acct222 midterm

• Ethical conduct for management accountants

  competence, confidentiality, integrity, credibility
• Competence


  maintain professional expertise

  perform duties in accordance with laws and standards

  accurate, clear, concise, timely information
• Confidentiality


  keep information confidential

  inform relevant parties

  refrain from using confidential info for unethical/illegal advantage
• Integrity


  avoid conflicts of interest

  refrain from any conduct that would prejudice ability to carry out duties

  contribute to positive ethical culture
• Credibility


  communicate information fairly and objectively

  provide all relevant info

  report any delays/deficiencies

  communicate professional limitations or other constraints
• Resolving an ethical dilemma

  1. discuss problem with supervisor or manager

  2. if immediate superior is CEO - board of directors or audit committee

  3. clarify relevant concepts by confidential discussion

  4. resign and submit memo to appropriate representative in organisation

  5. do not go outside organisation
• Which method is best? Reciprocal, step-down, direct?

  Direct and step down are easier to compute, reciprocal difficult to understand however most accurate as all interactions between departments are accounted for
• ABC costing provides:


  greater costing accuracy

  improved decision making

  enhanced strategic planning

  insight concerning activity management
• Limitations of traditional product costing

  increased overhead costs

  decreased direct labour

  significant non-unit related overheads

  diversity of products

  need to motivate employees
• Differences of ABC to traditional

  Traditional costing overhead is driven by unit-level cost drivers only, whereas activity costing traces costs to activities
• Unit-level activities


  Performed each time a unit is produced

  e.g. electricity, machine usage
• Batch-level activities


  Performed each time a batch of products are produced

  e.g. machine set-up, inspections, materials handling
• Product sustaining activities


  Performed as needed to support various products

  e.g. engineering changes, development of product testing, maintenance, advertising of product
• Customer sustaining activities


  Performed as needed to support customers

  e.g. sales reps, technical support, market research
• Facility sustaining activities


  Sustain a facility

  e.g. factory site, factory management, landscaping, rates
• Organisation sustaining activities


  Benefit organisation as a whole

  e.g. senior management, head office admin, IS, legal team
• Causes of budget variances

  Inefficiencies/efficiencies in actual operations

  Uncontrollable factors
• Use budget to monitor to:

  evaluate strategies being met

  evaluate efficiency of operations

  improve quality of budgeting process
• Use budget to motivate performance by:

  assigning decision rights to managers

  giving managers responsibility for resources

  awarding bonuses for meeting/exceeding budget goals
• Possible problems with budgeting

  Manipulation of budget

  focus on own department

  lack of trust

  resistance

  internal conflict
• Why is a flexible budget better than a static budget?

  Because variable costs vary with output/production, so if the productions is more/less than budgeted, a static budget would not be comparable to the actual costs. The flexible budget reflects what the expected costs would be if the output was expected.
• variable costing


  sales, less variable exp. (COGS, variable selling etc) = contribution margin, (less) fixed expenses (fixed OH, fixed selling and admin) = net income
• traditional/absorption costing


  sales, less COGS (production costs) = gross margin, less operating expenses (selling and admin, commission etc) = net income
• Reconcialiation (absorption and variable costing)


  production (units)

  sales (units

  increase in inventory

  x fixed OH rate

  difference
• DIfference between variable and absorption costing


  variable = expensed in period incurred

  absorption = portion of fixed manufacturing is expensed when inventory is sold rather than when it is incurred
• Benefits of holding lots of inventory

  Doesn't matter about:

  machine breaking down

  poor vendors

  poor design

  long setups

  not holding up customers
• Just in time (JIT)


  Production is done based on customer demand
• Benefits of JIT


  eliminate non-value added activities

  zero defects/waste

  zero/minimal inventory

  reduced set-up times and batch sizes
• Requirements for JIT


  reliable suppliers

  a manageable number of suppliers

  efficient and reliable handling procedures
• Drawbacks of JIT


  Takes time to implement

  Can cause confrontations with suppliers

  No inventory buffer for delays

  Can cause worker stress