a manufacturer. Textbook reading: Chapter 1, Chapter 2 TUTORIAL: a) Discussion of subject outline and tutorial structure. b) Overview of Excel used in the subject 4/8/14 LECTURE: Topic 2 – Product Costing 1) Outline the flow of costs through the manufacturing accounts used in product costing. 2) Use basic techniques to allocate manufacturing overhead costs to products. 3) Distinguish between job costing and process costing. 4) Prepare a schedule of cost of goods manufactured and a schedule of cost of goods sold. Textbook reading: Chapter 4 TUTORIAL: Topic 1 – Introduction to Cost Accounting a) Textbook Short Answer Questions: 1.3, 1.5, 1.6, 1.15., 2.7, 2.8, 2.10, 2.11, 2.15, 2.16, 2.18, 2.20 b) Textbook Calculations: E2.28, E2.30, P2.38 Self-Study Questions: Textbook Chapter 2: Problem 1 (p.61) and Problem 2 (p.63) CMA – WORKSHOP PROGRAM b 11/8/14 LECTURE: Topic 3 – Cost Behaviour and Cost Volume Profit Analysis 1) Apply the classification of variable and fixed costs. 2) Apply the concept of relevant range and understand its implications. 3) Understand and apply the concepts of cost pools, cost objects and cost drivers. 4) Use Cost-volume-profit analysis to calculate a breakeven point. 5) Calculate contribution margin and understand the relationship with gross profit and profit. 6) Apply CVP to analyse the effect on profits of changes in fixed costs, variable costs, sales prices and volumes. 7) Include income taxes in CVP analyses. Textbook reading: Chapter 3, Chapter 18 TUTORIAL: Topic 2 – Product Costing a) Textbook Short Answer Questions: 4.7, 4.9, 4.10, 4.12, 4.15 b) Textbook Calculations: E4.25, E4.27, P4.37 18/8/14 LECTURE: Topic 4 – Relevant Costing 1) Understand the difference between tactical and long-term decisions, and comprehend the seven steps in making a high quality decision. 2) Apply key concepts to relevant costing problems: avoidable costs, sunk costs, incremental costs and opportunity costs 3) Solve outsourcing (i.e., long term make or buy decisions) practical problems. 4) Solve special order problems, for scenarios with and without capacity constraints. 5) Analyse relevant costs for decisions to optimise product mix under capacity constraint conditions. 6) Undertake customer profitability analysis. Textbook reading: Chapter 19 Additional Reading: Chivaka (2007). Strategic Cost Management – Value Chain Analysis Approach (available on UTS Online). TUTORIAL: Topic 3 – Cost Behaviour and Cost Volume Profit Analysis a) Textbook Short Answer Questions: 3.2, 3.6, 3.7 b) Textbook Calculations: E18.21, E18.22, E.18.25, E18.27, E18.28 c) Supplementary Questions: T3a and T3b (Subject Outline & UTS Online). CMA – WORKSHOP PROGRAM c 25/8/2014 LECTURE: Topic 5 – Environmental Cost Accounting 1) Understand the meaning of sustainability and corporate social responsibility, and the reasons that a business might adopt a sustainability approach. 2) Understand the meaning of environmental management accounting (EMA) and describe the range of techniques that are used in environmental management accounting. 3) Analyse environmental costs as prevention, appraisal and internal and external failure costs. 4) Understand why sustainability reporting and why it is considered important by many organisations. 5) Understand the types of measures that can be used to assess environmental performance. 6) Understand how the balanced scorecard can be adapted to measure sustainability outcomes and drivers. Textbook reading: Chapter 17 Additional Reading: Bortowski, Welsh and Wentzel (2010). Johnson & Johnson – A Model for Sustainability Reporting (available on UTS Online). TUTORIAL: Topic 4 – Relevant Costing a) Textbook Short Answer Questions: 19.1, 19.2, 19.4, 19.5, 19.7, 19.10 b) Textbook Calculations: E19.24, E19.27, E19.28, P19.33 (parts1 & 2), P19.36 c) Supplementary Question: T4a (Subject Outline & UTS Online). Self-Study Questions: Textbook Chapter 19: Problem 1 (p.926) 1/9/2014 LECTURE: Topic 6 – Capital Expenditure Decisions 1) Explain the characteristics of capital expenditure decisions. 2) Describe the stages of a typical capital expenditure approval process. 3) Use the net present value and internal rate of return methods to evaluate a capital expenditure proposal. 4) Describe how sensitivity analysis can be used to account for uncertainty of future cash flows. 5) Determine the after-tax cash flows in a capital expenditure analysis. 6) Calculate the effects of depreciation, profits and loss on disposal of non-current assets and working capital on after-tax cash flows. Textbook reading: Chapter 21 TUTORIAL: Topic 5 – Environmental Cost Accounting a) Textbook Short Answer Questions: 17.2, 17.4, 17.6, 17.9, 17.13. b) Computer Lab Tutorials: Group Assignment working time. CMA – WORKSHOP PROGRAM d 8/9/2014 LECTURE: Topic 7 – Overhead Costing – Traditional 1) Describe the general principles for allocating indirect costs to cost objects. 2) Allocate costs to products, using a plantwide rate. 3) Use the two stage allocation process to estimate departmental overhead rates and allocate overhead costs to products. 4) Allocate support department costs to production departments using the direct method and the step-down method. Textbook reading: Chapter 7 TUTORIAL: Topic 6 – Capital Expenditure Decisions a) Textbook Short Answer Questions: 21.1, 21.2, 21.3, 21.5, 21.6, 21.8, 21.15. b) Textbook Calculations: P21.40, P21.45, P21.46, C21.48. c) Supplementary Question: T6a (Subject Outline & UTS Online). Self-Study Questions: Textbook Chapter 21: Problem 1 (p.1031) 15/9/2014 LECTURE: Topic 8 – Overhead Costing – Activity Based Costing 1) Understand the problems resulting from conventional costing systems. 2) Describe both the costing view and the activity-management view of the activity-based costing (ABC) model. 3) Use the ABC model to measure the overhead costs of activities and assign these activity costs to products. 4) Explain the differences between product costs prepared under activity-based costing and those prepared under conventional costing systems. 5) Recognise what types of organizations can gain the greatest benefits from ABC. Textbook reading: Chapter 8 TUTORIAL: Topic 7 – Overhead Costing – Traditional a) Textbook Short Answer Questions: 7.1, 7.2, 7.5, 7.6, 7.9, 7.12, 7.14 b) Textbook Calculations: E7.21, E7.22, P7.34 c) Supplementary Question: T7a (Subject Outline & UTS Online). Self-Study Questions: Textbook Chapter 7: Problem 1 (p.314) and Problem 2 (p.315) 22/9/2014 Mid-semester Exam Week – No Classes 29/9/2014 Vice Chancellors Week – No Classes CMA – WORKSHOP PROGRAM e 6/10/2014 LECTURE: Topic 9 – Flexible Budgets and Standard Costing 1) Explain how standard costing can be used to help control costs and manage resources more effectively. 2) Develop standard costs for direct material and direct labour. 3) Calculate and interpret the direct material price and quantity variances, and the direct labour rate and efficiency variances. 4) Understand how control can be achieved through assigning responsibility for certain variances to particular managers. Textbook reading: Chapter 10 TUTORIAL: Topic 8 – Overhead Costing – Activity Based Costing a) Textbook Short Answer Questions: 8.1, 8.4, 8.10 b) Textbook Calculations: P8.35, P8.42, P8.44 c) Supplementary Question: T8a (Subject Outline & UTS Online). 13/10/2014 (Assignment submission deadline is Thursday 16th October at midday) LECTURE: Topic 10 – Budgeting Systems 1) Understand how the budgeting process fits into the wider strategic planning processes of an organisation. 2) Explain the five major purposes of the budgeting process. 3) Understand how budgets are developed and used in responsibility accounting. 4) Understand the various components that make up an annual budget. 5) Describe a typical organisation’s process of budget administration. 6) Discuss the behavioural consequences of budgets: participative budgeting, budgetary slack and budget difficulty. Textbook reading: Chapter 9 Additional Readings: Bart (1988). Budgeting Gamesmanship (available on UTS Online). Steele & Albright (2004). Games Managers Play at Budget Time (available on UTS Online). TUTORIAL: Topic 9 – Flexible Budgets and Standard Costing a) Textbook Short Answer Questions: 10.8, 10.9, 10.10, 10.11, 10.12, 10.15 b) Textbook Calculations: 10.23 (part 1), 10.27 (part 1), P10.31 (parts 1 & 2) c) Supplementary Question: T9a (Subject Outline & UTS Online). Self-Study Questions: Textbook Chapter 10: Problem 1 (p.491) CMA – WORKSHOP PROGRAM f 20/10/2014 Group Assignment – Presentations TUTORIAL: Topic 10 – Budgeting Systems a) Textbook Short Answer Questions: 9.13, 9.14, 9.15 b) Textbook Calculations: C9.42 c) Practice Final Exam Questions (Subject Outline & UTS Online). Self-Study Questions: Textbook Chapter 9: Problem 1 (p.435) and Problem 2 (p.437) 27/10/2014 LECTURE: Topic 11 – Performance Measurement and Control Systems for Implementing Strategy 1) Explain the benefits and costs of decentralisation. 2) Define and provide examples of responsibility centres: cost centres, revenue centres, profit centres and investment centres. 3) Critically evaluate the use of performance reports for responsibility centre evaluation. 4) Complete financial performance reports for responsibility centres taking into account allocated costs, common costs and variances. 5) Understand the difference between diagnostic and interactive control systems. 6) Describe when diagnostic controls and interactive controls are effective. 7) Understand how control systems can be used in the formulation and implementation of business strategies. Reading: Simons (2000). Performance Measurement and Control Systems for Implementing Strategy (download from UTS Online) TUTORIAL: Topic 11 – Performance Measurement a) Practice Final Exam Question T11 Performance Management (as per the Subject Outline & UTS Online). Final Exam Overview Cost Management & Analysis Tutorial #1 Cost Management and Analysis: 22753 University of Technology, Sydney University of Technology, Sydney Structure of Topics and Assessments Cost Management and Analysis: 22753 Mid-Semester Exam – 30 % (140 multiple-choice questions over 3 hours). 1. 100 questions (20%) for topics 1 – 6. To prepare, use the practice multiple choice questions on Connect. Exam questions will include textbook material not featured in the lecture slides. 2. 40 questions (10%) for the Spreadsheeting Knowledge Test – to prepare use the Harvard Online Spreadsheeting Course. Group Assignment – 20% (cost modelling and presentation). Final Exam – 50% (in computer laboratories with Excel). 2 Mid-Semester Exam Group Assignment Final Exam T1 Introduction to Cost Accounting. Yes T2 Product Costing. Yes Yes T3 Understanding Cost Behaviour and Cost Volume Profit Analysis. Yes Yes Yes T4 Relevant Costing. Yes Yes Yes T5 Environmental Cost Accounting. Yes Yes T6 Capital Expenditure Decisions. Yes Yes Yes T7 Overhead Costing – Traditional. Yes T8 Overhead Costing – Activity Based Costing. Yes T9 Flexible Budgets and Standard Costing – Direct Costs. Yes T10 Budgeting Systems. Yes T11 Performance Measurement. Yes Spreadsheeting Knowledge Test Yes Topic University of Technology, Sydney UTS Online You should frequently logon to UTS Online (e.g., once per week) to access: Lecture slides • Print them off in advance of workshops. • Lecture demonstration problems – solutions will be posted after the lectures. Supplementary tutorial questions (in Excel format). Solutions to tutorial questions (in Excel format, released at the end of each week). Web links to Connect and the Harvard Spreadsheeting Course. Group Assignment requirements. Readings for Topic 11: (Simons, 2000). Practice final exam questions. Announcements (made every week or so). Discussion Board. • This is for all student questions related to theory and calculative aspects of CMA! • Discussion Board is a forum to share questions and solutions. Suggestion: redirect your email from UTS Online to your regular account (e.g., gmail) Cost Management and Analysis: 22753 3 University of Technology, Sydney Textbook and Connect Cost Management and Analysis: 22753 4 The 6th edition has all the tutorial questions (some are different to previous editions). The 6th edition has the online supplement Connect, which includes supplementary learning resources, including multiple choice questions for preparing you for the mid-semester exam. You have two options for purchasing the textbook: hardcopy or electronic. I. Either register for Connect using the registration card inside the Connect Plus version of the hardcopy textbook (~$160 from the Co-Op Bookshop). II. Or, if you have a hardcopy textbook that is not the Connect Plus version and/or does not include a valid registration card, you can purchase Connect by itself via the URL (~$30). III. Or, purchase Connect Plus with the electronic textbook via the URL (~$100). The URL is provided on UTS Online under Announcements • Also use the URL for registering/accessing Connect. If you buy second-hand the registration period expires 12 months from date of registration. Bring to each workshop the textbook or a print-off/photocopy of the tutorial questions from it. Langfield-Smith, K., Thorne, H. & Hilton, R.W. (2012), Management Accounting: Information for Managing and Creating Value, 6th edition, McGraw-Hill. Cost Management and Analysis: 22753 University of Technology, Sydney 5 On Connect, each Chapter Quiz has multiple-choice questions for practice for the mid-semester exam. Textbook and Connect University of Technology, Sydney Excel Spreadsheeting Spreadsheets are the most common work tool for cost accounting. In CMA you will become skilled in spreadsheeting: 1. The calculative tutorial questions are in Excel templates. • The templates are available on UTS Online. • The Supplementary Tutorial Questions give you instant feedback. • Solutions for the Textbook Tutorial Questions are released at the end of each week. 2. Spreadsheeting Knowledge Test within the mid-semester exam (10% assessment item) • See the Harvard Spreadsheet Modeling Course information. 3. The group assignment is Excel-based: financial modeling (20% assessment item). 4. The final exam is in an Excel template (50% assessment item). • Contained in the Subject Outline is a document Essential Excel Functions for CMA. It contains all the functions that you must know for the final exam. (On the converse, functions not in that document are not needed for the final exam.) • You will be provided with final exam practice questions and templates, and two guidebooks for the essential Excel functions in the final exam. Cost Management and Analysis: 22753 6 University of Technology, Sydney Excel Spreadsheeting An array of keyboard shortcuts is available through the help function (F1). Shortcuts greatly speed up your work. We recommend getting familiar with these functions early in the course to be well-practiced for the final exam. Consider that skilled users of Excel have little need for the time-consuming use of a mouse. Please note that function keys and shortcuts are sometimes contingent to the version of Excel (and Mac versus PC) you are using and your computer settings. Cost Management and Analysis: 22753 7 University of Technology, Sydney Excel Spreadsheeting Students must know several basic functions of Excel, as tabled below. Should you be unfamiliar with the functions, you should refer to resources such as Excel Help, tutorials available within Excel, internet based online resources. Also, see the Essential Excel Functions for CMA in the Subject Outline. Cost Management and Analysis: 22753 8 FUNCTION KEYS F2 x Select and edit cell content, view of cell references and move same with mouse F4 x Change of cell references between absolute and relative x Understand how absolute and relative cell references work F5 x Use of “go to” dialog box in combination of selecting and editing cells FUNCTION APPLICATION Viewing functions x Freeze rows and columns for easy viewing of large data tables x Split window to simultaneously view different areas of worksheets x Multiple window view of different sheets and workbooks In-cell calculation and formulas x Understand how to calculate within cells by linking cells and using excel formulas x Understand how nested formulas work x Understand use of absolute and relative cell references Audit functions x View formulas in cells and trace linked cells x Use of precedent & dependent audit tool x Use of “go to” dialog box Protection of sheets and workbooks x How to protect and different options of what to protect in a worksheet or workbook x Understand which functions will be disabled and remain enabled when protecting sheets or workbooks Cut, copy and paste x Be familiar with different cut, copy and paste options x Know how cell absolute and relative cell references in formulas are effected when using these functions Advanced text features x Merge Cells, use Wrap Text, and use the Alt+Enter to enter text on different rows within a cell. University of Technology, Sydney All students should use the Harvard Spreadsheeting Online Course. “The course is an on-line, web-based, interactive course, designed to train at all levels in using Excel functionality to summarize, report, and analyse data. Because the electronic spreadsheet dominates as the primary tool for analysing data and modelling business problems, all students must master a core set of skills in using Excel in order to help them solve problems and/or analyse data. This course presumes that students possess a very basic working knowledge of Excel. Upon completion of the spreadsheet modelling course, students should be able to use Excel to effectively analyse data and develop models for business analysis that will greatly facilitate their coursework.” The URL is under Announcements on UTS Online. If you are a beginner with Excel, the course will take 17-20 hours. If your prior skill level is medium/advanced, it will take 10-12 hours. You can logoff and log back onto where you left off at any time. Do the course early in the semester before your workload builds-up, that way you will have better practical Excel skills for the weekly tutorial work and the group assignment task. Cost Management and Analysis: 22753 9 Excel Spreadsheeting – Harvard Online University of Technology, Sydney In the mid-semester exam there is a Spreadsheeting Knowledge Test (10% assessment item): • The 40 multiple choice questions during the mid-semester exam will be similar in style and difficulty to those contained in Chapter 1 (Pretest) and Chapter 14 (Final Exam). • To prepare you should undertake and study all 14 chapters. • Please note that your use of and performance in Chapters 1 and 14 online is entirely for your own learning and preparation – the CMA Teaching Team will not refer or access your scores in Chapters 1 and 14 online at any stage of the subject. Cost Management and Analysis: 22753 10 Excel Spreadsheeting – Harvard Online The Harvard Online course has 14 chapters: 1. Pretest. 8. Charts 2. Introduction 9. Importing Data into Excel 3. The Excel Environment 10. The Art of Spreadsheet Modelling 4. Working with Data: Basic Techniques 11. Using the Excel Solver 5. Increasing Spreadsheet Readability 12. Three-Dimensional Formulas & Tables 6. Excel Formulas 13. Monte Carlo Simulation 7. Useful Excel Functions 14. Final Exam. University of Technology, Sydney Further Information about CMA Contact Information UTS Online is the first point of call for questions about subject content Your lecturer is your second contact (contact in seminar or via email) You can contact the subject coordinator if you have questions or concerns other than subject material (contact via email) Missed Assessments If you miss an assessment you must follow formal Student Administration Unit (SAU) protocol (to miss an assessment, you must have an extenuating circumstance!) Additional Resources Ongoing medical conditions (contact the academic liaison office in the first few weeks of semester) Want to improve your English skills? (contact ELSSA) Cost Management and Analysis: 22753 11 University of Technology, Sydney Student Preparation for Workshops Tips for succeeding in CMA ! 1. Read the relevant chapter(s) of the textbook before attending the lecture. 2. Print off the lectures notes (no more than 2 to an A4 page) attend the lecture, take notes. 3. After the lecture, review the lecture slides to understand the theoretical concepts. 4. Complete the assigned tutorial homework before the tutorial. Check your calculative answers against those provided on UTS Online to get feedback on your learning. Answers for the short-answer ‘theory’ questions will be provided only in the tutorial. Successful completion of the calculative answers will strengthen your understanding of the theory. 5. Form your assignment groups early, take time to bond as a team, plan and meet regularly. 6. Be active in asking questions and participating in discussion. 7. On an ongoing basis, revise parts of the topic where necessary. 8. Regularly use the eConnect textbook resources and practice the Chapter Quizzes to prepare for the mid-semester exam. 9. Master the practice final exam questions. Cost Management and Analysis: 22753 12 Cost Management & Analysis Lecture 1 Introduction to Cost Accounting Cost Management and Analysis: 22753 University of Technology, Sydney University of Technology, Sydney Subject Overview Delivery format: Three hour workshops: lecture (50 minutes) and two 50 minute tutorials (with the second tutorial in a computer lab). Subject Objectives: 1. Critically analyse the role of management accounting in modern organisations. 2. Apply quantitative techniques to investigate and analyse business operations and use this information for cost behaviour analysis and the preparation of forecasts of business activity. 3. Apply and critique the application of a range of different analysis and decision models used to enable managers to cost products and services, solve problems, and control and evaluate performance within an organisational context. 4. Apply information technology productivity tools for data analysis in the development of quantitative information thereby providing decision support for strategic management. Cost Management and Analysis: 22753 14 University of Technology, Sydney Effective Learning There is an emphasis on the understanding and practical application of theory (i.e. problem solving, not rote learning!) “When something has been learned by rote, it can be regurgitated more or less literally, but it cannot be used as a cognitive tool. Laboratory experiments have shown that material can usually be learned more rapidly with understanding than by rote, is retained over longer periods of time, and can be transferred to new tasks.” Herbert Simon (1996) Awarded the Nobel Prize in Economics in 1978 Cost Management and Analysis: 22753 15 University of Technology, Sydney Topic One Lecture: Introduction to Cost Accounting Topic 1 Learning Objectives: 1. Understand key differences between financial accounting and management accounting. 2. Explain the concept of the control cycle. 3. Classify costs as direct or indirect. 4. Analyse costs using the classifications common in manufacturing. 5. Explain the different definitions of product costs used in external accounting reports and for internal decision making. 6. Describe the cost flows in a manufacturing business and prepare a schedule of cost of goods manufactured, a schedule of cost of goods sold and an income statement for a manufacturer. Cost Management and Analysis: 22753 16 University of Technology, Sydney Management v Financial Accounting? Management accounting measures and reports financial and non-financial information that assist managers in fulfilling the goals of the organisation. This information is used for decision making by those internal to the organisation. Financial accounting focuses on external reporting that is guided by generally accepted accounting principles. This information is used for decision making by those external to the organisation. Don’t forget that management accounting and financial accounting are linked; management accounting decisions (e.g. choice of depreciation method, inventory costing methods) affect financial accounting numbers – and vice versa. Financial accounting numbers from past periods (financial statements) are used to generate management accounting reports for future periods (e.g. the budget). Management and financial reports often draw from the same information database (i.e. the general ledger) Cost Management and Analysis: 22753 17 University of Technology, Sydney Management Accounting Systems (MAS) Management accounting systems are tailored to the needs of an individual organisation, however the following are common components of MAS: Cost accounting system Used to estimate the costs of goods and services, activities, departments etc. Budgeting system Used to estimate revenues and costs for organisational units Performance measurement system (PMS) Monitors financial and non-financial (e.g. quality, environmental, innovation) performance by tracking actual performance against budgeted targets Cost management system Provides information to actively manage resources and increase organisational value Cost Management and Analysis: 22753 18 University of Technology, Sydney Why do we need accountants? Accounting is the main “quantitative” information in a business. It is therefore the main mechanism to integrate, coordinate and evaluate the diverse range of activities of an organization is involved in. The most important use is to provide information that is useful for decision making. But what are the main decisions or purposes that accounting information is useful for? There are 5 main categories: Strategic planning of an organisations’ future Resource allocation and planning decisions Control of operations and activities Performance measurement and evaluation of people Meeting external regulatory and legal reporting requirements. Think about the need for accounting in the decision to introduce Jetstar! Cost Management and Analysis: 22753 19 University of Technology, Sydney Why do we need accountants? Think about the need for accounting information for the launch of JetStar Airlines by Qantas. Strategy Resources and Planning New planes, staff, terminals, inventory (e.g. food and beverages – how many to stock per flight?) Control Increased focus on efficiency and minimal cost. Competing through cost means that margins are small – cost information needs to be accurate! Evaluation Success of venture requires both financial (profit, return on investment) and non-financial (safety, customer satisfaction, market share) outcomes to be met. Cost Leader Pursuing the lowest cost of production. Requires efficient processes and aggressive cost management. Economies of scale are usually employed. Differentiation Creating competitive advantage through differentiation (e.g. innovation, product customisation, intensive marketing) meaning you can increase prices and margins. Cost Management and Analysis: 22753 20 University of Technology, Sydney The Control Cycle Evaluation Planning Coordination & Monitoring Strategy Feedback involves examining past performance and systematically exploring alternative ways to improve future performance. It creates the “cycle”. Various uses of feedback include: Changing targets and goals Searching for new methods of operating Revising predictions about the future Adjusting the reward and compensation system Cost Management and Analysis: 22753 21 University of Technology, Sydney The Control Cycle The control cycle represents the traditional uses of management accounting (MA) information. However, the business environment has changed significantly over the last two decades. Contemporary uses of MA include: Problem solving involves comparative analysis to identify the best alternative in relation to the organisation’s goals. For example, lease or buy equipment, whether to outsource a department and product mix decisions Attention directing involves making visible both opportunities and problems on which managers need to focus. Systems such as the Balanced Scorecard and Key Performance Indicator (KPI) Dashboards can be used to keep management attention focused on critical areas of performance. Resource management refers to the effective and efficient use of all resources. The focus is not just cost reduction, but an analysis of those drivers of customer value, shareholder (or stakeholder) wealth, and organisational innovation. Cost Management and Analysis: 22753 22 University of Technology, Sydney Product Costing When costing ‘cost objects’, a major consideration concerning costs is whether the cost has a direct or indirect relationship to a particular cost object. Direct costs are those that are related and can be traced easily/economically to the cost object. These costs are assigned to the cost object directly, based on the measured quantity of the resources consumed. Indirect costs (also called overheads) are those that are related to a particular cost object that cannot be traced easily/economically to the cost object. Indirect costs are allocated to the cost object using a cost allocation method. Prime Costs includes all direct manufacturing costs (i.e. DL +DM) Conversion Costs comprise all manufacturing costs for transforming direct materials into finished goods (i.e. MOH + DL) Cost Management and Analysis: 22753 23 University of Technology, Sydney Product Costing In a normal costing system (using absorption costs), product costs are comprised of actual direct costs and allocated indirect costs: A common means of pricing is the cost-plus method: Direct Materials Direct Labour Overhead Product Cost Actual costs incurred Estimated using pre determined rate Product Cost (1 + Markup %) Product Price Cost Management and Analysis: 22753 24 University of Technology, Sydney Industry Settings for Management Accounting There are three main industry sectors: Services Merchandising Manufacturing We will be generally concerned with manufacturing companies in CMA, but you need to understand the basics of all three. Cost Management and Analysis: 22753 25 University of Technology, Sydney Costing Systems – Service Sector Service sector companies provide services or intangible products to their customers – for example, legal profession, accountants, banks, insurance companies etc. These companies do not have any tangible products at the end of the accounting period. Labour costs are typically the most significant cost category, often being as high as 70% of total costs. Overhead Work in Process Cost of Goods Sold Labour Indirect Direct Although there exists WIP Inventory there is no inventory of Raw Materials and Finished Goods in the service sector. Cost Management and Analysis: 22753 26 University of Technology, Sydney Costing Systems – Merchandising Sector Merchandising firms provide tangible products that they have previously purchased in the same form from their suppliers (e.g. supermarkets). Merchandising and manufacturing firms differ from service firms in their holding of inventory. Capitalised inventoriable costs include the purchase of goods held for resale (not sold by the end of the accounting period), and the costs associated with bringing the goods to their present location and condition. Capitalised inventoriable costs become expenses and are included as part of COGS when the inventory items are sold. Finished Goods Cost of Goods Sold Inventory Expenses (P&L) Assets (Balance Sheet) Cost Management and Analysis: 22753 27 University of Technology, Sydney Costing Systems – Manufacturing Sector Manufacturing Sector Companies The manufacturing sector differs from the merchandising sector in that the products sold to customers are converted to a different form from that of the products purchased from suppliers. Manufacturers typically have the following inventory (balance sheet) accounts: Opening RM + Purchases – Closing RM = RM Used Opening WIP + New Production – Closing WIP = Cost of Goods Manufactured (COGM) Opening FG + COGM – Closing FG = Cost of Goods Sold (COGS) Expense on the P&L Cost Management and Analysis: 22753 28 1. Raw Materials (RM) Materials used in the production process. 2. Work in Process (WIP) Goods which have been partially completed in the production process. 3. Finished Goods (FG) Goods that have been fully completed which have not been sold. University of Technology, Sydney Costing Systems – Manufacturing Sector Overheads Work in Process Finished Goods Cost of Goods Sold Labour Indirect Labour Direct Labour Materials Indirect Materials Direct Materials Raw Materials Revenue Gross Profit Period Expenses Profit Resources Balance Sheet Profit & Loss Ň = Ň = Cost Management and Analysis: 22753 29 University of Technology, Sydney Lecture Demonstration Questions Question 1 Question 2 Conversion costs amount to 60% of the unit manufacturing cost. The unit manufacturing cost is $40.00 Direct Labour is equal to 40% of Prime cost. Required Calculate the unit cost of direct materials, direct labour and factory overhead. Cost Management and Analysis: 22753 30 Direct Material $20 Direct Labour $24 Factory Overhead $30 Cost-Plus Markup 120% of manufacturing cost Calculate (a) Unit manufacturing cost (b) Prime cost (c) Conversion cost (d) Selling price 31 Blank Page 32 Blank Page CMA – SUPPLEMENTARY TUTORIAL QUESTIONS i SUPPLEMENTARY TUTORIAL QUESTIONS These supplementary questions are for use with the instruction of your lecturer in the respective computer lab tutorials. Use the CMA Supplementary Tutorial Workbook downloadable from UTS Online. It includes a Color Feedback System. It will tell you if you have the correct answer (or not). There is a toggle that turns the feedback ‘on’ or ‘off’. • With the feedback turned ‘off’ the cells for data entry are colored yellow. • With the feedback turned ‘on’ cells with correct numbers are colored green, whilst cells with incorrect numbers are colored red. The Color Feedback System can be easily corrupted. To avoid corruption: • Do NOT cut and paste cells. • Do NOT insert rows/columns. If you use a workbook on an Apple Macintosh computer the Color Feedback System may not work properly. If you save a workbook on an Apple Macintosh, afterwards the Color Feedback System may not work on that workbook if you later open it in using a Microsoft operating system. Answers to the supplementary questions will only be provided in tutorials (but are always present in the CMA Supplementary Tutorial Workbook indirectly via the Feedback System). Do NOT use any decimal place rounding (this goes for all of the questions in CMA). CMA – SUPPLEMENTARY TUTORIAL QUESTIONS ii T3a – CVP analysis: Margaret Estate Pty Ltd operates a winery in Western Australia. It specializes in three red wine varietals: Pinot Noir, Merlot and Shiraz. Sales and cost information for last month are provided in the Excel template. Fixed costs are allocated by sales volume ratio. Required (using the Excel template on UTS Online): 1. Calculate the sales levels of each of the three products at breakeven. 2. How many bottles each would Margaret Estate have to sell trying to achieve a total net profit after tax of at least $58,800? Assume the same sales ratio and a tax rate of 30%. 3. Margaret Estate is considering introducing a Chardonnay (a white wine varietal), by purchasing part of an adjoining vineyard. Red wine production would decrease slightly due to capacity constraints. Fixed costs would increase by $20,000. DM and DL together for Chardonnay are estimated to be $15, with a selling price of $28. Assume that total sales will continue to be 9,500 without the introduction. Total sales following the introduction of Chardonnay are estimated to be 11,000. Sales ratios are outlined in the Excel template. The VOH per unit of Chardonnay would be $7. Would the introduction of Chardonnay increase profit, compared to last month’s performance? CMA – SUPPLEMENTARY TUTORIAL QUESTIONS iii T3b – CVP analysis: BREAD Pty Ltd bakes bread and sells it all to Woolworths Supermarkets. They bake bread every trading day, which is every day of the year except for Christmas day in December and Easter Sunday in April. The volume of bread is constant on a daily basis, i.e., they bake and sell the same volume every trading day. They hold no inventory – at the end of every trading day all the bread is dispatched to supermarkets. In conjunction with Woolworths, BREAD Pty Ltd is considering a new product strategy to take effect for the next financial year starting in July. They are considering five new mutually exclusive products: A, B, C, D and E. They can only have a single product range, i.e., they can only bake and sell one product (A or B or C or D or E). The alternatives differ greatly in terms of product quality, manual labour and baking time, such that the number of daily batches and production output varies significantly across the five alternatives. Base fixed cost projections are $50,000 per month. In addition, two of the product alternatives would incur a step-up in fixed costs, as per the Excel template. The Excel template provides information for each of the five product alternatives. Management expects the Unit Direct Material costs would reduce by 0.5% each month due to process improvements (i.e., 0.5% compounded ‘month-on-month’). The Unit Direct Material costs provided in the Excel template are for July. Required (using the Excel template on UTS Online): Use the toggle in cell B13, and use VLOOKUP formulas – there are examples provided in cell C17 and C18. 1. Which of the five product alternatives (i.e., A, B, C, D or E) is most profitable in Year 1? For the most profitable alternative, what is the financial year: • Revenue • Variable Costs • Contribution Margin • Fixed Costs • After-Tax Profit CMA – SUPPLEMENTARY TUTORIAL QUESTIONS iv T4a – Relevant Information Tom Tailor Pty Ltd produces four products: shirts, skirts, trousers and jackets. The cost structure of current production is given in the Excel template. Current production is 2,000 shirts, 600 skirts, 600 trousers and 200 jackets. Current production uses up all available production capacity, which is limited by machine hours. Some long-term contractual agreements require production of a minimum quantity that must be available. The marketing manager has estimated total maximum demand of each product. Fixed production costs are allocated according to machine hours. Fixed Sales and Admin expenses are allocated according to unit sales. Required (using the Excel template on UTS Online): 1. Calculate current profit, fixed production costs and fixed S & A costs. What is the machine hour maximum capacity? 2. How many units of each product should Tom Tailor produce to maximize profit? Calculate the profit of the optimal product mix. 3. Assume the volume profile determined in requirement 2. If Tom Tailor receives a special order for 50 jackets, what is the minimum unit-selling price he would be willing to accept for this order? 4. If for the special order additional machine hours could be purchased and the jackets be priced at $75, what is the maximum amount Tom Tailor should pay for each additional machine hour to fulfill the special order? CMA – SUPPLEMENTARY TUTORIAL QUESTIONS v T6a – Capital Expenditure Bunker Pty Ltd specializes in long haul trucking across Australia. After attending an energy efficiency workshop, Bunker decided to investigate initiatives that could improve both its environmental and financial performance. A special team was assembled to investigate energy efficiency ideas that were suggested by employees and managers. An initiative requiring further analysis concerns investment in trucking technology to improve energy efficiency (i.e., diesel fuel economy). There are three alternative scenarios: a) Continue using the existing trucks. b) Refurbish the existing trucks, with more modern engine technology. c) Replace the existing trucks with new trucks that are highly fuel efficient. The following information is available: Existing Trucks • Fuel efficiency 0.85km / litre. • Maintenance costs $2,000 every two weeks. • Current market value $35,000. • Have been fully depreciated for book and tax purposes. • Remaining useful life of 5 years. • No salvage value at the end of useful life. Refurbish Trucks • Fuel efficiency 1.10km / litre. • Maintenance costs $2,000 every three weeks. • Refurbishment cost of $125,000 capital expenditure. • Remaining useful life of 5 years. • No salvage value at the end of useful life. New Trucks • Fuel efficiency of 1.25km / litre. • Maintenance costs $2,000 every four weeks. • $300,000 capital expenditure. • Useful life of 10 years. • Salvage value of $130,000. Other Information • Revenue is $2.00 per km regardless of the type of truck. • Diesel fuel costs $1.40 per litre. • Bunker leases a warehouse and loading yard for $500,000 per year • All trucks have an annual inspection at a cost of $100 per truck. CMA – SUPPLEMENTARY TUTORIAL QUESTIONS vi • Every Bunker truck drives an average of 18,600km per month. • For book (i.e., financial reporting) purposes, the investment is depreciated over the useful life (straight line), assuming no salvage value. • For tax, the investment (for either Refurbished Trucks or New Trucks) is depreciated over 4 years (straight line), assuming no salvage value. • The discount rate is 8%. • The corporate tax rate is 30%. • According the National Greenhouse and Energy Reporting Act 2007, the calculation of the Co2-e emissions per tonne can be calculated as: CO2-e tonnes =