Cost & Management Accounting Techniques

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    Cost & Management Accounting Techniques - Presentation Transcript

    1. Cost & Management Accounting Techniques Must for Effective Decision Making BY: A AMIR INSTITUTE OF COST & MANAGEMENT ACCOUNTANTS OF PAKISTAN
    2. CONTENTS
      • Cost & Management Accounting
      • Cost & Management Accounting Techniques
      • Conclusion
    3. Cost & Management Accounting
      • The Process of
          • Identifying
          • Measuring
          • Analyzing
          • Interpreting
          • Communicating Information
    4. Techniques
      • The Make or Buy Decision
      • Just-In-Time
      • Inventory Management
      • Budgeting
      • Variance Analysis
      • Const-Volume-Profit Analysis
      • Activity Based Costing
      • Linear Programming
      • Enterprise Cost Management
    5. The Make or Buy Decision
      • A decision concerning whether an item should be produced internally or purchased from an outside supplier is called a “Make or Buy” decision.
      • Let’s look at the Astech Company example.
    6. The Make or Buy Decision
      • Astech manufactures part 4A that is used in one of its products.
      • The unit product cost of this part is:
    7. The Make or Buy Decision
      • Equipment used to manufacture part 4A has no resale value.
      • Total general factory overhead, which is allocated on the basis of direct labor hours, would be unaffected by this decision.
      • The $30 unit product cost is based on 20,000 parts produced each year.
      • An outside supplier has offered to provide the 20,000 parts at a cost of $25 per part.
      • Should we accept the supplier’s offer?
    8. The Make or Buy Decision 20,000 × $9 per unit = $180,000
    9. The Make or Buy Decision The special equipment has no resale value and is a sunk cost.
    10. The Make or Buy Decision Not avoidable; irrelevant. If the product is dropped, it will be reallocated to other products.
    11. The Make or Buy Decision Should we make or buy part 4A?
    12. The Make or Buy Decision
      • DECISION RULE
      • In deciding whether to accept the outside supplier’s offer, Astech isolated the relevant costs of making the part by eliminating :
        • The sunk costs.
        • The future costs that will not differ between making or buying the parts.
    13. Techniques
      • The Make or Buy Decision
      • Just-In-Time
      • Inventory Management
      • Budgeting
      • Variance Analysis
      • Const-Volume-Profit Analysis
      • Activity Based Costing
      • Linear Programming
      • Enterprise Cost Management
    14. Impact of JIT Inventory Methods In a JIT inventory system . . . Production tends to equal sales . . . So, the difference between variable and absorption income tends to disappear.
    15. Techniques
      • The Make or Buy Decision
      • Just-In-Time
      • Inventory Management
      • Budgeting
      • Variance Analysis
      • Const-Volume-Profit Analysis
      • Activity Based Costing
      • Linear Programming
      • Enterprise Cost Management
    16. Inventory Management
    17. Qunatity Discounts Avoid Disturbance Reduce number of ordering / setup Hedge against inflation Meet Unexpected Demands Quantity Discounts When to order How much to order Buffer Stock Maximum Inventory How often to review stock E O Q R O P
    18. Techniques
      • The Make or Buy Decision
      • Just-In-Time
      • Inventory Management
      • Budgeting
      • Variance Analysis
      • Const-Volume-Profit Analysis
      • Activity Based Costing
      • Linear Programming
      • Enterprise Cost Management
    19. Budgeting Define goal and objectives Uncover potential bottlenecks Coordinate activities Communicating plans Think about and plan for the future Means of allocating resources
    20. Techniques
      • The Make or Buy Decision
      • Just-In-Time
      • Inventory Management
      • Budgeting
      • Variance Analysis
      • Const-Volume-Profit Analysis
      • Activity Based Costing
      • Linear Programming
      • Investment Decision
      • Robust Decision
      • Enterprise Cost Management
    21. Variance Analysis
      • Material Variances
      • Labor Variances
      • Factory Overhead Variances
    22. Techniques
      • The Make or Buy Decision
      • Just-In-Time
      • Inventory Management
      • Budgeting
      • Variance Analysis
      • Const-Volume-Profit Analysis
      • Activity Based Costing
      • Linear Programming
      • Investment Decision
      • Robust Decision
      • Enterprise Cost Management
    23. CVP Graph Units Dollars Fixed expenses Total Expenses Total Sales
    24. CVP Graph Units Dollars Profit Area Loss Area Break-even point
    25. Equation Method Profits = Sales – (Variable expenses + Fixed expenses) Sales = Variable expenses + Fixed expenses + Profits OR At the break-even point profits equal zero.
    26. Techniques
      • The Make or Buy Decision
      • Just-In-Time
      • Inventory Management
      • Budgeting
      • Variance Analysis
      • Const-Volume-Profit Analysis
      • Activity Based Costing
      • Linear Programming
      • Investment Decision
      • Robust Decision
      • Enterprise Cost Management
    27. Activity Based Costing (ABC)
      • ABC is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore “fixed” costs.
      I agree! ABC is a good supplement to our traditional cost system
    28.  
    29. Techniques
      • The Make or Buy Decision
      • Just-In-Time
      • Inventory Management
      • Budgeting
      • Variance Analysis
      • Const-Volume-Profit Analysis
      • Activity Based Costing
      • Linear Programming
      • Investment Decision
      • Robust Decision
      • Enterprise Cost Management
    30. LP Applications
      • Development of a production schedule that will
        • satisfy future demands for a firm’s production
        • while minimizing total production and inventory costs
      • Selection of product mix in a factory to
        • make best use of machine-hours and labor-hours available
        • while maximizing the firm’s products
    31. LP Applications
      • Determination of grades of petroleum products to yield the maximum profit
      • Selection of different blends of raw materials to feed mills to produce finished feed combinations at minimum cost
      • Determination of a distribution system that will minimize total shipping cost from several warehouses to various market locations
    32. Techniques
      • The Make or Buy Decision
      • Just-In-Time
      • Inventory Management
      • Budgeting
      • Variance Analysis
      • Const-Volume-Profit Analysis
      • Activity Based Costing
      • Linear Programming
      • Enterprise Cost Management
    33. ECM
    34.  
    35. CONCLUSION
      • Corporate Decision-Makers Rely on
      • Cost & Management Accountants
      Thank you.

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