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FACULTY OF BUSINESS

Nurturing professionals with high moral and ethical values

Managerial Accounting

Business Environment and The Need of Managerial Accounting


Assoc. Prof. Dr. Mohd Fuad Mohd Salleh
fuadsalleh@unisel.edu.my

21st. July 2012


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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

Ethics And Moral System


54% CEOs survey unethical business is a common practice. 55% of 2000 employees surveyed observed unethical conduct. Ethics

a system of moral principles: the ethics of a culture. the rules of conduct recognized in respect to a particular class of human actions or a particular group, culture, etc.: medical ethics moral principles, as of an individual: His ethics forbade betrayal of a confidence. a philosophy dealing with values relating to human conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions.
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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

ETHICS
body of principles governing right and wrong may be merely to enable ex post facto, abstract judgements about good and evil OR might be instrumentalist with volitional or motivational power thereby influencing actors' behaviour
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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

WHY HAVE ETHICAL STANDARDS?


Ethical standards in business are essential for a smooth functioning advanced market economy.

Without ethical standards in business, the economy, and all of us who depend on it for jobs, goods, and services, would suffer.

Abandoning ethical standards in business would lead to a lower quality of life with less desirable goods and services at higher prices.
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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

Ethics And Moral System

3 important things to build strong ethical culture:


a. Concerned leaders who practice ethics as daily observation b. Supervisors who emphasize integrity when working with direct report c. Peers who encourage each other to act ethically.

FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

Ethics And Moral System

Moral

(from Latin morlis) is a message conveyed or a lesson to be learned from a story or event. The moral may be left to the hearer, reader or viewer to determine for themselves, or may be explicitly encapsulated in a maxim.

Moral Values

the standards of good and evil, which govern an individuals behavior and choices. Individuals morals may derive from society and government, religion, or self.

FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values.

Unisels Vision
To be a renowned university that nurtures professionals and scholars with high moral and ethical values.

Unisels Mission
Unisel is committed to provide excellent and conducive learning environment to develop competent, upright and ethical professionals & scholars

FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values.

Unisels Core Values


Integrity Accountability Innovation Quality & Excellence Accessibility Collegiality

FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

INSTITUTIONAL OBJECTIVE
Institutional objective of Universiti Selangor (Unisel) is to be a renowned university that nurtures professionals and scholars with high moral and ethical values

FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

ACCOUNTANTS RESPONSIBILITY

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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

ACCOUNTANTS RESPONSIBILITY
1. Maintain integrity by presenting financial results accurately and objectively do the right thing to be aware of your own conduct to become familiar with policies and procedures to avoid misconduct. 2. Avoiding the potential for conflicts of interest (COI)

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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

STRATEGY
A strategy is a game plan that enables a company to attract customers by distinguishing itself from competitors.
The focal point of a companys strategy should be its target customers.

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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

CUSTOMER VALUE PROPOSITIONS


Customer Intimacy Strategy
Understand and respond to individual customer needs.

Operational Excellence Strategy

Deliver products and services faster, more conveniently, and at lower prices.

Product Leadership Strategy

Offer higher quality products.

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Nurturing professionals with high moral and ethical values

WORK OF MANAGEMENT

Planning

Directing and Motivating

Controlling

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Nurturing professionals with high moral and ethical values

PLANNING AND CONTROL CYCLE


Formulating longand short-term plans (Planning) Comparing actual to planned performance (Controlling)

Begin

Decision Making

Implementing plans (Directing and Motivating)

Measuring performance (Controlling)


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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

FINANCIAL AND MANAGERIAL ACCOUNTING


Financial Accounting
1. Users 2. Time focus 3. Verifiability versus relevance 4. Precision versus timeliness 5. Subject 6. GAAP 7. Requirement External persons who make financial decisions Historical perspective Emphasis on verifiability Emphasis on precision Primary focus is on the whole organization Must follow GAAP and prescribed formats Mandatory for external reports

Managerial Accounting
Managers who plan for and control an organization Future emphasis Emphasis on relevance for planning and control Emphasis on timeliness Focuses on segments of an organization Need not follow GAAP or any prescribed format Not Mandatory
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Nurturing professionals with high moral and ethical values

CORPORATE GOVERNANCE
The system by which a company is directed and controlled. Board of Directors
Incentives and monitoring for

Top Management

To pursue objectives of

Stockholders
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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

CORPORATE GOVERNANCE
An effective corporate governance system should also protect the interests of the companys other stakeholders.

Employees

Customers

Creditors

Suppliers

And the communities in which the company operates.

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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

Managerial Accounting
COST TERMS, CONCEPTS AND CLASSIFICATIONS

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COST CLASSIFICATIONS
(a) Manufacturing Cost (Product Cost)

1. Direct Cost

2.Indirect Cost

Direct Materials

Direct Labor

Manufacturing Overhead

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Direct costs

Indirect costs

Costs that can be easily and conveniently traced to a unit of product or other cost object. Examples: direct material and direct labor

Costs that cannot be easily and conveniently traced to a unit of product or other cost object. Example: manufacturing overhead

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Nurturing professionals with high moral and ethical values

COST TERMS
Direct Materials Direct Labor Manufacturing Overhead

The Product
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Direct Materials

Manufacturing Overhead

Direct Labor

Integral part of the product and that can be conveniently traced directly to it.

Labor costs that can be easily traced to individual units of product.

Manufacturing costs that cannot be traced directly to specific units produced.

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Manufacturing costs are often classified as follows:


Direct Material Direct Labor Manufacturing Overhead

Prime Cost

Conversion Cost

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COST CLASSIFICATIONS
(b) Non-manufacturing Cost (Period Cost)

Selling Costs

Administrative Costs

Costs necessary to get the order and deliver the product.

All executive, organizational, and clerical costs.

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PRODUCT COSTS VERSUS PERIOD COSTS


Accounting Treatment
Product costs include direct materials, direct labor, and manufacturing overhead.
Inventory Sale Cost of Good Sold

Period costs include all selling costs and administrative costs.


Expense

Balance Sheet

Income Statement

Income Statement

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Which of the following costs would be considered a period rather than a product cost in a manufacturing company?

A. Manufacturing equipment depreciation. B. Property taxes on corporate headquarters. C. Direct materials costs. D. Electrical costs to light the production facility. E. Sales commissions.

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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

Which of the following costs would be considered a period rather than a product cost in a manufacturing company?

A. Manufacturing equipment depreciation. B. Property taxes on corporate headquarters. C. Direct materials costs. D. Electrical costs to light the production facility. E. Sales commissions.

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MERCHANDISING AND MANUFACTURING ACTIVITIES


Merchandisers . . .

Manufacturers . . .

Buy finished goods. Sell finished goods.

Buy raw materials. Produce and sell finished goods.

Manufacturing Company of Malaysia Care4you

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BALANCE SHEET Merchandiser Current assets


Cash Receivables Prepaid Expenses Merchandise

Manufacturer
Current Assets
Cash Receivables Prepaid Expenses Inventories Raw Materials Work in Process Finished Goods

Inventory

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BALANCE SHEET
Merchandiser Current assets
Cash
Receivables Prepaid Expenses
Partially complete Merchandise been added. products some material, Inventory labor, or overhead has

Manufacturer
Current Assets
Cash

Receivables Materials waiting to be Prepaid Expenses processed. Inventories Raw Materials Work in Process Finished Goods
Completed products awaiting sale.

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Nurturing professionals with high moral and ethical values

THE INCOME STATEMENT


Cost of goods sold for manufacturers differs only slightly from cost of goods sold for merchandisers.
Merchandising Company
Cost of goods sold: Beg. merchandise inventory $ 14,200 + Purchases 234,150 Goods available for sale $ 248,350 - Ending merchandise inventory (12,100) = Cost of goods sold $ 236,250

Manufacturing Company
Cost of goods sold: Beg. finished goods inv. + Cost of goods manufactured Goods available for sale - Ending finished goods inventory = Cost of goods sold

$ 14,200 234,150 $248,350

(12,100) $236,250

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BASIC EQUATION FOR INVENTORY ACCOUNTS


Withdrawals from inventory

Beginning balance

Additions to inventory

Ending balance

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MANUFACTURING COST FLOWS


Costs
Material Purchases Direct Labor Manufacturing Overhead

Balance Sheet Inventories


Raw Materials Work in Process

Income Statement Expenses

Finished Goods

Cost of Goods Sold


Selling and Administrative
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Selling and Administrative

Period Costs

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Nurturing professionals with high moral and ethical values

Beginning raw materials inventory was $32,000. During the month, $276,000 of raw material was purchased. A count at the end of the month revealed that $28,000 of raw material was still present. What is the cost of direct material used?

A. B. C. D.

$276,000 $272,000 $280,000 $ 2,000

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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

Beginning raw materials inventory was $32,000. During the month, $276,000 of raw material was purchased. A count at the end of the month revealed that $28,000 of raw material was still present. What is the cost of direct material used? Beg. raw materials $ 32,000

A. B. C. D.

$276,000 $272,000 $280,000 $ 2,000

+ Raw materials purchased 276,000 = Raw materials available for use in production $ 308,000 Ending raw materials inventory 28,000 = Raw materials used in production $ 280,000

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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. And the ending finished goods inventory was $150,000. What was the cost of goods sold for the month?
A. $ 20,000. B. $740,000. C. $780,000. D. $760,000.
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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

Beginning finished goods inventory was $130,000. The cost of goods manufactured for the month was $760,000. And the ending finished goods inventory was $150,000. What was the cost of goods sold for the month?
A. $ 20,000. $130,000 + $760,000 = $890,000 B. $740,000. $890,000 - $150,000 = $740,000 C. $780,000. D. $760,000.
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FACULTY OF BUSINESS
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Cost Classifications For Predicting Cost Behavior


How a cost will react to changes in the level of activity within the relevant range.

Total variable costs change when activity changes. Total fixed costs remain unchanged when activity changes.

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Cost Classifications For Predicting Cost Behavior


Behavior of Cost (within the relevant range)
Cost Variable In Total Total variable cost changes as activity level changes. Total fixed cost remains the same even when the activity level changes. Per Unit Variable cost per unit remains the same over wide ranges of activity. Average fixed cost per unit goes down as activity level goes up.

Fixed

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Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.)

A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers.

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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

Which of the following costs would be variable with respect to the number of cones sold at a Baskins & Robbins shop? (There may be more than one correct answer.)

A. The cost of lighting the store. B. The wages of the store manager. C. The cost of ice cream. D. The cost of napkins for customers.

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Cost Classifications For Decision Making

Every decision involves a choice between at least two alternatives. Only those costs and benefits that differ between alternatives are relevant in a decision. All other costs and benefits can and should be ignored.

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Differential Cost And Revenue


Costs and revenues that differ among alternatives.
Example: You have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month.

Differential revenue is: $2,000 $1,500 = $500


Differential cost is: $300

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Opportunity Cost
The potential benefit that is given up when one alternative is selected over another. Example: If you were not attending college, you could be earning $15,000 per year. Your opportunity cost of attending college for one year is $15,000.

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Sunk Costs
Sunk costs have already been incurred and cannot be changed now or in the future. They should be ignored when making decisions. Example: You bought an automobile that cost $10,000 two years ago. The $10,000 cost is sunk because whether you drive it, park it, trade it, or sell it, you cannot change the $10,000 cost.
Saga

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Nurturing professionals with high moral and ethical values

Suppose you are trying to decide whether to drive or take the train to Ipoh to attend a concert. You have ample cash to do either, but you dont want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Ipoh? A. Yes, the cost of the train ticket is relevant. B. No, the cost of the train ticket is not relevant.

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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

Suppose you are trying to decide whether to drive or take the train to Ipoh to attend a concert. You have ample cash to do either, but you dont want to waste money needlessly. Is the cost of the train ticket relevant in this decision? In other words, should the cost of the train ticket affect the decision of whether you drive or take the train to Ipoh? A. Yes, the cost of the train ticket is relevant. B. No, the cost of the train ticket is not relevant.

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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

Suppose you are trying to decide whether to drive or take the train to Ipoh to attend a concert. You have ample cash to do either, but you dont want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision? A. Yes, the licensing cost is relevant. B. No, the licensing cost is not relevant.

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FACULTY OF BUSINESS
Nurturing professionals with high moral and ethical values

Suppose you are trying to decide whether to drive or take the train to Ipoh to attend a concert. You have ample cash to do either, but you dont want to waste money needlessly. Is the annual cost of licensing your car relevant in this decision? A. Yes, the licensing cost is relevant. B. No, the licensing cost is not relevant.

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Suppose that your car could be sold now for $5,000. Is this a sunk cost? A. Yes, it is a sunk cost. B. No, it is not a sunk cost.

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Nurturing professionals with high moral and ethical values

Suppose that your car could be sold now for $5,000. Is this a sunk cost? A. Yes, it is a sunk cost. B. No, it is not a sunk cost.

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Nurturing professionals with high moral and ethical values

Summary Of The Types Of Cost Classifications


Financial reporting Predicting cost behavior Assigning costs to cost objects Decision making

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Idle Time
Machine Breakdowns Material Shortages

Power Failures

The labor costs incurred during idle time are ordinarily treated as manufacturing overhead.

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OVERTIME

The overtime premiums for all factory workers are usually considered to be part of manufacturing overhead.

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Labor Fringe Benefits


Fringe benefits include employer paid costs for insurance programs, retirement plans, supplemental unemployment programs, Social Security, Medicare, workers compensation and unemployment taxes.

Some companies include all of these costs in manufacturing overhead.

Other companies treat fringe benefit expenses of direct laborers as additional direct labor costs.

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Quality Of Conformance
When the overwhelming majority of products produced conform to design specifications and are free from defects.

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Prevention And Appraisal Costs


Prevention Costs
Support activities whose purpose is to reduce the number of defects

Appraisal Costs

Incurred to identify defective products before the products are shipped


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Internal And External Failure Costs


Internal Failure Costs
Incurred as a result of identifying defects before they are shipped

External Failure Costs

Incurred as a result of defective products being delivered to customers


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Examples Of Quality Costs


Prevention Costs
Quality training Quality circles Statistical process control activities

Appraisal Costs
Testing & inspecting incoming materials Final product testing Depreciation of testing equipment

Internal Failure Costs


Scrap Spoilage Rework

External Failure Costs


Cost of field servicing & handling complaints Warranty repairs Lost sales

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Distribution Of Quality Costs


When quality of conformance is low, total quality cost is high and consists mostly of internal and external failure. Total quality costs drop rapidly as the quality of conformance increases.

Companies reduce their total quality costs by focusing their efforts on prevention and appraisal because the cost savings from reduced defects usually overwhelm the costs of additional prevention and appraisal.
Total quality costs are minimized when the quality of conformance is slightly less than 100%.

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Uses of Quality Cost Information


Help managers see the financial significance of defects.

Help managers identify the relative importance of the quality problems.

Help managers see whether their quality costs are poorly distributed.

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Limitations of Quality Cost Information


Simply measuring quality cost problems does not solve quality problems.

Results usually lag behind quality improvement programs. The most important quality cost, lost sales, is often omitted from quality cost reports.

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Thats all for today.

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