In BUS103: Introduction to Financial Accounting, we learned that firms need to track various forms of data in order to report to investors, regulators, and potential business associates such as customers and vendors. Firm managers, however, often need information that is much more detailed than the data provided in these financial reports. They use what is known as "managerial accounting" to make various decisions about their businesses. To avoid information overload, much of their data is tailored to the needs of a particular business unit instead of generally applicable to the firm as a whole. As you might expect, different managers have different needs. However, almost all management decisions deal with the same key issues: cost, price, and profit. This course will examine this sort of decision-making, identifying the tools and methods managers use to make the best-informed decisions possible. We will begin with an introduction to the terms that will be referenced in the later units. We will then discuss the various methods and theories that managers deploy when tracking costs and profits. The final section will explain how managers report the overall performance of a firm or department for internal use. Upon completion of this course, students will be better prepared to make informed decisions within a firm.
Unit 1: Cost Measurement And Estimation
This unit will begin by examining the differences between financial and managerial accounting. The primary difference, as you will learn, is the audience for the financial and managerial accounting information. Financial accounting information is geared toward external users, and managerial accounting information is geared toward internal users. Managerial accounting is integral to making operational and strategic decisions. At the end of this unit, you will be able to explain why there is a need for both financial and managerial accounting.
This unit will also introduce you to the manufacturing process and related financial accounting transactions. You will differentiate between costs assigned to products and costs assigned to the period. One key item to notice is that the flow of costs in accounting mirrors the physical flow of the inventory. For example, a pizza parlor purchases pepperoni, sausage, and olives (direct materials) to go on the pizzas. When a customer orders a pizza, the direct materials are assembled and baked (work in process), and a completed pizza (finished goods) is delivered to the customer.
Completing this unit should take you approximately 5 hours.
Unit 2: Cost Management
In the previous unit, you learned about the flow of manufacturing costs. This unit focuses on the allocation of direct materials, direct labor, and manufacturing overhead. For a company that produces items for jobs, it is easy to identify the direct materials and direct labor for a specific job. However, how do you determine direct materials if the company uses a continuous assembly line? It would be inefficient to track each unit of production separately. This unit also addresses how to allocate manufacturing overhead. Manufacturing overhead consists of costs not directly related to the product but necessary to run the production process. This includes, but is not limited to, factory equipment, factory rent, and utilities for the factory.
Completing this unit should take you approximately 12 hours.
Unit 3: Short-Term Decision Making
This unit will introduce a new way to evaluate costs. Rather than examining direct materials, direct labor, and manufacturing overhead, this information is rearranged into variable costs, fixed costs, and mixed costs. For example, a factory worker who earns a salary and an annual bonus based on company performance was classified as direct labor in the previous unit. In this unit, salary is allocated to fixed costs and the bonus to variable costs.
Understanding how costs behave means you will be able to make predictions about revenue and operating income, given certain changes in sales volume. You will also be able to determine how many units a company needs to sell to break even. If a company cannot break even, it should reconsider its business model.
This unit also introduces differential analysis. Differential analysis will enable you to make specific strategic decisions for a company. For example, should a company accept a special order? Should a company make a component for its product or purchase it prefabricated?
Completing this unit should take you approximately 15 hours.
Unit 4: Budgeting And Cost Variances
The budget process is essential to planning and controlling cycles. It provides a plan for operations and a benchmark by which to measure progress. The budget process involves coordination among all the departments in a company.
In this unit, you will learn about the components of the master budget and prepare all of the underlying schedules. Once the master budget is complete, the company can measure actual performance against the budget. Throughout the year, a company will create a flexible budget to understand why there are variances from the original master budget. It is important to understand that the budgeting process is a continuous cycle. While the original master budget is static, a company will use actual results to adjust operations and expectations.
Completing this unit should take you approximately 27 hours.
Unit 5: Capital Budgeting
The previous unit focused on budgeting for the day-to-day operations of a business. We will now focus on budgeting for long-term investments in capital projects, such as machinery. The capital budgeting processes is usually performed simultaneously when preparing the master budget. A company uses capital budgeting to evaluate long-term investments. For example, should the company replace a machine now or wait another three years?
We use several different methods to evaluate the results of capital budgeting. Project selection or rejection criteria are based on the time value of money and discounted cash flows. Thus, this unit will briefly introduce you to the time value of money.
Completing this unit should take you approximately 21 hours.
Unit 6: Performance Evaluation
This unit will explore ways in which managerial accounting helps companies evaluate performance of the company, segments, departments, and individuals. Responsibility accounting assumes that every cost incurred by a company is the responsibility of someone. Thus, companies that utilize responsibility accounting connect compensation to financial performance. Operations managers are not only evaluated by their ability to manage costs, but also by the quality and efficiency of the production process they oversee.
Two common methods that companies employ to evaluate performance are just-in-time inventory management and the balanced scorecard. Just-in-time inventory management is most common with repetitive manufacturing processes where the same products are produced on a regular basis. The balanced scorecard is a performance management tool that assists a company in evaluating strategic objectives. The balanced scorecard allows companies to evaluate both financial and non-financial measurements.
Completing this unit should take you approximately 10 hours.
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