MANAGERIAL ACCOUNTING

TOPIC 1: COSTING SYSTEM

I. PROCESS COSTING – a method of costing used mainly in manufacturing where
units are continuously mass-produced through one or many processes.
1. Conversion cost
a. Definition: Conversion cost( chi phí chuyển đổi) are those production costs
required to convert raw materials into completed products

 In process cost system, direct labor costs maybe small in comparison to other product
costs => direct labor costs and manufacturing overhead are often combined into one
product cost called conversion.
2. Equivalent units of production

An equivalent unit of production is an expression of the amount of work done by a

manufacturer on units of output that are partially completed at the end of the
accounting period. Basically, the fully completed units and the partially completed
units are expressed in terms of fully completed units
3. Weight-average method and FIFO method
a. Weight average method- pp bình quân gia quyền
 - Equivalent units of production = units completed and transferred+
equivalent units remaining in ending work in process
- Cost per equivalent units = Cost incurred to date/ equivalent of work done
to date
b. FIFO method: PP nhập trước xuất trước
- Equivalent units of production = Unít completed and transferred +
equivalent units remaining in ending work in process – equivalent units
remaining in beginning work in process
- Cost per equivalent unit = Cost added in current period/ Equivalent units
of work done in current period
II. JOB-ORDER COSTING
Process costing Job-order cosing
Many units of a single, homogenous Many different products are produced
product flow evenly through a each period
continuous production process
One unit of product is indistinguishable Products are manufactured to order
from any other unit of product  Individual goods or services have
very different characteristics and
costs
 The units of a particular job are
easy to identify
 Much of the manufacturer’s cost
of producing the service and be
traced directly to a particular job
Direct tracing is used for allocating direct cost and allocation is used for indirect costs
Differentiate ALLOCATION BASE and COST DRIVER: cost driver are allocation
base but not all allocation base are cost drivers

ACTUAL COST SYSTEM AND NORMAL COST SYSTEM

 Normal costing uses budgeted indirect-cost rates whereas actual costing uses actual
indirect- cost rates calculated annually at the end of the year.

PREDETERMINED OVERHEAD COST= Estimated total overhead costs/ Estimated

total amount of allocation base

No Terms Meaning
1 Allocation base A measure of activity such as direct labor-hours or machine-hours
 that is used to assign costs to cost objects
3 Bill of materials A document that shows the quantity of each type of direct material
required to make a product
4 Cost driver A factor, such as machine-hours, beds occupied, computer time, or
flight-hours, that causes overhead costs
5 Cost of goods The manufacturing costs associated with the goods that were
manufactured finished during the period
6 Finished goods Units of product that have been completed but not yet sold to
customers
7 Job cost sheet A form that records the materials, labor, and manufacturing
overhead costs charged to a job
8 Job-order costing A costing system used in situations where many different
products, jobs, or services are produced each period
9 Materials requisition A document that specifies the type and quantity of materials to be
form drawn from the storeroom and that identifies the job that will be
charged for the cost of those materials
10 Multiple A costing system with multiple overhead cost pools and a different
predetermined predetermined overhead rate for each cost pool, rather than a
overhead rates single predetermined overhead rate for the entire company. Each
production department may be treated as a separate overhead cost
pool.
11 Normal cost system A costing system in which overhead costs are applied to a job by
multiplying a predetermined overhead rate by the actual amount of
the allocation base incurred by the job
12 Over-applied A credit balance in the Manufacturing Overhead account
overhead that occurs when the amount of overhead cost applied to Work in
Process exceeds the amount of overhead cost actually incurred
during a period
13 Overhead The process of charging manufacturing overhead cost to job cost
application sheets and to the Work in Process account
14 Predetermined A rate used to charge manufacturing overhead cost to jobs that is
overhead rate established in advance for each period. It is computed by dividing
the estimated total manufacturing overhead cost for the period by
the estimated total amount of the allocation base for the period
15 Raw materials Any materials that go into the final product
16 A schedule that contains three elements of product
Schedule of cost costs—direct materials, direct labor, and manufacturing overhead
of goods —and that summarizes the portions of those costs that remain in
ending Work in Process inventory and that are transferred out of
 manufactured Work in Process into Finished Goods

17 Schedule of cost of A schedule that contains three elements of product costs—direct

goods sold materials, direct labor, and manufacturing overhead — and that
summarize the portions of those costs that remain in ending
Finished Goods inventory and that are transferred out of Finished
Goods into Cost of Goods Sold
18 Time ticket( thẻ A document that is used to record the amount of time an employee
chấm công) spends on various activities
19 Under-applied A debit balance in the Manufacturing Overhead account
overhead that occurs when the amount of overhead cost actually incurred
exceeds the amount of overhead cost applied to Work in Process
during a period
20 Work in process Units of product that are only partially complete and will require
further work before they are ready for sale to the customer
No Terms Meaning
1 Conversion cost Direct labor cost plus manufacturing overhead cost
2 Equivalent units The product of the number of partially completed units and their
percentage of completion with respect to a particular cost.
Equivalent units are the number of complete whole units that
could be obtained from the materials and effort contained in
partially completed units
3 Equivalent units of The units transferred to the next department (or to finished goods)
production during the period plus the equivalent units in the department’s
(weighted-average ending work-in-process inventory
method)
4 FIFO method A process costing method in which equivalent units and unit costs
relate only to work done during the current period
5 Operation costing A hybrid costing system used when products have some common
characteristics and some individual characteristics
6 Process costing A costing method used when essentially homogeneous products
are produced on a continuous basis
7 Processing An organizational unit where work is performed on a product and
department where materials, labor, or overhead costs are added to the product
8 Weighted-average A process costing method that blends together units and costs
method from both the current and prior periods

TOPIC 2: COST-VOLUME-PROFIT RELATIONSHIPS

Glossary
N Terms Meaning
o
1 Break-even The level of sales at which profit is zero
point

2 Contributio A ratio computed by dividing contribution margin by dollar sales

n margin  Contribution margin: LNG/ lãi trên biến phí( số tiền còn lại của
ratio (CM doanh thu bán hàng sau khi bù đắp hết các chi phí khả biến phát sinh.
ratio) Phần giá trị này được sử dụng để trang trải các chi phí cố định và tạo
ra lợi nhuận cho doanh nghiệp)
 Contribution margin ratio: cho bt khi có thêm 1 đồng doanh thu thì
có bao nhiêu trong đó là ln
3 Cost- A graphical representation of the relationships between an
volume- organization’s revenues, costs, and profits on the one hand and its sales
profit volume on the other hand
(CVP)
graph

4 Degree of A measure, at a given level of sales, of how a percentage change in sales will
operating affect profits. The degree of operating leverage is computed by dividing
leverage
 contribution margin by net operating income
 Degree of operating leverage: mức độ tác động của đòn bẩy hoạt
động hay độ nghiêng của đòn bẩy hoạt động. DOL thể hiện tỷ lệ thay
đổi của lợi nhuận khi doanh thu thay đổi.

5 Incremental An analytical approach that focuses only on those costs and revenues that
analysis change as a result of a decision
6 Margin of The excess of budgeted or actual dollar sales over the break-even dollar sales
safety The margin of safety= Total sales – Break-even sales
7 Operating A measure of how sensitive net operating income is to a given percentage
leverage change in dollar sales. With high leverage, a small percentage increase in
sales can produce a much larger percentage increase in operating income

8 Sales mix The relative proportions in which a company’s products are sold. Sales mix
is computed by expressing the sales of each product as a percentage of total
sales.

9 Target profit Estimating what sales volume is needed to achieve a specific target profit.
analysis
10 Variable A ratio computed by dividing variable expenses by dollar sales
expense
ratio

TOPIC 3: MASTER BUDGET

N Terms Meaning
o
1 Budget A detailed plan for the future that is usually expressed in formal
quantitative terms.
A budget is a detailed quantiative plan for acquiring and using financial
and other resources for over a specified forthcoming time period
 The act of preparing a budget is called budgeting
 The use of budgets to control an organization’s activities is known
as budgetary control
Planning Control
Involes developing Involves the steps
objectives and taken by management
preparing various to gather feedback to
budgets to achieve ensure that a plan is
those objectives being properly
excecuted or
modified as
circumstances change
2 Budget A group of key managers who are responsible for overall budgeting policy
committee and for coordinating the preparation of the budget.
May include:
 Senior manager
 President
 CFO ( chief financial officer)
 Various vice presidents
 Controller
Budgets are prepared for
 Departments
 Divisions
 Company as a whole
3 Cash budget A detailed plan showing how cash resources will be acquired and used
over a specific time period.
4 Continuous A 12-month budget that rolls forward one month as the current month is
budget completed.( rolling budget/participative budget)
 Operating budgets ordinarily cover a one-year period
corresponding to a company’s fiscal year. Many companies divide
their annual budget into 4 quarters
 A fiscal year is a 12-month accounting period that a business uses
for financial and tax reporting purposes. A fiscal year is also known
 as a financial year. A fiscal year can be different from a calender
year.
5 Control The process of gathering feedback to ensure that a plan is being properly
executed or modified as circumstances change.
6 Direct labor A detailed plan that shows the direct labor-hours required to fulfill the
budget production budget.
7 Direct A detailed plan showing the amount of raw materials that must be
materials purchased to fulfill the production budget and to provide for adequate
budget inventories.
8 Ending A budget showing the dollar amount of unsold finished goods inventory
finished goods that will appear on the ending balance sheet.
inventory
budget
9 Manufacturin A detailed plan showing the production costs, other than direct materials
g overhead and direct labor, that will be incurred over a specified time period.
budget
10 Master A number of separate but interdependent budgets formally lay out the
budget( or company’s sales, production, and financial goals and that culminates in a
perpetual cash budget, budgeted income statement, and budgeted balance sheet.
budget)

11 Merchandise A detailed plan used by a merchandising company that shows the amount
purchases of goods that must be purchased from suppliers during the period.
budget
12 Participative See Self-imposed budget.
budget
13 Perpetual See Continuous budget.
budget
14 Planning Developing goals and preparing budgets to achieve those goals.
15 Production A detailed plan showing the number of units that must be produced during
budget a period in order to satisfy both sales and inventory needs.
16 Sales budget A detailed schedule showing expected sales expressed in both dollars and
units.
17 Self-imposed A method of preparing budgets in which managers prepare their own
budget budgets. These budgets are then reviewed by higher-level managers, and
any issues are resolved by mutual agreement. = this kind of budget is
prepared with the full cooperation and participating of managers at all
levels

18 Selling and A detailed schedule of planned expenses that will be incurred in areas
administrative other than manufacturing during a budget period.
expense
budget

TOPIC 4: RELEVANT INFORMATION FOR DECISION-MAKING

1. Relevant information
Relevant info has 2 characteristics
- It occurs in the future
- It differs among the alternative courses of activities
- Past costs ( historical costs) are never relevant and are also called sunk
costs.
No Terms Meaning
1 Avoidable cost A cost that can be eliminated by choosing one
alternative over another in a decision.
This term is synonymous with relevant cost.
2 Bottleneck A machine or some other part of a process that limits
the total output of the entire system.
3 Constraint A limitation under which a company must operate,
such as limited available machine time or raw
materials that restricts the company’s ability to satisfy
demand.
4 Joint costs Costs that are incurred up to the split-off point in a
process that produces joint products.
5 Joint products Two or more products that are produced from a
common input.
6 Make or buy decision A decision concerning whether an item should be
produced internally or purchased from an outside
supplier.
7 Relevant benefit A benefit that differs between alternatives in a
decision. Synonyms are differential benefit and
incremental benefit.
8 Relevant cost A cost that differs between alternatives in a decision.
Synonyms are avoidable cost, differential cost, and
incremental cost.
Also it’s avoidable costs
 Incremental cost: chi phí tăng thêm= the total
cost incurred due to an additional unit of
product being produced
 Differential cost: the differences between total
cost between 2 alternatives
Note: incremental cost and differential cost are
sometimes used interchangeably in practice

 Incremental revenue: the additional total

revenue from an activity

9 Sell or process further A decision as to whether a joint product should be sold
decision at the split-off point or sold after further processing.
10 Special order A one-time order that is not considered part of the
company’s normal ongoing business.
11 Split-off point That point in the manufacturing process where some
or all of the joint products can be recognized as
individual products.
12 Sunk cost Any cost that has already been incurred and that
cannot be changed by any decision made now or in the
future.

SOME TYPES OF DECISIONS THAT NEED TO BE MADE

1. One-time only special order
- Accepting/Rejecting special orders when there is idle production capacity
and the special orders have no long-run implications
- Decision rule: Does the special order generate additional operating
income?
Yes=> ACCEPT
No=> REJECT
- Compare relevant revenues and relevant costs to determine profitability
2. Short-run pricing decisions
- A special order is, in many respects, a short-run pricing decision
- Decision rule: Any price above incremental costs will immprove operating
income
- However, consideration must be given to: capacity constraints, current
market conditions, customer demand, competition,etc,…
3. Insourcing versus outsourcing: MAKE OR BUY DECISION
OUTSOURCING: purchasing goods Insourcing means you’ll produce the
and services from outside vendors good( or provide the service) within
the organization
- Opportunity costs are the contribution to operating income forgone by not
using a limited resource in its next-best alternative use
- Decision rule: Select the option that will provide the firm with the lowest
cost, and therefore the highest profit
- Same as special order: choose the alternative that maximizes operating
income
4. Product-Mix decisions with capacity constraints
- They r decisions managers make about which products to sell and in what
quantities
- Decisions rule( w a constraint)
Choose product producing the highest the contribution margin per unit of
the constraining resources( not the highest contribution margin per unit of
the product)
5. Bottlenecks- Theory of constraints
Through-put margins là phần chênh lệch giữa doanh thu và chi phí nguyên vật
liệu