1 chapter 1- introduction to management accounting. spring, 2013. edited january 17, 2013. copyright...

1

Chapter 1- Introduction to Management

Accounting.Spring, 2013. Edited January 17, 2013.

Copyright © 2013, Dr. Howard Godfrey

This file contains illustrative problems that will be used in the lecture to illustrate important concepts and procedures.

Copyright 2013. Dr. Howard Godfrey - M13-Chp-01-1-Intro-to-Mgt-Acct-2013-0117

Managerial Accounting and the Business Environment. (1) globalization, (2) strategy, (3) organizational structure, (4) process management, (5) importance of ethics in business, (6) corporate governance, (7) enterprise risk management,(8) corporate social responsibility, and (9) Certified Management Accountant.

Managerial Accounting and the Business EnvironmentThis chapter explains why managerial accounting is

important to the future careers of all business students. It answers three questions:

(1) What is managerial accounting? (2) Why does managerial accounting matter to

your career? (3) What skills do managers need to succeed? It also discusses the importance of ethics in business and

corporate social responsibility.Note from instructor – the concepts above are about the big

picture. In this slide presentation, we will go ahead and solve a number of problems that are typically faced by businesses. Yes, we will be covering some material that we will see in the textbook in later chapters.

[Amount

$000] 2010 2011 2010 2011

Revenue $900 $900 $900 $700

Expenses 800 800 600 800

Net income $100 $100 $300 ($100)

How do we use accounting data tomanage a business better?

Company A Company B

Which Co. is doing better?

Which New Auto?Gas cost is $4.00 per gallon now and in the future.You are considering a new $20,000 auto. It has a powerful engine and gets 20 miles per gallon.Another auto (same model and year) has a more advanced engine. It will cost $25,000, and will get 25 miles per gallon. Both autos will have the same resale value next year and beyond.How many miles will you have to drive to save enough to cover the extra cost of the second one?

5

6

Trade for more efficient auto?Cost of gas-gallon $4.00 $4.00Miles per gallonCost per mileSavings per mileDifference in auto costMiles to recover cost

7

Trade for more efficient auto?Cost of gas-gallon $4.00 $4.00Miles per gallon 20 25 Cost per mile $0.20 $0.16

$0.04$5,000125,000

Savings per mileDifference in auto costMiles to recover cost

8

Managing Selling Price - Impact on ProfitBest Shirt operates a store in the mall selling shirts.Best buys shirts $20 each. Selling price is $40 each.

Selling price per shirt $40Number of shirts sold per year 10,000Variable cost per unit sold $20Fixed Costs- rent, salaries per year $140,000

Complete the income statement for the year.Sales RevenueVariable Costs Contribution MarginFixed Costs Operating Profit

Normal Sales and Cost Structure

9



Complete the income statement for the year.Sales Revenue $400,000Variable Costs ($200,000)Contribution Margin $200,000Fixed Costs ($140,000)Operating Profit $60,000


10



Complete the income statement for the year.Assume the selling price is reduced 10% to $36 each.Sales RevenueVariable Costs Cost of shirts sold

Contribution MarginFixed Costs Rent, etc.

Operating Profit


11



Complete the income statement for the year.Assume the selling price is reduced 10% to $36 each.Sales Revenue $360,000Variable Costs ($200,000)Contribution Margin $160,000Fixed Costs ($140,000)Operating Profit $20,000


12



Complete the income statement for the year.Assume the selling price is reduced 10% to $36 each.Number of shirts sold will increase 10% to 11,000 shirts.Sales Revenue $396,000Variable Costs ($220,000)Contribution Margin $176,000Fixed Costs ($140,000)Operating Profit $36,000


Joe’s Package Delivery Service.Joe had started a package delivery service in Charlotte. He bought a truck at a cost of $20,000. The truck will have a 5-year life, and will have no salvage value after 5 years. Joe receives a salary of $30,000 and has other expenses of $10,000 for insurance, oil, gas, etc. Please fill in the blanks on next slide.

Cost of Truck (5 year life) $20,000Revenue per year $50,000Salary - JoeInsurance, Gas, etc.Cash ExpensesNet Cash InflowDepreciationNet IncomeWhat is Payback Period?(Ignore Income Taxes)Remember, depreciation is not a cash expense.

Joe's Package Delivery Service

Cost of Truck (5 year life) $20,000Revenue per year $50,000Salary - Joe 30,000 Insurance, Gas, etc. 10,000 Cash Expenses 40,000 Net Cash Inflow 10,000 Depreciation (4,000)Net Income $6,000What is Payback Period? 2 years(Ignore Income Taxes)Remember, depreciation is not a cash expense.

Joe's Package Delivery Service

Cost Behavior-1-Cost of PartyOn the next slide, a club will budget its costs for a

party based on a plan for: (1) 100 persons attending and (2) 200 persons attending.

The admission price will be set based on the plan for 100 persons to attend.

Band cost is fixed. Food cost is variable. Only 90 people actually attend. What is the overall financial results for the

dance? What can we learn from this example?

16

Club is having a party. They need to budget the expenses and set the admission price.

Attendance 100 200Food per person $10Total Food CostCost of band $800Total Cost N/ACost per PersonTotal Revenue ?? ??

Projection

Introduction-Cost Behavior-2

Number Attending

Club is having a party. They need to budget the expenses and set the admission price.

Attendance 100 200Food per person $10Total Food Cost 1,000$ 2,000$ Cost of band $800 $800 $800Total Cost $1,800 $2,800Cost per Person $18 $14Total Revenue $1,800 $2,800

Projection

Introduction-Cost Behavior-3

Number Attending

A club is planning a party. They need to budget the expenses and set the admission price.

Projection ActualAttendance 100 90Admission price $18Food per person $10Total Food Cost $1,000 $900Cost of band $800 $800 $800Total Cost $1,800 $1,700Cost per Person $18Total Revenue $1,620Loss ($80)

Class Activity-Starting a new restaurant• Park Café will be open nightly, Monday-Friday.• Cafe will serve dinner (only) from 5:00 to 9:00. • Dinner price will be $10.00 each.• Expect to sell 100 dinners per night.• The cook will start work at 4:00 pm. • Other staff (2 waiters) will start work at 5:00 pm. • All staff work until 9:00 nightly• Cook will be paid $20 per hour• Other staff (2 persons) will be paid $10 per hour.• Food will cost $5.00 per dinner. • Rent & utilities total $3,000 per mo-$100 per day.• What is the projected profit per day (night)?

21

Meals Served Each Day 100 No. Amt. Total

Revenue 100 $10 $1,000 Cook Waiters Food Rent, Utilities Total cost per day

See Preceding slide

Profit Per Day

22

Meals Served Each Day 100 No. Amt. Total

Revenue 100 $10 $1,000 Cook 5 $20 $100 Waiters 8 $10 80 Food 100 $5 500 Rent, Utilities 100 Total cost per day 780

$220

See Preceding slide

Profit Per Day

Continue preceding case, except assume sales in the second month are actually 110 dinners per day, a ten percent increase.What is profit per day in second year?Does it increase 10%?

23

24

Meals Served Each Day 100 110

Revenue 100 $10 $1,000 $1,100

Cook 5 $20 $100

Waiters 8 $10 $80

Food 100 $5 $500

Rent, Utilities $100

Total cost $780

$220

See Preceding slide

Profit Per Day

Consider preceding slides.What kind of things may keep you awake at night worrying about the business? What are the keys for success and profitability in this new venture?See exhibit 1-3?

25

Consider preceding slides.Suppose the restaurant owner decides to limit the menu to four choices of meats (customer chooses one) and six side items (customer chooses two)?What is the objective here?

26

Consider preceding slides.Suppose you choose to use a cheap meat substitute in the meatloaf. Is there an ethical issue?Have you seen the Crackerbarrel restaurant disclosure on its menu regarding the type of cooking oil used?

27

Users ofAccounting Information-1

USAIR- An Article from the Past – But it is Current in Concept.Schofield is facing a task akin to turning around a 747 in a driveway. He must reverse a five year history of ‑$1 million a day losses.‑ ‑What does it mean to lose $1 million per day?

28


USAIR- An Article from the Past – But it is Current.

USAir's cost of flying one seat 1 mile is 11.1 cents, the highest in the industry. Some of that is because USAir flies so short routes, which are more expensive to fly than longer routes. Some is because USAir has service amenities others don't.

29


USAIR- An Article from the Past – But it is Current.

But Southwest, which also flies mostly short routes, has costs of around 7 cents per mile with a unionized work ‑‑force and wages close to USAir's.

30

Budgets & performance reports-1A plane belonging to a major American airline was grounded one afternoon for repairs at Airport A, but the nearest mechanic qualified to perform the repairs worked at Airport B. 31

Budgets & performance reports-2The manager at Airport B refused to send the mechanic to Airport A that afternoon, because after completing the repairs the mechanic would have had to stay overnight at a hotel, and the hotel bill would come out of B's budget. So, the mechanic was dispatched to Airport A early the following morning, which enabled him to fix the plane and return home the same day.

32

Budgets & performance reports-3• A multi-million dollar aircraft sat idle,

and the airline lost hundreds of thousands of dollars in revenue, but Manager B's budget wasn't hit for a $100 hotel bill.

• Manager B was neither foolish nor careless. He was doing exactly what he was supposed to be doing: controlling and minimizing his expenses.

33

Budgets & performance reportsWhat is Management by Exception?

What can you learn from the budget reports on the next two slides?

BudgetRevenues $ 25,000 Expenses 20,000Net Income $ 5,000

Local Corporation - 1

35

(Amounts: $1,000s)Budget ActualAmount Amount

Revenues $ 25,000 $28,000 Expenses 20,000 27,000Net Income $ 5,000 $ 1,000 Management should focus on

c. equally to rev. & expenses


a. primarily to revenuesb. primarily to expenses

36

(Amounts: $1,000s)Budget Actual Differ-Amount Amount ence

Revenues $ 25,000 $28,000 12%Expenses 20,000 27,000 35%Net Income $ 5,000 $ 1,000 -80%Management should focus on

c. equally to rev. & expenses


a. primarily to revenuesb. primarily to expenses

37

Practice Problems.The problems that follow are for additional practice.

38

Old joke.A businessman reported continued losses from selling watermellons.He told his advisor that he bought them for $4.00 each and sold them for $3.99.His advisor told him to buy a bigger truck so he could buy and sell more watermellons.

39

Cost of a product.We must know how much it costs to buy or make a product, so we can determine if we can make a profit by selling it at a price which customers will accept.See remaining problems in this file.

40

Unit Cost for Basketballs -1The company (next slide) normally produces and sells 400,000 units per year, but has the capacity to produce and sell 500,000 units per year.What is the manufacturing cost per unit:1. At current capacity of 400,000 units?2. At a potential capacity of 500,000 units?3. Why are your unit cost amounts different?

41

Unit Cost for BasketballsForecast is based on production and sales of 400,000 units.

Amount Cost Per Unit Cost Per Unit400,000 400,000 units 500,000 units

Units Produced 400,000 400,000 500,000 Sales (S.P. is $10 per Unit) $4,000,000

Man. cost of goods soldRaw Materials 800,000 $2.00 Direct Labor 500,000Variable Costs (utilities, etc.) 700,000Fixed Man. Overhead (Rent) 1,200,000

Total Cost of Sales 3,200,000Gross profit 800,000 Selling exp. (All variable) 100,000 Admin. exp. (All fixed) 200,000Operating income $500,000

42


Amount Cost Per Unit Cost Per Unit400,000

units400,000 units 500,000 units


Man. cost of goods soldRaw Materials 800,000 $2.00 Direct Labor 500,000 $1.25 Variable Costs (utilities, etc.) 700,000 $1.75 Fixed Man. Overhead (Rent) 1,200,000 $3.00

Total Cost of Sales 3,200,000 $8.00 Gross profit 800,000 Selling exp. (All variable) 100,000 Admin. exp. (All fixed) 200,000Operating income $500,000

43


Amount Cost Per Unit Cost Per Unit400,000 400,000 units 500,000 units


Man. cost of goods soldRaw Materials 800,000 $2.00 $2.00 Direct Labor 500,000 $1.25 $1.25 Variable Costs (utilities, etc.) 700,000 $1.75 $1.75 Fixed Man. Overhead (Rent) 1,200,000 $3.00 $2.40

Total Cost of Sales 3,200,000 $8.00 $7.40 Gross profit 800,000 Selling exp. (All variable) 100,000 Admin. exp. (All fixed) 200,000Operating income $500,000

44

Cost to Manufacture BasketballsA potential new customer in another country has offered to buy 100,000 units at $7 per unit, and the potential customer would pay delivery charges.If this offer is not accepted, the company will produce 400,000 basketballs.Should they accept this offer?

How does this relate to Globalization?45

The End

46

1 chapter 1- introduction to management accounting. spring, 2013. edited january 17, 2013. copyright...

Documents