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slide1

Here is Part of the Problem.

Which managerial accounting system should we use?

Standard Costing, Project Accounting, Job Order Costing, Economic Value Added TM, Balanced Scorecard, Activity Based Costing, Intellectual Capital, Performance Pyramid, Business Excellence Model, Customer Profitability, Strategic Management Accounting, Strategic Cost Management, Supply Chain Costing, Cash Flow Return on Investment, Business Models, Target Costing, Kaizen Costing, Lean Accounting, Life Cycle Costing, Value Added Analysis, Process Costing, Time-based Activity Based Costing, Value engineering, Stock Options, Micro Profit Centres, Quality Costing, Non-value Added Cost, Human capital, Resource Consumption Accounting, Structural Capital, Relationship Capital, Brand Value, Total Cost of Ownership, Throughput Accounting, Triple Bottom Line, Beyond Budgeting, Risk-adjusted Return on Capital at Risk ……

slide2

Here is Part of the Problem.

Which managerial accounting system should we use?

Standard Costing, Project Accounting, Job Order Costing, Economic Value Added TM, Balanced Scorecard, Activity Based Costing, Intellectual Capital, Performance Pyramid, Business Excellence Model, Customer Profitability, Strategic Management Accounting, Strategic Cost Management, Supply Chain Costing, Cash Flow Return on Investment, Business Models, Target Costing, Kaizen Costing, Lean Accounting, Life Cycle Costing, Value Added Analysis, Process Costing, Time-based Activity Based Costing, Value engineering, Stock Options, Micro Profit Centres, Quality Costing, Non-value Added Cost, Human capital, Resource Consumption Accounting, Structural Capital, Relationship Capital, Brand Value, Total Cost of Ownership, Throughput Accounting, Triple Bottom Line, Beyond Budgeting, Risk-adjusted Return on Capital at Risk ……

Even most cost accountants

do not understand what

the differences are !

slide3

Accounting Taxonomy

ACCOUNTING

Managerial Accounting

Financial and Tax Accounting

(external reporting)

Cost Uses

(decision support)

Cost Measurement

Assigning expense data into costs

Collecting cost data

Control

(feedback)

Reporting & analysis

Planning (predictive)

Concepts, assumptions

& issues

Methods,

Attributes

Financial

Operational,

Quality

Segmented profit analysis

Variance

analysis

Budgeting

Accountability

Managing capacity

Managing demand

Economic

Financial

Operational

financial

operational

QUOTATIONS (PRICING),

WHAT-IF ANALYSIS

SCORECARDS,

PERFORMANCE MEASURES

management accounting framework
Management Accounting Framework

ACCOUNTING

Managerial Accounting

Financial and Tax Accounting

(external reporting)

Cost Measurement

Cost Uses

(decision support)

Collecting cost data

Assigning cost data

Control

(feedback)

C

Reporting & analysis

Planning (predictive)

Concepts, assumptions

& issues

B

Methods,

Attributes

E

Financial

Operational,

Quality

Segmented profit analysis

Variance

analysis

Budgeting

Responsibility & Accountability

Financial

Operational

Managing capacity

Managing demand

Economic

financial

operational

A

QUOTATIONS (PRICING),

WHAT-IF ANALYSIS,

BUDGETS

PERFORMANCEMEASUREMENT

D

cost measurement collecting cost data
Cost Measurement / Collecting Cost Data

Cost Measurement

Collecting Cost Data

Assigning Costs

Economic measurements

financial

operational

Resource drivers (timesheets, storyboarding)

activity dictionary

activity drivers

activity driver rates (actual vs. standard)

output quantities

Direct costs: labor routings

Direct costs: bill of materials

Payroll / wages

general ledger

purchase price

Cost of capital

Capital preservation allowance

Long-term sustainable vs. specific period expenditures

A

cost measurement assigning costs
Cost Measurement / Assigning Costs

Cost measurement

Collecting cost data

Assigning costs

Assignment methods

Concepts, assumptions, & issues

Period costing

Non-period costing

Fixed vs. Variable (“viscosity”)

sunk costs / depreciation

variability / linearity

planning horizon

update frequency

level of aggregation

causality (and effect)

full absorption costing

machine vs. labor intensity

precision vs. accuracy vs. ……..relevancy

GAAP (regul.) vs. ABC/M

historical vs. replacement

Project accounting

job order costing

process accounting

throughput accounting

kaizan accounting

standard costing

activity based costing

activity based management

supply chain costing

constraint based costing;

total available profit (TAP)

feature based costing

parametric cost modeling

Life cycle costing

target costing

product phase-in & out/

attributes

B

cost uses control feedback
Cost Uses / Control (feedback)

Cost Uses

Control (feedback)

Assessment

(insights & learning)

Planning

(predictive)

Financial (spending)

operational

Developing Budgets

(planning)

Variance analysis

(actual vs. plan )

Productivity analysis

capital investment realized benefits tracking

unused capacity identification

unitized cost-of-outputs trends

cost of quality (TQM) six sigma & SPC & ISO9000)

Benchmarking

Traditional

activity-based budgeting

Budget

-responsibility

center

accounting

Standard cost of:

---direct materials

---direct labor

C

cost uses assessment
Cost Uses / Assessment

Cost Uses

Control

(feedback)

Planning

(predictive)

Assessment

(insights & learning)

Segmented & Multi-dimensional

...Profit Contribution Analysis

Responsibility & Accountability

Financial

Operational

Products / service lines

direct product profitability (DPP)

shared services / joint service agreements

total cost of ownership (TCO)

dealer profitability

channel profitability

customer profitability

break-even analysis

Benchmarking

best practices / lean

cost driver analysis

throughput $ velocity

attributes analysis / value-added analysis

cost of quality (COQ)

environmental costing

Risk management

Economic value added (EVA)

shareholder value added (SVA)

cash flow

RONA

ROI

inventory valuation

WEIGHTED SCORECARD

(performance measures)

D

cost uses planning predictive
Cost Uses / Planning (Predictive)

Cost Uses

Assessment

(insights & learning)

Planning

(predictive)

Control

(feedback)

Managing Capacity

(Supply resources)

Managing Demand

(Outputs & Cost Receivers)

Budgeting

(see control)

Unused capacity management

make vs. buy (outsourcing)

activity based budgeting (ABB)

capital budgeting (allocation)

target costing (design for manuf.)

business process reengineering

supply chain management

efficient consumer response (ECR)

discrete-event simulation

Theory of Constraints (TOC)

manpower levels

Influencing

demand

Rationalizing &

repositioning

Pricing strategies

transfer pricing

quoted delivery lead times

customer order rules

bundled services

Strategic planning

Sourcing mix

product offerings

service offering

channel strategy

customer mix

QUOTING CUSTOMER ORDERS COST FORECASTING (what-if analysis)

E

slide10

Source data capture

(transactions /

bookkeeping)

ACCOUNTING

Tax Accounting

Financial Accounting

Managerial Accounting

Non-financial data capture

Cost Accounting

Financial Reporting

regulatory compliance

Cost Measurement

  • [e.g., GAAP, IFRS]
  • Costs of goods sold
  • Inventory valuation

Cost Reporting & Analysis

(feedback on performance)

Decision Support/

Cost Planning

  • Fully absorbed & incremental pricing
  • Driver-based budgeting & rolling financial forecasts
  • What-if analysis
  • Product, channel & customer rationalization
  • Outsourcing & make vs. buy analysis
  • Spending vs. budget variance analysis
  • Profitability reporting
  • Process analysis (e.g., lean, benchmarking, COQ)
  • Performance measures
  • Learning; corrective actions

The Domain of Costing

History

Future

Low value-add

Modest value-add

High value-add

Source: “A Costing Levels Continuum Maturity Model” by Gary Cokins published by the International Federation of Accountants, 2010

slide11

International Federation of Accountants Report

Evaluating the Costing Journey: A Costing Levels Continuum Maturity Model

By Gary Cokins, SAS

Most organizations are typically at lower levels of maturity in adopting progressive managerial accounting practices, methods and systems.

slide12

Costing Continuum / Levels of Maturity

(most companies are Level 4D and 1P)

(1) Descriptive Continuum

EXPENSE TRACKING, COST REPORTING

and CONSUMPTION RATES

(2) Predictive Continuum

DEMAND DRIVEN PLANNINGwith CAPACITY SENSITIVITY

Unused

Capacity

Aware

Customer

Demand

Sensitive

8D

Improved Treatment

of Indirect Costs

7D

Unused capacity costs (estimated)

6D

Level #

Improved Output Information/ Approximate

Accuracy

Level 6D with Channel and

customer

profitability

Reporting;

Cost-to-serve

Push Activity-

Based costing

(ABC);

Product costs

Output Visibility

Process

Visibility

5D

4D

Blind

3D

2D

1D

Standard

costing to individual outputs;

Project acct;

Job order

costing

Direct costs

without (3) and with

(4) support costs

to output groups

process and

Lean accounting

bookkeeping

Source: “A Costing Levels Continuum Maturity Model” by Gary Cokins published by the International Federation of Accountants, 2012

slide13

Costing Continuum / Levels of Maturity

(most companies are Level 4D and 1P)

(1) Descriptive Continuum

EXPENSE TRACKING, COST REPORTING

and CONSUMPTION RATES

(2) Predictive Continuum

DEMAND DRIVEN PLANNINGwith CAPACITY SENSITIVITY

Simulation

Resource

Consumption

Accounting

5P

Level #

Time-driven

ABC

Pull

Activity-

based

Resource

Planning

4P

Ultimate in consumption rates;

3P

(RCA);

Level 2P with proportional costing at direct and support depts.

%

G/L acct.

Incremental

2P

(TDABC);

Forecast driver quantities

X time consumption rates;

Direct cost focus;

Repetitive work conditions

1P

(ABRP);

Forecast driver quantities X unit consumption rates;

Driver based budgeting

Source: “A Costing Levels Continuum Maturity Model” by Gary Cokins published by the International Federation of Accountants, 2012

slide14

Costing Continuum / Levels of Maturity

(most companies are Level 4D and 1P)

(1) Descriptive Continuum

EXPENSE TRACKING, COST REPORTING

and CONSUMPTION RATES

(2) Predictive Continuum

DEMAND DRIVEN PLANNINGwith CAPACITY SENSITIVITY

Unused

Capacity

Aware

Customer

Demand

Sensitive

8D

Improved Treatment

of Indirect Costs

Simulation

7D

Resource

Consumption

Accounting

5P

Unused capacity costs (estimated)

6D

Level #

Improved Output Information/ Approximate

Accuracy

Time-driven

ABC

Pull

Activity-

based

Resource

Planning

4P

Level 6D with Channel and

customer

profitability

Reporting;

Cost-to-serve

Ultimate in consumption rates;

3P

Push Activity-

Based costing

(ABC);

Product costs

Output Visibility

(RCA);

Level 2P with proportional costing at direct and support depts.

%

G/L acct.

Incremental

Process

Visibility

5D

2P

4D

Blind

(TDABC);

Forecast driver quantities

X time consumption rates;

Direct cost focus;

Repetitive work conditions

3D

2D

1P

1D

Standard

costing to individual outputs;

Project acct;

Job order

costing

(ABRP);

Forecast driver quantities X unit consumption rates;

Driver based budgeting

Direct costs

without (3) and with

(4) support costs

to output groups

process and

Lean accounting

bookkeeping

Source: “A Costing Levels Continuum Maturity Model” by Gary Cokins published by the International Federation of Accountants, 2012

hierarchical objectives
Hierarchical Objectives

High

Profitability

Low

Costs

High

Sales

High Customer

Service

Low Unit

Costs

Quality

Product

High

Throughput

Low

Inventory

High

Utilization

Fast

Response

Many

products

Less

Variability

Short

Cycle Times

Low

Utilization

High

Inventory

More

Variability

Source: Dr. Nico Vandaele; Katholieke Universeit Leuven

financial and operational flows
Financial and Operational Flows

Source: Dr. Nico Vandaele; Katholieke Universeit Leuven