Lecture 1 accounting

8/14/2019 Lecture 1 accounting

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Managerial Accounting and control

Dr. Mohamed YoussefLecture 1

Managerial Accounting and Control

Chapter 2: Introduction to cost Behavior and cost Volume Relationships

Cost Concept: Monetary measure of a resource used or forgone toa chive a specific object

Resources like (row material, Labor, other cost items)

Example: If we purchase 1000 KG of row materials and the unitprice is $5 / KG

1000 x $ 5 = $ 5000 Monetary measure (what we spend to purchase)

300 x $5 = $1500 Monetary measure used (in Factory)

We purchase $5000 our store room it consider (Inventory) or current assetsused $1500 to be used by Manufacturing activities this $ 1500 divided totwo parts $1400 actual monetary benefit and $100 waste

Example: Row material, begin inventory $ 3000 remaining from year2003 (current assets) during 2004 we purchase $ 7000total amount of R.M available for use is $ 10000

R.M used $8500

How much we consume during this year 2004 $ 1500

(Ending Inventory)

Kind of Resources:

R.M: Row MaterialL.C: Labor CostO.H: Over Head

Example: working hours 7000 H but this is not consider cost, but cost bywage $3 so labor cost equal to 7000 H x $3

Cost Object: Objectives of accumulation and allocations of costitems

Example: In our factory we haveR.M: $15000L.C: $7000O.H: $8000T.C: $30000

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From this example we can find that there are 3 factories can affect the costobjectives, this three factories are cost of unit, cost per dept., cost per Brach

Cost Drive: Any factor affecting cost (Output measures of resourcesand activities are called cost drivers)

Examples: cost per unit $ 8Volume of activities Row Material( D.M)

Unit cost1 8 $

10 80 $50 400$

100 800$Labor cost

L.C: wage rate x No. of hours1500 $5 x 300 H

2000 $5 x 400 H

Cost Behavior: It is how costs are related to and affected by theactivities of an organization

Example: Supervisory salaries for each 10 employs required 1supervisor

From this example we can see thatThe supervisory salaries cast changesWith the change of numberOf employsAnd this graph called costBehavior.

Note: If we select the most proper cost Drive, manager can understand cost

behavior and how well costs are controlled

Examples:AZZ Helwan

3000 worker 19800 worker L.C < L.C

Chapter 2 2

10 3020

2000

4000

6000

Emp

Cost


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May be 40 % from cost L.C and 60 % Social Benefit, from here we canconsider number of worker is cost drive and this cost drive can change L.C

Total Cost: divided to 3 groups

Variable costs (chapter 2)

Mixed costs (chapter 3)

Fixed costs (chapter 2)

Variable Cost: Is a cost that changes in direct proportion to changes inthe cost driver

Example: Cost per unit of D.M. = $6

Volume % Total

V.C= Cost per

unit (CPU)1 6 62 12 64 24 6

100 600 61000 6000 6

0 0 0

Can be represented by this figure

This static Liner but we haveIn a minor cases no liner cost

Note: To make prediction for future we must use unit cost price

Example: unit price $7

2003(1000U) 2004(2000 U)D.M $7000 $14000D.L $3000 $6000Total $10000 $20000

Chapter 2 3

$6 V.CPU

V.C

VO

$


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Example: if cost for unit price changed to be (R.M.+10%) andwage price changed to be (wage 5%)

2004(2000U)D.M (7+7x.1) x 2000= 15400D.L (3-3x.05) x 2000= 5700Total = 21100

Fixed Cost: Is not immediately affected by changes in the costdriver. For example (salary, rent, depreciation)

Example: Total rent = $1000

Volume % TotalF.C

= Fixed(CPU)

1 1000 10002 1000 5004 1000 250

100 1000 101000 1000 1

0 1000

Note: To make prediction for future we must use total fixed cost

Can be represented by this figure

Example: Total rent = $3000

2003(1000) 2004(2000 U)D.M $5 $5Rent $3 $1.5Total $8 / u $6.5/u

Chapter 2 4

MinMax

$1000 Total F.C

F.Cpu

VOL

$


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Example: if rent cost changed by $500 and D.M changed by 10%

2004(2000U)D.M (5+5x.1)= 5.5Rent (3000+500)/2000= 1.75Total = 7.25

Example:

1000 U 2000 U 4000 UTotal V.C 4000 8000 1600Total F.C 4000 4000 4000

Total Cost 8000 12000 20000V.Cpu 4 4 4F.Cpu 4 2 1

Total cost / U 8 6 5

Note: total F.C and V.Cpu remain constant, and this is what we calledrelevant range.

Relevant Range: Is the limit of cost driver activity within a specificrelationship between costs and the cost driver is valid.

Calculation break even sales volume in total of dollars and totalunits

Chapter 2 5

500 1,5001,000

4000

8000

12000

Vol.

FixedCost

16000

2,000 2,500

Relevant range


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Breakeven Point : if total sales = total cost (no profit, no lost )

BEF= sales Total cost=0

Sales Revenue = Q (unit Sold) x Unit selling prices (usp)= 1000 X $5= $5000

Total Cost = (Variable cost + Fixed cost)= (V.C.+ F.C)= (Q xusp)+F.C= (1000 x $3)+$2000

BEP = sales- Total Sales= (Qxusp)-[(Qxuvc)+F.C]= 1000x $5-[1000x $3+$2000]=0

BEPin unit = Q (usp-uvc)-F.C.=0= Q ($5-$3)-F.C =0= Q x ucm-F.C. =0

Unit Contribution Margin: The profit we obtain per unit which meansthe difference between the unit selling

price and unit cost price (ucm)

BEPin unit = Q (usp-uvc)-F.C.=0= Q x ucm F.C =0

Q x ucm = F.C1000 x $2= 2000

Qin unit = (F.C /ucm)

$3 uvc (60%)Usp

$5( 100 %) $2 ucm (40%)

sales ravenous $3000 vcp (60%)$5000(100%) $2000 F.C. (40%)

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(ucm/usp) = (F.C/sales revenue)sales revenue/ups =F.C/ucmsales revenue = (F.Cx ups)/ucm

= F.C /(ucm%)

= F.C/ (cm %)

BEPin $ = F.C /(ucm%)

At BEP fixed cost should = total cm

Sales(Q x usp) In case Q=1000 In case Q=10101000 x $5 50001010 x $5 5050

Less V.C1000 x $3 (3000)1010 x $3 (3030)

Cm 2000 2020Less F.C. (2000) (2020)

Net profit 0 20

Margin of safty: A mount of sales above BEP

Cost Volume Profit Graph

Chapter 2 7

Q

$5000

F.C

Sale revenoueSales

BEP in Q1000 in

Total expense lineSale

$2000

BEP

Lecture 1 accounting

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