This information is provided by Prof. Bin Srinidhi of Rutgers University
Tentative Coverage of Managerial Analysis Course
1. Introduction
Cost Accounting as a measurement function. Cost Management as a decision making function. The role of economics in providing a basis for cost accounting and as a framework for cost management decisions
The rationale of integrating Managerial accounting and Microeconomics
The concept of relevant cost. Relevant for what? The decision context of measurement. Structuring of cost accounting functions
2. Cost Accounting for Financial Reporting Function
Cost Accounting needs for Financial Reporting Function
The users of financial reports and their needs. Institutional framework and GAAP. Aggregation of information in financial statements.
Financial reporting in service organizations. Definition of functional cost categories and operating expenses. The reporting format in the income statement, balance sheet and cash flow statement.
Financial reporting in merchandising organizations. Concept of product costs and period costs. The reporting format in the income statement, balance sheet and cash flow statement.
Financial reporting in manufacturing organizations. Concept of direct and indirect costs. Total manufacturing costs, Costs of goods manufactured and Costs of goods sold. Accounting flows through raw material, WIP and FG inventories. The reporting format in the income statement, balance sheet and cash flow statement.
Book references: HFD chapters 1 and 2; Prob. 2-23,27,28,29;
Product Costs for Financial Reports: Job Order Costing
What is job costing and when is it used?
Overview of how material and other direct costs are traced to jobs and how overheads are allocated to jobs.
Tracing material costs to jobs. Document flow. Internal controls. Accounting transactions and journal entries. Example
Tracing labor costs to jobs. Document flow. Internal control. Accounting transactions and journal entries. Example.
The overhead control account and accumulation of actual overheads. Overheads paid for in cash and overheads accrued. Inter-period allocation of some overheads such as depreciation and prepaid insurance.
The application of overheads. Predetermined overhead rate. Normal and actual costing.
The applied overhead account and application to jobs in the traditional method using departmental overhead rates.
The flow of product costs through FG inventory to CGS
The reconciliation of overhead control and applied overhead accounts. Closing entry through income summary to income statement.
Explanation of differences. Materiality as a basis of proration. Under/over utilization of capacity results in expensing. Efficiency as a basis of proration.
Product Costs for Financial Reports: Process Costing
What is process costing and when is it used?
Process costing with no work in process inventory. Example from ASI Consumer products.
Equivalent units and process costing with unfinished items. Example.
Book References: HFD 5. Problems: 5 - 16,17,25,33
3. Cost Analysis for Production Decisions
Cost Analysis - Fixed and Variable Costs
Inference of cost behavior from prior data. Analysis of cost and revenue data based on volume of a single product or a single activity. Simple linear model and the definition of fixed and variable components of cost. Simple examples.
Importance of time horizon and relevant range in inferences on fixed and variable components of a cost. Examples.
Variable costing income statement - usefulness in projecting profits. Example with percentages.
Difference between a causal basis of cost analysis and an inferential basis of cost analysis.
Methods of estimating fixed and variable cost components. High-Low method and simple regression. Examples.
Basics of activity costs. Activities result in costs. Activity levels as cost drivers. Distinction between cost drivers and allocation bases. Examples
Concept of cost pools to simplify analysis. Relating pooled costs to activity levels.
Product Technology Decisions 5 sessions
Production functions, product curves, isoquants, elasticity of substitution. Concept of cost in economics. Cost components. Opportunity costs. Constrained output maximization and constrained cost minimization
Short run product technology decisions and long run product technology decisions
Input demands and cost functions. Cost function non-linearities
Linear approximation of cost function. Fixed and variable costs. Activity costs.
Contribution Margin Analysis 1 session
Definition of break even point, contribution margin, indifference point - Continuation of the example
Product profitability analysis using contribution margin, product margin
Theory of constraints and the use of costs in throughput maximization
Book References: HFD 3: Problems 3-22,26,29,38,46; JMAR article: "Contribution Margin Analysis - - -" by Kaplan et. al. Discussion and critique.
4. Cost Analysis for Pricing Decisions
Single Product Decisions - Pricing in a competitive market 2 sessions
Conceptual examination of the quantity/price decision in a competitive market. The role of out-of pocket costs and opportunity costs. Measurability of costs and revenues. Operationalization of the decision. Irrelevance of cost allocations. Example from the consumer electronics division of ASI.
Single Product Decisions - Pricing in a monopoly 2 sessions
Pricing for profit maximization in a monopoly. Role of cost measurement in price determination. Price regulation in monopolies.
Single Product Decisions - Pricing in an oligopoly 4 sessions
Cournot and Bertrand models. Stackelberg leader. Role of cost measurement. Differentiated products. Fundamentals of game theory and its application in pricing.
Multiple Products. Economies and diseconomies of scope 2 sessions
Optimum pricing policies under different settings for multiple product settings. The importance of cost measurability issues and cost allocation. Use of activity costing and determination of product costs. Insight into economies and diseconomies of scope from activity costs.
Life cycle analysis and pricing 1 session
Product, market and whole life cycles. Life cycle profit analysis
Impact of life cycle concepts on pricing
Price based cost management - Target costing and analysis 1 session
Setting targets for costs and quality of products and processes - Significance of target setting in promoting organizational focus and teamwork
Target setting for work groups, process and product components
Target cost reporting
5. Product and Market Decisions 2 sessions
Short term make or buy decisions, special order decisions. Use of opportunity costs
Decisions on discontinuing operations
New product and new market entry decisions
6. Cost management
Operations and cash budgeting 2 sessions
Sales forecasting and Sales Budgeting
Budgeting for cash collections from sales
Production Budgeting
Budgeting of manufacturing resources: Manufacturing technology and Material, labor and activity inputs
Budgeting for cash disbursements for purchases and manufacturing activities
Budgeting of R&D, Design, Marketing, Sales and Administrative activities
Budgeted income statement
Budgeting and management of cash flows
Budget based cost management - Standards and Variance Analysis 2 sessions
Determination of standards for materials, labor and overhead
Computation of quantity and price variances for revenues and costs
Significance of volume variances
Reconfiguration of variances as productivity and price recovery variances
Signalling and cost management using variances
Accounting disposition of variances
Activity Based Cost management - Competitive analysis 2 sessions
Analysis of activities and processes as value added and non-value added activities
Implementation using process maps
Analysis of cost as effect and activities as causes in a cause-effect diagram representation
Competitive analysis using benchmarking
Storyboarding and Work force-based Activity Based Management
Activity based cost management - Managing non-value added activities 2 sessions
Separation of non-value added activities into necessary support and waste
Managing set up costs -SMED and parallel processing to manage unit set up costs - Drivers of number of set ups such as design complexity and demand volatility.
Effect of set-ups on WIP inventory, Bottlenecks in sequential processes, Managing inventory costs
Machine idle time and job waiting time - measurement of time and costs. Impact on sequencing
Cost and time reports for non-value added activities. Job-wise and work center-wise analysis. Trend reports. Importance of these reports in decisions on rush jobs, capacities and bottlenecks.
7. Performance Evaluation
Allocation of service center costs 1 session
The utilization and capacity formation decisions for service centers
Allocation of variable and fixed service department costs to operating departments - allocation bases
Allocation of service activity costs to operating activities - difference between departmental allocation and activity cost allocation
Direct allocation and reciprocal allocation. Step-down allocation as an approximation of the reciprocal allocation
Transfer Pricing and evaluation of profit centers 1.5 sessions
Transfer pricing and evaluation of natural and artificial profit centers - issues and solutions Examples (i) to show when variable cost and market prices are desirable as transfer prices, (ii) to show how distorted information transmission might take place from profit centers and its effect on decentralization cost
Transfer pricing methods for tax purposes in MNE's: Managerial responses in production and accounting
Transfer pricing of intangibles
Cost allocation as a form of transfer pricing
Evaluation of Investment Centers 1.5 sessions
Use of ROI, RI and ROS as performance measures in investment centers
Problems with the use of accounting measures. Alternative measures
Effects of Cost allocation and Transfer Pricing on the performance measures
Separating the evaluation of the manager and the investment center
Note: Each week is assumed to have two sessions. The approximate duration of each session is 1 hr. 45 min. to about 2 hours.