Cost and management accounting techniques are essential tools for effective decision making. Some key techniques discussed are: 1) Make or buy analysis which helps decide whether to produce an item internally or purchase it based on relevant costs like variable production costs and supplier prices. 2) Inventory management techniques like just-in-time and economic order quantity which aim to reduce inventory costs. 3) Budgeting allows defining goals, coordinating activities, and allocating resources. 4) Variance analysis identifies reasons for deviations from budgets. 5) Cost-volume-profit analysis uses graphs and equations to understand break-even points and profit/loss areas. 6) Activity based costing allocates overhead costs based on

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

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

35. CONCLUSION Corporate Decision-Makers Rely on Cost & Management Accountants Thank you.