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Holmes Online Learning
HA2011 Management Accounting
New Supplementary Assessment
Guidelines:
All students are entitled to a Supplementary
Assessment if their overall result in a unit
is less than 50%.
A student will no be eligible for
Supplementary Assessment
•If any assessment item has not been
submitted or
•The student has been recorded for
academic misconduct in the unit
Supplementary Assessments 2020
HA2011 MANAGEMENT ACCOUNTING
Topic 1
Introduction to Management
Accounting
Outline
• What is Management Accounting and
Management Accounting Systems
• Evolution and Changes in Management
Accounting and Business Environment
• Management Accounting vs Financial
Accounting
• Common Cost Classifications
• Cost Flows in Manufacturing Business
Welcome to HA2011 Management Accounting
In this unit, a range of concepts and techniques
used by management accountants including costing,
controls, performance measurement, tactical
decision-making, pricing and product mix decisions
will be discussed.
Introduction
The processes and techniques that focus on
the effective and efficient use of organisational
resources to support managers in their task of
enhancing both customer value and
shareholder value
What is Management Accounting?
• Customer value
• The value that a customer places on particular
features of a product or service
• Shareholder value
• The value that shareholders or owners place on a
business
• Trade-offs between actions that increase
customer value and actions that increase
shareholder value
What is Management Accounting? (cont.)
• Resources

• Financial and non-financial
• Organisational capabilities and competencies
  • Effective use of resources
• Successful achievement of an objective
  • Efficient use of resources
• The least possible consumption of resources to
  achieve an objective
  What is Management Accounting? (cont.)
  • Systems that produce information required by
  managers to create value and manage resources
  • Information provided on a regular basis
• Estimates of costs of producing goods and services
• Information for planning and controlling operations
• Information for measuring performance
  • Ad-hoc information to satisfy managers’ shortand
  long-term decision-making needs
  Management Accounting Systems
  • Increasing global competition and trade
  liberalisation
  • Digital and information technologies are rapidly
  transforming the business environment
  • Customers are more vocal and demanding
  • Rise of the service sector including knowledgebased
  industries
  • Fallout from the global financial crisis
  • Sustainability has become a key issue
  Australian Organisations in the 21st Century
  Responses to the Changing Business
  Environment
  • Contemporary business practices
• Better product & service quality
• Delivery responsiveness & cost performance
  • Adoption of new management structures,
  systems and practices, including new
  management accounting techniques and
  systems
  • Modern management accounting systems
• Support the adoption of new structures, systems and
  practices
• Include activity-based costing, performance
  measurement systems, cost management systems,
  new approaches to customer profitability analysis
  and supplier cost analysis
  Conventional
  • Budgeting
  • Costing systems
  • Financial performance
  measurement systems
  • In wide use for many
  decades, & still used in
  many organisations
  Contemporary
  • Activity-Based Costing
  • Performance
  measurement systems
  (such as balanced
  scorecards),
  • Cost management
  systems (such as
  business process reengineering),
  • New approaches to
  customer profitability
  analysis & supplier
  cost analysis
  Responses to the Changing Business
  Environment (cont.)
  Evolution and Change in Management
  Accounting
  • Focuses on the needs of managers within the
  organisation
  • Flexibility in types of information provided
  • Influenced by managers’ information needs and
  differences in production and service
  technologies
  • Used by senior managers through to operational
  managers
  Management Accounting Information
  • Financial accounting
• Preparing and reporting accounting information for
  parties outside the organisation
• Constrained by rules and regulations
• Uses historical information
  • Management accounting
• Content and design determined by managers’ needs
  Management Accounting and Financial Accounting
  Information
  • Costing systems
• Systems that estimate the cost of goods and services
  as well as the cost of organisational units, such as
  departments
• Used for both management and financial accounting
  Management Accounting and Financial Accounting
  Information (cont.)
  Management Accounting vs Financial Accounting
  • Support the organisation’s formulation and
  implementation of strategy
  • Contribute to improving competitive
  advantage
  • Provide information for managing resources
  through planning and control systems
  • Provide estimates of the costs of outputs
  Management Accounting Processes and Techniques
  Management Accounting Systems
  • Management accounting systems are tailored
  to an organisation’s needs
  • Components may include:
• Costing systems
• Budgeting systems
• Performance measurement systems
• Cost management systems
  Designing Management Accounting Systems
  • Behavioural issues
• Information may impact on individuals’ behaviour,
  so management accounting systems may have
  both expected and unexpected outcomes
  • Motivation
• A key purpose of management accounting
  systems is to motivate managers and employees
  to direct their efforts towards achieving the
  organisation’s goals
• Rewards and performance targets may be used to
  motivate individuals
  Designing Management Accounting Systems (cont.)
  • Costs include
• Salary of accounting personnel
• Purchasing and operating computers
• Gathering, storing and processing data
• Managers’ time reading, understanding and using
  the information
  • Benefits include
• Improved management decisions
• More effective planning
• Improved operational efficiency at lower cost
• Improved customer and shareholder value
  Professional Accounting Organisations
  • In Australia, management accountants may
  join:
• CPA Australia
• Chartered Accountants Australia and New Zealand
• Institute of Public Accountants
• Institute of Certified Management Accountants
  • Membership enables accountants to keep up
  to date with key developments.
  Professional Ethics
  • Code of Ethics for Professional Accountants
  • Fundamental principles of the code
• Integrity
• Objectivity
• Professional competence and due care
• Confidentiality
• Professional behaviour
  What are Costs?
  • Resources given up to achieve a particular
  objective
  • In financial accounting
   Asset—benefits extend beyond current period
   Expense—benefits are used within the current
  period
  • Measured in monetary terms
  Emphasis on Costs
  • Why do management accountants pay so
  much attention to costs?
• Historic focus on manufacturing costs
• To value inventory and COGS for external
  reporting
• Non-manufacturing costs are more significant in the
  current business environment
• Availability of cost data
• Importance of cost information
  • In modern businesses non-financial information
  is increasingly important
• Used to make decisions and manage various
  sources of customer value and shareholder wealth
  Cost Classifications
  • Cost classification depends on how the
  information is to be used
  • Different costs and classifications are used for
  different purposes
  • The same cost can be classified in a number
  of ways depending on the intended use of the
  cost information
  Common Cost Classifications
  Classifying Costs According to their Behaviour
  • Managers need to understand how costs
  change as the activity level (cost driver) in the
  business changes
  • Variable costs – costs that change
  proportionally when the activity level changes
  • Fixed costs – costs that remain the same when
  the activity level changes
  Cost Objects
  • An important function of management
  accounting is to measure the cost of cost
  objects
• Cost objects are anything for which management
  wants a separate measure of costs (e.g. products,
  divisions, customers)
  Direct and Indirect Costs
  • Direct costs can be identified with or traced to
  a particular cost object
• Direct costs are directly traced to the cost object
  • Indirect costs cannot be economically
  identified or traced to a cost object
• Indirect costs are allocated to the cost object
  Direct and Indirect Costs (cont.)
  • Responsibility centres
• A responsibility centre is a unit of an organisation
  where the manager is held accountable for the
  unit’s activities and performance
• Responsibility accounting involves using cost
  information to hold managers accountable for their
  unit’s performance
  Direct and Indirect Costs (cont.)
  • Product costs
• Whether a product cost is a direct cost or an indirect
  cost depends on what the cost object is
• A product cost can be a direct cost of one cost
  object and an indirect cost of another cost object
  Controllable and Uncontrollable Costs
  • Controllable costs can be controlled or
  significantly influenced by the manager
  • Uncontrollable costs cannot be controlled or
  significantly influenced by the manager
  • Ideally, managers should be held responsible
  only for costs they can control or significantly
  influence
  e.g. costs that have been determined by others
  (such as Head Office) that impact on a manager’s
  costs.
  • Some costs are controllable in the long term but
  not in the short term
  Controllable and Uncontrollable Costs (cont.)
  Costs Across the Value Chain
  • The value chain
• A set of linked processes or activities that begins with
  acquiring resources and ends with providing and
  supporting products and services that customers value
• Provides a useful framework for examining the areas
  where costs are incurred
  Costs across the Value Chain (cont.)
  Costs across the Value Chain (cont.)
  • Upstream costs
• Research and development, design and supply costs
  • Production costs
• The costs incurred to collect and assemble the
  resources used to produce a product
  • Downstream costs
• Marketing, distribution and customer service costs
  Manufacturing Costs
  • Manufacturing costs
• All costs incurred to manufacture the product
• Incurred within the factory area
  • Non-manufacturing costs
• Costs incurred outside the manufacturing process
• Upstream and downstream costs
  Manufacturing Costs (cont.)
  • Manufacturing costs include:
• Direct material
• Direct labour
• Manufacturing overhead
  • Direct or indirect cost classification assumes
  that products are the relevant cost objects
  Manufacturing Costs (cont.)
  • Direct material is raw material that is:
• Consumed in the manufacturing process
• Physically incorporated into the finished products
• Can be economically traced to products
• A variable cost
  Manufacturing Costs (cont.)
  • Direct labour
• The cost of salaries and wages for personnel who
  work directly on the manufactured product
• Directly traced to a product
• Usually treated as a variable cost unless contractual
  arrangements are in place
  Manufacturing Costs (cont.)
  • Manufacturing overheads include:
• Indirect material and indirect labour
• Depreciation and insurance on factory equipment
• Utilities and the costs of support departments for
  manufacturing
• Overtime premium and idle time
• Costs incurred by support departments that are
  necessary for the manufacturing to occur
  Also called indirect manufacturing costs or factory
  burden
  Manufacturing Costs (cont.)
  • Conversion costs
• Direct labour cost + Manufacturing overhead
• Costs of converting materials into a product
  • Prime costs
• Direct material cost + Direct labour cost
• Major costs of producing a product
  Manufacturing Costs (cont.)
  • In many modern manufacturing settings, direct
  material is the largest proportion of the
  manufacturing cost and direct labour costs are
  relatively small
  • Modern costing systems therefore analyse
  costs in greater detail than traditional costing
  systems:
• Activity based costing
  Product Costs for Financial Reporting
  • In financial accounting reports:
• Product costs determine cost of goods sold
• Product costs help value inventory on hand
• AASB 102 specifies the costs to be included as
  product costs for financial reporting purposes
• Product costs can also be called inventoriable
  costs
• All costs that are not product costs are called
  period costs
  Period Costs for Financial Reporting
  • Period costs
• All costs that are not product costs
• Are expensed in the period in which they are
  incurred
• Can be classified by line item or function (e.g.
  selling and administrative expenses)
  Cost Flows in a Manufacturing Business
  • Material is purchased: the cost is added to raw
  materials inventory
  • Direct materials are consumed in production:
  cost is removed from raw materials inventory
  and added to work in process inventory
  • Direct labour and manufacturing overhead are
  accumulated in work in process inventory
  Cost Flows in Manufacturing Business (cont.)
  • Products are completed: costs are transferred
  from work in process inventory to finished
  goods inventory
  • Products are sold: costs are transferred from
  finished goods inventory to cost of goods sold
  expense
  • Cost of goods sold is deducted from sales
  revenue to determine gross profit
  Cost Flows in Manufacturing Business (cont.)
  • Raw materials, work in process and finished
  goods inventory balances are reported in the
  balance sheet
  • Cost of goods sold expense is reported in the
  income statement
  • The schedule of cost of goods manufactured
  and schedule of cost of goods sold summarise
  the flow of manufacturing costs
  Cost flows in
  manufacturing
  business

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