CostAccounting(英文版)

1、Author: Collins QianReviewer: Bob Armacost bcCost AccountingMarch 1998Copyright 1998 Bain & Company, Inc. 1CU7030298IMBbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Importance of cost allocationClient exampleDefinitionsdirect vs. indirect, fixed vs. variablebreakeven volumeExerci

2、sescost allocationbreakeven volumeKey takeawaysAgenda2CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Importance of cost allocationClient exampleDefinitionsdirect vs. indirect, fixed vs. variablebreakeven volumeExercisescost allocationbreakeven volumeKey takeawaysAgenda3CU7

3、122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Which products are profitable?What is the breakeven volume by product?Which products require cost reduction efforts?How should we price our products?Which customer segments are most profitable?It is critical to have accurate and

4、complete cost data to make sound strategic and tactical management decisions.Why Allocate Costs?4CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Historically, only 20% of manufacturing costs were “shared” across product lines. Today, typically 50% of costs are “shared” acro

5、ss products. Shared costs might include rent, freight, and administrative costs.For simplicity, accounting tracks costs by function (e.g., materials, salaries, benefits) rather than by the activity devoted to product lines (e.g., maintenance of product A, freight for product B)For costs that are not

6、 easily assigned to individual product lines, companies normally select the most convenient way to assign them, not necessarily the best wayfor example, companies tend to allocate rent costs based on something that is easy to measure, such as direct labor dollars for each product line. A better allo

7、cation method, however, might be the actual space resource demands of each product lineMost companies lack accurate cost data by product.Why Costs Are Often Not Allocated Correctly5CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Importance of cost allocationClient exampleDe

8、finitionsdirect vs. indirect, fixed vs. variablebreakeven volumeExercisescost allocationbreakeven volumeKey takeawaysAgenda6CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Riding mowersBicyclesWalking mowers$25.0MM$2.4MM$1.2MM$0$5$10$15$20$25$30Pretax Operating Profit (Mill

9、ions of Dollars)Middle America Manufacturing, a Bain client, believed that all three of its product lines were profitable.Return on sales:10.0%2.4%1.6%Sales:$250MM$100MM$75MMMiddle America Manufacturing - Estimated Profitability7CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounti

10、ng Walking mowersBicyclesRiding mowersWalking mowersBicyclesRiding mowersOriginal allocationRevised allocation$8.0MM$8.0MM$0$2$4$6$8$10Cost (Millions of Dollars)After a thorough evaluation, the Bain team found that $8.0MM in costs had been allocated incorrectly among the three products.Middle Americ

11、a Manufacturing - Cost Allocation8CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Generaladministative expensesSystems costsInventory carrying costsWalking mowersBicyclesRiding mowersAdditional unallocated costsAdditional costs reallocated$18.8MM$18.8MM$0$5$10$15$20Cost (Mi

12、llions of Dollars)The Bain team also determined that an additional $18.8MM in costs should be allocated to the three products.Middle America Manufacturing - Additional Costs9CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Riding mowersBicyclesWalking mowers$18.0MM($3.0MM)($

13、5.2MM)($10)($5)$0$5$10$15$20Product Line Profitability (Millions of Dollars)Bains analysis indicated that both bicycles and walking mowers were unprofitable. Middle America then began to investigate whether to exit or fix these two businesses.Return on sales:7.2%(3.0%)(6.9%)Sales:$250MM$100MM$75MMMi

14、ddle America Manufacturing - Actual Profitability10CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Importance of cost allocationClient exampleDefinitionsdirect vs. indirect, fixed vs. variablebreakeven volumeExercisescost allocationbreakeven volumeKey takeawaysAgenda11CU712

15、2397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Definitions:Costs that do not vary directly with changes in outputCosts that vary directly with changes in outputCosts incurred directly in the production or delivery of a firms product or service. These costs can easily be identif

16、ied with, or assigned to, a particular productCosts generally incurred by the firm outside of the production process. These costs cannot easily be identified with, or assigned to, a particular productAll costs can be broken down along two dimensions.FixedVariableDirectIndirectvs.vs.Examples:Equipmen

17、t depreciationRentAdvertisingRaw materialsProduction laborDelivery costsDirect laborDedicated equipmentRaw materialsSG&AOffice suppliesPlant managerRule of thumb:If a particular cost changes when production increases or decreases, the cost is variable.If a particular cost “goes away” when a prod

18、uct is dropped from the product line, the cost is direct.Types of Costs12CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting All costs are variable over a very long time horizon (i.e., for very large increases in volume)Costs to run and maintain a computer system that tracks pr

19、oduct orders are clearly fixed for a small change in volume, such as that associated with a slightly busy month. However, they are variable for a large change in volume, such as that associated with a new plant.Most costs are semi-variable (i.e., they tend to be added in lumps as volume increases)Su

20、pervisory labor tends to be considered fixed because it is unlikely that additional supervisors would have to be added to handle a small increase, say 10%, in volume. But the workforce can only increase so much before an additional supervisor is needed.In theory, production labor is variable. Howeve

21、r, in many client situations, restraints placed by unions and difficulty in hiring and firing people in response to short-term volume fluctuations make it, in practice, semi-variable.Defining the appropriate time horizon for the analysis is important.A meaningful analysis will isolate the fixed cost

22、 and variable components of a particular costFixed vs. Variable13CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting The following is an illustration of cost behavior for fixed, semi-variable, and variable costs:Cost (Dollars)Volume (Units)Variable costsSemi-variable costsFixed

23、 costsFixed vs. Variable - Illustration14CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting It is useful to know the following terms when doing cost analysis:Simplified income statement:- Variable Cost Gross Margin- Fixed Cost Operating MarginRevenue = Price per Unit x VolumeG

24、ross margin is also called “Gross Profit,” or “Contribution Margin”O(jiān)perating Margin is also called “Operating Profit” RevenueIncome Statement Terms15CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Breakeven volume is the volume at which the company covers its fixed costs. A

25、t breakeven volume, the operating profit is zero.VolumeContribution margin (i.e., revenue less variable costs)Fixed costsBreakeven volume$Operating LossFixed costsUnit contributionPrice per unit - Variable cost per unitBreakeven volume =Fixed costs=Operating Profit Contribution MarginBreakeven Volum

26、e16CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Operating Profit = Revenue - Costs =Revenue - Variable Costs - Fixed costs =(Price per unit x Volume) - (Variable cost per unit x Volume) - Fixed costs =Volume x (Price per unit - Variable cost per unit) - Fixed costs =Volu

27、me x Unit contribution - Fixed costsThe breakeven volume is the volume for which operating profit = 0 0 =Breakeven volume x Unit contribution - Fixed costsFixed costsUnit contributionPrice per unit - Variable cost per unitBreakeven volume =Fixed costs=Backup for Breakeven Formula17CU7122397ECAbcBOS

28、Copyright 1998 Bain & Company, Inc. Cost Accounting Importance of cost allocationClient exampleDefinitionsdirect vs. indirect, fixed vs. variablebreakeven volumeExercisescost allocationbreakeven volumeKey takeawaysAgenda18CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting

29、All products are made using the same equipment and machineryPlant supervisors oversee production of all three productsEquipment capacity exists to increase production by 50%Sales people sell all three productsSales people are paid a base salary, plus a commission which is a percentage of the selling

30、 priceMost advertising is product specificThe company uses a trucking company to deliver products to customers (costs are based on the length of trip and weight)Maple Leaf Company wants to allocate costs to the three products it makes and sells.Cost Allocation Exercise - Background19CU7122397ECAbcBO

31、S Copyright 1998 Bain & Company, Inc. Cost Accounting How would you characterize the following costs over a time horizon in which the company plans to increase sales volume by 10%?FixedVariableDirectIndirectCEOs salaryRaw materialsSupervisory laborProduction floor laborRentEquipment depreciation

32、Office suppliesFreight to customerElectricity to run machinesInterest expense to finance inventoryAdvertisingGoodwill amortizationSales commissionsSales peoples salariesSales travel and expensesCosts:Cost Allocation Exercise - Question20CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost

33、AccountingCost Allocation Exercise - Answer Most costs are fixed indirect or variable direct.FixedVariableDirectIndirectAdvertisingRaw materialsProduction floor laborFreight to customerInterest expense to finance inventorySales commissionsEquipment depreciationCEOs salarySupervisory laborRentOffice

34、suppliesGoodwill amortizationSales peoples salariesSales travel and expensesElectricity to run machines21CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Cost ComponentsFixed vs. VariableDirect vs. IndirectAdvertisingFixed, because advertising is usually not tied directly to

35、 volumeDirect, because, in this case, most of it is product specificEquipment depreciationFixed, because excess capacity exists for a 10% increase in volumeIndirect, because all products are made on the same machinesCEOs salaryFixed, assuming his/her salary does not change with 10% sales increaseInd

36、irect, because CEO oversees the whole companySupervisory laborFixed, because it is unlikely that additional supervisors will be needed to handle a 10% increase in volumeIndirect, because supervisors oversee production of all three productsIndirect, because all three products are produced at the same

37、 siteRentFixed, assuming current facility has excess capacityCost Allocation Exercise - Detailed Answer (1 of 3)22CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Cost ComponentsFixed vs. VariableDirect vs. IndirectOffice suppliesFixed, because it is unlikely that additional

38、 office supplies will be needed to handle 10% increase in volumeIndirect, because the office supplies are used to support all three productsGoodwill amortizationFixed, because goodwill is not directly related to volumeIndirect, assuming the goodwill is incurred to support the whole companySalespeopl

39、es salariesFixed, assuming that current sales force can handle 10% additional volumeIndirect, because each salesman sells all three productsSales travel and expensesFixed, assuming that 10% volume increase will not require significant increase in sales activitiesIndirect, because sales-force handles

40、 all three productsRaw materialVariable, because a 10% increase in volume would require 10% more raw materialsDirect, because raw materials are directly traceable to individual productsCost Allocation Exercise - Detailed Answer (2 of 3)23CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost

41、 Accounting Cost ComponentsFixed vs. VariableDirect vs. IndirectDirect, because even though the products are made on the same machine, the hours spent working on each of the products are directly traceableProduction floor laborVariable, because more production labor will be needed to handle the incr

42、ease in volumeFreight to customersVariable, because the freight cost clearly increases with the volume increaseDirect, because weight and distance can be directly traced to individual productsInterest expense to finance inventoryVariable, because more inventory means more inventory financing and hen

43、ce more interest expenseDirect, because inventory is product specificSales commissionsVariable, because sales commissions are paid based on a percentage of salesDirect, because commissions are based on individual product salesElectricity to run machinesVariable, because it clearly varies with volume

44、Indirect, because all products are made on the same machinesCost Allocation Exercise - Detailed Answer (3 of 3)24CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting LaborIn many client situations, restraints placed by unions and difficulty in hiring and firing people in respons

45、e to short term volume fluctuations make a portion of labor costs behave as fixed costsElectricity to run machinesIn theory this is direct, but in practice it is considered indirect because it is difficult to trace electricity cost to productsAlso, the 80/20 rule applies here. Electricity is usually

46、 a small cost item, and, for simplicity, could be allocated using machine hours spent on productionAdvertisingUsually, advertising is not tied to volume. For example, advertising to support a corporate brand is not tied to the volume of the products under that brand. If advertising is not tied to vo

47、lume, it is fixed and indirect. There are few caveats:Cost Allocation Exercise - Caveats25CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting A dean of a business school is considering starting an executive program. She estimates the revenues and costs as follows:Question: How

48、many students does the program need to break even?Costs:Revenue:AdvertisingClassroom rental (Each classroom can accommodate 15 students)Program administrationProgram directors salaryFaculty salaries(The program will be staffed with 1 faculty member for every 5 students)Guest lecturerRoom and board p

49、er studentText and supplies per studentTuition per student$3,000$13,500$500$30,000 per classroom$15,000$20,000$20,000 per faculty member$12,000$3,200Breakeven Exercise - Background26CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Step 1: Categorize costsAdvertisingClassroom

50、 rentalProgram administrationProgram directors salaryFaculty salariesGuest lecturesRoom and board per studentText and supplies per studentFixedVariableStep 2: Calculate fixed costsFixed costs:$3,000Advertising$15,000Program administration$20,000Program directors salary$12,000Guest lectures$50,000Sem

51、i-VariableFirst, you must categorize costs and calculate fixed costs.Breakeven Exercise - Answer (1 of 3)27CU7122397ECAbcBOS Copyright 1998 Bain & Company, Inc. Cost Accounting Step 4: Calculate unit contributionUnit contribution = Price per unit - Variable cost per unit= $13,500tuition - 3,200r

52、oom and board- 500text and supplies $9,800Step 3: Calculate semi-variable costsClassroomFaculty10 students$30,000$40,00015 students$30,000$60,00020 students$60,000$80,000Then you must calculate semi-variable costs and the unit contribution.Breakeven Exercise - Answer (2 of 3)28CU7122397ECAbcBOS Copyright