IB

2_Cost_and_Management_Accounting__Wk1__pdf

Cost and Management Accounting

  • Course: AC211 Management Accounting for Non-Accountants

  • Instructor: Dr. Gail Sheppard

Overview of Management and Cost Accounting

  • Purpose: Information resources for managers to control, plan, and make business decisions.

  • Overlap: Management accounting and cost accounting are often used interchangeably; both can exist separately or combined in organizations.

  • Structure: Organizations may have distinct departments for Financial Accounting and Management Accounting or might have personnel performing both roles (Financial Accountant and Management Accountant).

Definition of Management Accounting

  • CIMA Official Terminology: Management accounting involves applying accounting principles for value creation and protection for stakeholders in various types of enterprises (for-profit and not-for-profit).

Understanding Cost Accounting

  • Definition: Process of identifying and accumulating costs associated with business operations.

  • Applications:

    • Planning: Forecasting future transactions.

    • Decision-Making: Assessing whether to produce and sell particular products.

    • Monitoring Outcomes: Comparing expected costs versus actual costs; encapsulated in the saying "What gets measured, gets managed."

Activities in Management Accounting

  • Key Functions:

    • Planning

    • Decision-Making

    • Reporting

    • Performance Measurement

    • Controlling operations for efficiency.

The Management Accounting Process

  • Steps Involved:

    1. Set Business Decision

    2. Assess alternatives and make decisions

    3. Make plans

    4. Control activities

    5. Monitor outcomes

    6. Refine objectives as necessary.

Role of the Management Accountant in Strategy

  • Involvement in Strategic Decisions:

    • Market positioning

    • Sourcing goods

    • Expansion into international markets.

Case Study: Calder Calloway Cards Ltd

  • Business Type: Family-owned greeting card business.

  • Operations: Buys design from freelancers, prints, assembles, and packages cards.

  • Recent Changes: After selling shares to investors, a principal active director named Paco appointed two new directors: a Sales Director (Tracey) and a Production Director (Karim).

New Ideas from Directors

  • Sales Director (Tracey):

    • Implement a commission scheme.

    • Focus on more profitable product lines.

  • Production Director (Karim):

    • Invest in modern equipment.

    • Establish an in-house design team for a consistent stream of designs.

    • Build a corporate branding approach.

Challenges Faced by Calder Calloway Cards Ltd

  • Absences:

    • No sales budget inhibiting target setting for the sales team.

    • Lack of profitability data on different products.

    • No cost monitoring system in place.

Management Information Needs

  • Sales strategy consideration:

    • Commission scheme needs to balance costs and generated profits.

    • Achievable target setting is crucial.

    • Focus on more profitable product ranges requires knowledge of profitability.

Investment in New Equipment

  • Decision Factors:

    • Assess costs of existing production facilities versus waste levels.

    • Require information on possible actions before decision-making.

In-House Design Team Considerations

  • Cost Comparison:

    • Evaluate in-house versus freelance design costs.

    • Assess non-financial impacts (e.g., design uniqueness).

Long-term Strategy Alignment

  • Considerations for Actions:

    • Align actions with the long-term business objectives and priorities.

    • Board-level decisions regarding strategy are vital.

Determining Business Objectives

  • Profitability: Fundamental objective but should not be the only priority.

  • Examples of Objectives:

    • GlaxoSmithKline plc's mission: Improve human life quality.

    • Pearson plc's vision: Focus on bravery, imagination, and decency.