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AKUNTANSI MANAJEMEN LANJUTAN DESENTRALISASI PENGENDALIAN OPERASIONAL DESENTRALISASI om.

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1 AKUNTANSI MANAJEMEN LANJUTAN DESENTRALISASI PENGENDALIAN OPERASIONAL DESENTRALISASI om

2 PERTEMUAN I, 30 September 2013 REVIEW KONSEP AKUNTANSI MANAJEMEN AKUNTANSI PERTANGGUNGJAWABAN DESENTRALISASI DAN HARGA TRANSFER

3 REVIEW KONSEP AKUNTANSI MANAJEMEN

4 Definition of Management Accounting: IMA Management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organizations strategy.

5 Managerial Accounting as a Career Professional Organizations Institute of Management Accountants (IMA) Publishes Management Accounting and research studies.Publishes Management Accounting and research studies.Administers Certified Management AccountantprogramAdministers Certified Management AccountantprogramDevelops Standards of Ethical Conduct for Management AccountantsDevelops Standards of Ethical Conduct for Management Accountants

6 Professional Ethics Ethical business practices build trust and promote loyal, productive relationships with customers, employees and suppliers. Many companies have written codes of ethics which serve as guides for employees to follow. Ethical business practices build trust and promote loyal, productive relationships with customers, employees and suppliers. Many companies have written codes of ethics which serve as guides for employees to follow.

7 Professional Ethics 4Competence 4Confidentiality 4Integrity 4Objectivity 4Resolution of Ethical Conflict

8 Professional Ethics Follow applicable laws, regulations and standards. Prepare complete and clear reports after appropriate analysis. Maintain professional competence. Competence

9 Professional Ethics Do not disclose confidential information unless legally obligated to do so. Ensure that subordinates do not disclose confidential information. Do not use confidential information for personal advantage. Confidentiality

10 Professional Ethics Avoid conflicts of interest and advise others of potential conflicts. Recognize and communicate personal and professional limitations. Do not subvert organizations legitimate objectives. Integrity

11 Professional Ethics Integrity Avoid activities that could affect your ability to perform duties. Refrain from activities that could discredit the profession. Communicate unfavorable as well as favorable information. Refuse gifts or favors that might influence behavior.

12 Professional Ethics ObjectivityObjectivity Communicate information fairly and objectively. Disclose all information that might be useful to management.

13 Resolution of Ethical Conflict ÊFollow established policies of your organization. ËIf unresolved or if policy does not exist: 4Clarify relevant concepts in a confidential discussion with an objective advisor to explore possible courses of action. 4Discuss problem with immediate supervisor. Resolution of Ethical Conflict ÊFollow established policies of your organization. ËIf unresolved or if policy does not exist: 4Clarify relevant concepts in a confidential discussion with an objective advisor to explore possible courses of action. 4Discuss problem with immediate supervisor. Professional Ethics

14 Resolution of Ethical Conflict Ì If immediate supervisor is involved in the unethical behavior, discuss at the next level. Í If problem is not resolved, the last resort is to resign. Î Generally, do not communicate ethical conflicts to outsiders. Resolution of Ethical Conflict Ì If immediate supervisor is involved in the unethical behavior, discuss at the next level. Í If problem is not resolved, the last resort is to resign. Î Generally, do not communicate ethical conflicts to outsiders. Professional Ethics

15 Major Themes in Managerial Accounting ManagerialAccounting Information and Incentives Information and Incentives Behavioral Issues Behavioral Issues Costs and Benefits Costs and Benefits

16 Evolution and Adaptation in Managerial Accounting Service Vs. Manufacturing Firms Emergence of New Industries Global Competition Focus on the Customer Cross-Functional Teams Computer-IntegratedManufacturing Product Life Cycles Time-Based Competition Information and CommunicationTechnology Just-in-Time Inventory Total Quality Management Continuous Improvement Change

17 Managerial Accounting in Modern Production Environments Key developments that reshaped Managerial Accounting include: – Integrated information systems – Web hosting – Just-in-time and lean production – Total Quality Management – Theory of constraints – Benchmarking and continuous improvement

18 The Goal of Good Management is to Create Value Cost Management is applying the value criteria to every decision we make, every activity we perform, and every process we complete. Modern accounting systems do not just evaluate good stewardship but must provide managers with the information managers need to improve value. Management accounting systems are used to enhance both decision making and management control. Management accounting systems do not need to be perfect, only good enough to increase value.

19 New Management Trends to Create Value Encourage Management Accounting Systems Redesign, for example. – Customer focus – Quality focus – Delivery focus – Outsourcing and the virtual company – Communications – Shortening product life cycles – Team development – Deregulation in the service sector

20 Perubahan Lingkungan Bisnis Beberapa praktek manajemen: JIT (Just In Time) Manajemen Mutu Total (TQM) Rekayasa Ulang Teori Kendala (Theory of Constrain/TOC) Menentukan hal apa saja yang tidak perlu dilakukan, bagaimana perusahaan harus dikelola dan bagaimana pekerjaan dilakukan

21 JIT (Just In Time) Sistem Pengendalian Persediaan dan Produksi JIT: >> Membeli BB dan memproduksi unit output sesuai dengan permintaan aktual dari pelanggan >> Persediaan dikurangi sampai pada tingkat minimum (bahkan sampai titik nol) Dampak JIT (perush. Manufaktur): >> Efisiensi dan mengurangi biaya (penyimpanan dan pemesanan) serta meningkatkan efisiensi dan efektifitas operasi. Bahan bahan baku yang diterima segera masuk ke proses produksi, bahan produksi lainnya segera digabungkan dan dikerjakan, dan produk yang telah jadi segera dikirimkan kepada pelanggan.

22 TQM (Total Quality Management) Perbaikan terus menerus yang memiliki karakteristik : >> Fokus pada pelayanan pelanggan >> Pemecahan masalah secara sistematis dengan menggunakan tim yang ada di garda depan yang dibekali dengan salah satu alat manajemen >> Penentuan tolok ukur (benchmarking) yang dilakukan dengan mempelajari organisasi terbaik yang ada untuk menjelaskan tugas tugas tertentu.

23 LO 8 Identify trends in management accounting. Increased emphasis on product quality because goods are produced only as needed Total Quality Management (TQM) - a philosophy of zero defects - Gambaran utama TQM adalah meningkatkan produktivitas dengan mendorong penggunaan pengetahuan dalam mengambil keputusan dan menekan perilaku defensif yang tidak produktif.

24 Rekayasa Ulang Proses (Process Reengineering-PR) >> Merupakan pendekatan yang lebih radikal dibandingkan TQM >> Sebagai ganti perbaikan sistem yang dirancang serial dan bertahap. >> Dalam PR suatu proses bisnis diplot dalam sebuah diagram secara detail, dikritik dan kemudian dirancang ulang untuk menghilangkan langkah-langkah yang tidak diperlukan, mengurangi kemungkinan terjadinya kesalahan dan mengurangi biaya. Proses bisnis adalah serangkaian tahapan yang harus dilakukan untuk menjalankan tugas-tugas dalam dalam suatu bisnis. Meliputi desain ulang secara menyeluruh proses bisnis dalam rangka menghilangkan aktivitas yang tidak bernilai tambah dan mengurangi kemungkinan terjadinya kesalahan. Rekayasa ulang mengandalkan pada spesialis dari luar perusahaan.

25 Teori Kendala (Theory of Contrains/ToC) Teori kendala didasarkan pada pandangan bahwa manajemen kendala secara efektif merupakan kunci keberhasilan Menekankan pada pentingnya mengelola kendala yang dihadapai oleh organisasi. Karena kendala adalah sesuatu yang menghalangi organisasi, proses perbaikan akan efektif kalau difokuskan pada kendala yang dihadapi

26 LO 8 Identify trends in management accounting. Activity-Based-Costing (ABC) Allocates overhead based on use of activities Results in more accurate product costing and scrutiny of all activities in the value chain Balanced Scorecard Evaluates operations in an integrated fashion Uses both financial and non-financial measures Links performance measures to overall company objectives

27 Which of the following managerial accounting techniques attempts to allocate manufacturing overhead in a more meaningful manner? a.Just-in-time inventory. b.Total-quality management. c.Balanced scorecard. d.Activity-based costing. Review Question LO 8 Identify trends in management accounting.

28 The Strategic Approach to Teaching Management Accounting Topics An Introduction

29 Strategic Cost Management: Basic Concepts Strategic decision making is choosing among alternative strategies with the goal of selecting a strategy, or strategies, that provides a company with reasonable assurance of long-term growth and survival The key to achieving this goal is to gain a competitive advantage. Strategic cost management is the use of cost data to develop and identify superior strategies that will produce a sustainable competitive advantage.

30 A Model of the Decision-Making Process

31 Competitive Advantage Competitive advantage is the process of creating better customer value for the same or lower cost than that of competitors or creating equivalent value for lower cost than that of competitors. Customer value is the difference between what a customer receives (customer realization) and what the customer gives up (customer sacrifice). The total product is the complete range of tangible and intangible benefits that a customer receives from a purchased product.

32 Michael Porter: Strategic Positioning Cost Leadershipoutperform competitors by producing at the lowest cost, consistent with quality demanded by the consumer Differentiationcreating value for the customer through product innovation, product features, customer service, etc. that the customer is willing to pay for

33 Aspects of the Two Competitive Strategies

34 Strategic Positioning There are three general strategies that have been identified: – cost leadership – product differentiation – focusing

35 Strategic Positioning A cost leadership strategy happens when the same or better value is provided to customers at a lower cost than a companys competitors. Example: A company might redesign a product so that fewer parts are needed, lowering production costs and the costs of maintaining the product after purchase.

36 Strategic Positioning (continued) A product differentiation strategy strives to increase customer value by increasing what the customer receives (customer realization). Example: a retailer of computers might offer on-site repair service, a feature not offered by other rivals in the local market.

37 Strategic Positioning (continued) A focusing strategy happens when a firm selects or emphasizes a market or customer segment in which to compete. Example: Paging Network, Inc., a paging services provider, has targeted particular kinds of customers and is in the process of weeding out the nontargeted customers.

38 Consequences of Lack of Strategic Cost- Management Information Decision-making based on guess and intuition Lack of clarity about direction and goals Over time, lack of a clear and favorable perception of the firm by customers and suppliers Incorrect decisions: choosing products, markets, or manufacturing processes that are inconsistent with the organizations strategy For control purposes, cannot link performance effectively to strategic goals …

39 Tools for Integrating Strategy into Management Accounting -- The Value Chain -- Strategy Maps & the Balanced Scorecard (BSC)

40 Introducing Strategy Strategy Map Balanced Scorecard (BSC) Opportunities Threats Strengths Weaknesses

41 LO 8 Identify trends in management accounting. Value Chain Refers to all activities associated with providing a product or service For a manufacturing firm these include the following:

42 Industrial Value Chain The industrial value chain is the linked set of value-creating activities from basic raw materials to the disposal of the finished product by end-use customers. Fundamental to a value-chain framework is the recognition that there exist complex linkages and interrelationships among activities both within and external to the firm.

43 oUpstream Activities oManufacturing/Operations oDownstream Activities Value Chain Analysis: A Detailed Look at Strategy… The Value Chain is a linked set of value-adding activities used by an organization to deliver its value proposition to its customers. It consists of:

44 Value-Chain Analysis Identify value-chain activities Develop competitive advantage by: Identifying opportunities for adding value for the customer Identifying opportunities for eliminating non- value added activities and reducing cost Understand linkages among suppliers, the entity, and customers

45 Internal and External Linkages There are two types of linkages that must be analyzed and understood: internal and external linkages. Internal linkages are relationships among activities that are performed within a firms portion of the value chain. External linkages describe the relationship of a firms value-chain activities that are performed with its suppliers and customers. There are two types: supplier linkages and customer linkages.

46 Strategy Maps & the Balanced Scorecard (BSC) The BSC and Strategy Map are used to align the organizations activities with achieving strategic goals, using the four perspectives: Financial Customer Internal Processes Learning and Growth

47 Exceed shareholder expectations Improve profit margins Increase sales volume Diversify income stream Increase sales to existing customers Diversify customer base Attract new customers Target profitable market segments Develop new products Optimize internal processes Attract new customers Develop employee skills Integrate systems vision & mission Learning & Growth Internal Process Customer Financial

48 Strategy Map Balanced Scorecard (BSC) The Balanced Scorecard (BSC): Feedback to Strategy

49 Activity-Based Costing (ABC), RCA, and TDABC

50 Evolution of Cost Accounting Systems Traditional Costing Resources Cost Objects Allocated to ABC (simple & minimal) Resources Activities Consumed by Cost Objects Consumed by ABC (multidimensional) Resources Activities Consumed by outputs Consumed by channels Users Cost Objects

51 ABC/M Framework Root Causes of Costs Work Activities Performance Measures Cost Reduction Process reengineering Cost of quality Continuous improvement Waste elimination Benchmarking What Things Cost Resource Costs Cost Objects Resource Drivers Activity Drivers Better Decision Making Why Things Cost Design for manufacturing Make versus Buy Activity Cost Assignment

52 Organizational Activities and Cost Drivers Organizational activities are of two types: structural and executional. Structural activities are activities that determine the underlying economic structure of the organization. Executional activities are activities that define the processes and capabilities of an organization and thus are directly related to the ability of an organization to execute successfully.

53 Organizational Activities and Drivers Structural ActivitiesStructural Cost Drivers Building plantsNumber of plants, scale, degree of centralization Management structuringManagement style and philosophy Grouping employeesNumber and type of work units ComplexityNumber of product lines, number of unique processes, number of unique parts Vertically integratingScope, buying power, selling power Selecting and using processTypes of process technologies, technologies experience

54 Organizational Activities and Drivers Executional ActivitiesExecutional Cost Drivers Using employeesDegree of involvement Providing qualityQuality management approach Providing plant layoutPlant layout efficiency Designing and producing productsProduct configuration Providing capacityCapacity utilization

55 Operational Activities Operational activities are day-to-day activities performed as a result of the structure and processes selected by the organization. Examples:Receiving and inspecting incoming parts, moving materials, shipping products, testing new products, servicing products, and setting up equipment.

56 Organizational and Operational Activity Relationships Organizational Activity (Selecting and using process technologies) Structural Cost Driver (JIT: Type of process technology Operational Driver (Number of moves) Operational Activity (Moving material)

57 Internal Value Chain Design Service Market Produce Develop Distribute

58 Exploiting Internal Linkages An Example: Assume that design engineers have been told that the number of parts is a significant cost driver and that reducing the number of parts will reduce the demand for various activities downstream in the value chain. They plan to reduce the price by per-unit savings. Currently 10,000 units are produced. The data of the new design and its effects on demand are given below: CurrentExpected ActivityCost DriverCapacityDemandDemand Material usage# of parts200,000200,00080,000 Labor usageLabor hours10,00010,0005,000 Purchasing# of orders15,00012,5006,500 Warranty repair# of defects1,

59 Exploiting Internal Linkages (continued) Potential Savings : Material usage (200, ,000)$3$360,000 Labor usage (10, )$1260,000 Purchasing [$30,000 + $.50(12, ,500)]33,000 Warranty repair [($28,000 + $20( )] 34,000 Total$487,000 ====== Units10,000 Unit savings$48.70

60 Activity-Based Customer Costing An Example: Suppose that the Thompson Company produces precision parts for 11 major buyers. An activity-based costing system is used to assign manufacturing costs to products. The company prices each customer's order by adding order-filling costs to manufacturing costs and then adding a 20% markup (to cover any administrative costs plus profits). Order-filling costs total $606,000 and are currently assigned in proportion to sales volume (measured by number of parts sold). Of the 11 customers, one accounts for 50% of sales, with the remaining ten accounting for the remainder of sales. Orders placed by the smaller companies are also about the same size. Data concerning Thompsons customer activity are given on PPT 13-22:

61 Exploiting External Linkages (continued) LargeTen Smaller CustomerCustomers Units purchased 500, ,000 Orders placed 2200 Manufacturing cost$3,000,000 $3,000,000 *Order-filling cost allocated 303, ,000 Order cost per unit$0.606$0.606 * Order-filling capacity is purchased in blocks of 45 (225 capacity), each block costing $40,400; variable order-filling activity costs are $2,000 per order; thus, the cost is [(5 x $40,400) + ($2,000 x 202)]

62 Exploiting External Linkage (continued) Large Customer Ten Smaller Customers Units purchased500,000500,000 Orders placed2 200 Manufacturing costs $3,000,000$3,000,000 *Orders-filling costs 6,000600,000 Order cost per unit $.012 $1.20 *Order-filling capacity is allocated using number of orders. The allocation rate is $3,000 pre order ($606,000/202 orders). Assume that ordering costs are allocated using a new driver: Implications: By using a new driver, we are drastically reducing the ordering- cost per unit of the high volume customer (50% of our business). This information could assist Thompson in establishing a new strategy for pricing.

63 Product Life Cycle Viewpoints There are three basic views of the product life cycle: – Marketing viewpoint – Production viewpoint – Consumable life viewpoint

64 Marketing Viewpoint Units of sales Introduction Growth Maturity Decline

65 Life Cycle Cost Management Research Planning Design Testing Production Logistics Cost Commitment Curve Life Cycle Cost % 90 percent of life-cycle costs are committed at this point

66 A Life Cycle Costing Example Suppose that engineers are considering two new product designs for one of its power tools. Both designs reduce direct materials and direct labor content over the current model. The anticipated effects of the two designs on manufacturing, logistical, and postpurchase activities costs are listed below: Cost Behavior Functional-based system: Variable conversion activity rate: $40 per direct labor hour Material usage rate: $8 per part ABC system: Labor usage $10 per direct labor hour Material usage: $8 per part Machining: $28 per machine hour Purchasing activity: $60 per purchase order Setup activity: $1,00 per setup hour Warranty activity: $200 per returned unit Customer repair cost: $10 per hour

67 Life Cycle Costing (continued) Traditional Costing (Overhead allocated by direct labor hours) Design ADesign B Direct materials$ 800,000$ 480,000 Conversion cost b 2,000,000 3,200,000 Total manufacturing cost$2,800,000$ 3,680,000 Units produced 10,000 10,000 Unit cost $ 280$ 368 ================ a $8 x 100,000 parts; $8 x 60,000 parts b $40 x 50,000 direct labor hours; $40 x 80,000 direct labor hours

68 Life Cycle Costing (continued) ABC Costing (Overhead allocated by direct labor hours) Design ADesign BClassification Direct materials $ 800,000 $ 480,000Manufacturing Direct labor a 500,000800,000Manufacturing Machining b 700, ,000Manufacturing Purchasing c 18,00012,000Upstream Setups d 200,000100,000Manufacturing Warranty e 80,000 15,000Downstream Total product costs$2,298,000$1,967,000 Units productd 10,000 10,000 Unit cost$ 230$ 197 Postpurchase costs$ 80,000$ 15,000 ================ a $5 x 50,000 hours ; $5 x 40,000 hours d $1,000 x 200 setups; $1,000 x 100 setups b $10 x 25,000 parts; $10 x 20,000 parts e $200 x 400 defects; $200x 1,000 defects c$ 60 x 300 design hours; $60 x 2000 design hours

69 Target Costing - Example Assume that a company is considering the production of a new trencher. Current product specifications and the targeted market share call for a sales price of $250,000. The required profit is $50,000 per unit. The target cost is computed as follows: Target cost=$250,000 - $50,000 = $200,000

70 Target-Costing Model MARKET SHARE OBJECTIVE PRODUCE PRODUCT No Yes TARGET COST MET? PRODUCT AND PROCESS DESIGN TARGET COST TARGET PROFIT TARGET PRICE PRODUCT FUNCTIONALITY

71 Resource Consumption Accounting (RCA) Resource consumption accounting (RCA) is an adaption of ABC that emphasizes resource consumption by greatly increasing the number of resource cost pools, which allows more direct tracing of resource costs to cost objects than an ABC system with fewer cost centers. RCA is particularly appropriate for large organizations with repetitive operations and high-level information systems such as those provided by SAP, Oracle, and SAS.

72 Time-Driven ABC (TDABC) When a substantial amount of the cost of a companys activities are in a highly repetitive process (much like in the RCA example above), the cost assignment can be based on the average time required for each activity. Time-Driven Activity-Based Costing assigns resource costs directly to cost objects using the cost per time unit of supplying the resource, rather than first assigning costs to activities and then from activities to cost objects.

73 TDABC Example TDABC computes the cost per minute of the resources performing the work activity. Assume 2 clerical workers paid $45,000 annually perform a certain activity that is expected to require 17 minutes. TDABC calculates the total cost as $45,000 x 2 = $90,000; TDABC then calculates the total time available for the activity as 180,000 minutes (assuming 30 hours per week with two weeks vacation: 2 workers x 50 weeks x 30 hours x 60 minutes per hour = 180,000 minutes per year). The TDAC rate for the activity is $0.50 per minute ($90,000 / 180,000).The cost of a unit of activity is $0.50 x 17 min = $8.50; if the activity required 20 min, then the allocation would be $.50 x 20 = $10.

74 Customer Profitability Analysis

75 Customer Relationship Management (CRM): Customer Lifetime Value (CLV) Customer Equity Customer Profitability Analysis

76 Customer Profitability Analysis: The Whale Curve

77 uLess profitable customers t Small order quantities t Special products ordered t Heavy discounting t Unpredictable demands t Delivery times change t High technical support t Slow payment (imputed interest) Profitable and unprofitable customers are distinguished by the demands they place on the organization Profitable and unprofitable customers are distinguished by the demands they place on the organization uMore profitable customers t Large order sizes t Standard products ordered t Little discounting t Predictable demands t Delivery times standard t Low technical support t On-time payment (imputed interest) These demands can be estimated by activity costs and activity cost drivers What Makes for a Profitable Customer?

78 Types of Customers 78 High(Creamy) Low (Low Fat) Low High Cost-to-Serve Product Mix Margin Very Profitable Veryunprofitable Profitable Unprofitable Migrating Customers to Higher Profitability – A Strategic Analysis

79 Customer Relationship Management (CRM) Requires Strategic Cost Management Data Who is more important to pursue with the scarce resources of our marketing budget? Our most profitable customers? Our most valuable customers? What is the difference? The customer lifetime value (CLV) measure is intended to answer this question.

80 You are a pharmaceutical supplier: which customer is more important? Dentist A Sales = $750,000 profits = $100,000 Age 61 Dentist B Sales = $375,000 profits = $40,000 Age 25 Which is more profitable ? Which is more valuable ?

81 What is it? The projected economic value of customer relationships during the whole period of the relationship between the customer and company. The Measure The net present value (NPV) of all future profits from that customer; it is a projection, from when the customer is acquired or from the current date. Customer Lifetime Value (CLV)

82 What is it? The economic value of ALL customer relationships. The Measure The sum of the CLVs for all customers. How Used Provides a measure of the value of the company from the perspective of customer profitability. Customer Equity

83 The Management & Control of Quality (including Six-Sigma and Lean)

84 Relationship between TQM & Financial Performance

85 A Strategic Model for Managing Quality

86 Lean Manufacturing At the heart of lean manufacturing is the Toyota Production System (TPS): a long-term focus on relationships with suppliers and coordination with these suppliers; an emphasis on balanced, continuous flow manufacturing with stable production levels; continuous improvement in product design and manufacturing processes with the objective of eliminating waste ; and flexible manufacturing systems in which different vehicles are produced on the same assembly line and employees are trained for a variety of tasks

87 Accounting for Lean There are three reasons why the improvements in financial results typically appear later than the operating improvements from implementing lean. Customers will benefit from the improved manufacturing flexibility by ordering in smaller, more diverse quantities. Improvements in productivity will create excess capacity; as equipment and facilities are used more efficiently, some will become idle. The decrease in inventory that results from lean means that, using full cost accounting, the fixed costs incurred in prior periods flow through the income statement when inventory is decreasing.

88 Accounting for Lean Lean accounting uses value streams to measure the financial benefits of a firms progress in implementing lean manufacturing. Each value stream is a group of related products or services. Accounting for value streams significantly reduces the need for cost allocations (since the products are aggregated into value streams) which can help the firm to better understand the profitability of its process improvements and product groups.

89 Lean Accounting – Value Streams

90 Operational and Management- level Performance Measurement

91 Performance Measurement Motivation and Evaluation – Incentives: right decisions Align performance measurement with strategy – Incentives: working hard Compensation and bonus plans – Equity/fairness Controllability Cost allocations Operational-level and Management-level

92 Operational Performance Measurement with a Flexible Budget 2010

93 Management Performance Measurement Cost Centers Engineered Cost (cost driver: volume based) Flexible Budget Discretionary Cost (cost driver?) Master Budget Profit Center – one step from outsourcing…

94 Management Performance Measurement Profit Centers: Variable costing income statements Issue of transfer pricing Role and importance of nonfinancial performance indicators Investment Centers: ROI vs. RI vs. EVA® Measurement issues Issue of transfer pricing Role and importance of non-financial performance indicators

95 Management –Level Performance Measurement: When to Use Profit or Cost Center Customer Plant Warehouse

96 Using Software in the Strategic Cost Management

97 1.Excel: Goal Seek Solver 2.ABC: OROS (SAS), SAP, … Excel 3.Simulation: Crystal Excel(Formulas/Functions)

98 ABC Software: OROS Quick (from SAS) Comprehensive: resources through objects Allow a couple of classes Short Tutorial, 13 pages, couple of hours Blue Ridge Manufacturing Case

99

100 Managing Constraints

101

102 Comparison of JIT Approaches with Traditional Manufacturing and Purchasing JIT Traditional 1.Pull-through system1.Push-through system 2.Insignificant inventories2.Significant inventories 3.Small supplier base3.Large supplier base 4.Long-term supplier contracts4.Short-term supplier contracts 5.Cellular structure5.Departmental structure 6.Multiskilled labor6.Specialized labor 7.Decentralized services7.Centralized services 8.High employee involvement8.Low employee involvement 9.Facilitating management style9.Supervisory management style 10.Total quality control10.Acceptable quality level 11.Buyers market11.Sellers market 12.Value-chain focus12.Value-added focus

103 AKUNTANSI PERTANGGUNGJAWABAN

104 Learning Objectives Define responsibility accounting and describe the four types of responsibility centers

105 Responsibility Accounting Responsibility accounting is a system that measures the results of each responsibility center and compares those results with some measure of expected or budgeted outcome. – There are four major types of responsibility centers: vCost center vRevenue center vProfit center vInvestment center

106 Responsibility Accounting Responsibility Center Responsibility Center Cost Center Cost Center Profit Center Profit Center Investment Center Investment Center Cost, profit, and investment centers are all known as responsibility centers

107 Cost Center A segment whose manager has control over costs, but not over revenues or investment funds

108 Profit Center both A segment whose manager has control over both costs and revenues, but no control over investment funds. Revenues Sales Interest Other Costs Mfg. costs Commissions Salaries Other

109 Investment Center A segment whose manager has control over costs, revenues, and investments in operating assets. Corporate Headquarters

110 Responsibility Centers Cost Centers Investment Centers Superior Foods Corporation provides an example of the various kinds of responsibility centers that exist in an organization

111 Responsibility Centers Superior Foods Corporation provides an example of the various kinds of responsibility centers that exist in an organization. Profit Centers

112 Responsibility Centers Cost Centers Superior Foods Corporation provides an example of the various kinds of responsibility centers that exist in an organization

113 Management Hubs lProfit Centers. vSubunit that has responsibility for generating revenue as well as for controlling costs. lCost Centers. vSubunit that has responsibility for controlling costs but does not sell product. i.e. service departments.

114 Profit Center lOrganize business into subunits, profit center & cost centers. lTrack variable costs to profit centers. vControl escalators lAllocate asset use to subunits. lEvaluate on contribution margin and amount of capital invested.

115 Word List lCost Behavior lVariable Costs. vVariable Costs per unit are constant. lFixed Costs. vFixed costs per unit vary with production level. lMixed Costs. vSemi-variable costs change in total with changes in production level, but not proportionately.

116 Terms to Recognize lCost volume profit analysis vProfit = Sales (S) – Variable Costs (VC) – Fixed Costs (FC) lContribution Margin vSales -- Variable Costs vContribution Margin Ratio (Sales – Variable Costs)÷ Sales

117 Cost-Volume-Profit Diagnostics

118 Breakevent Point lSales (in dollars) = Fixed Costs / Contribution margin ratio lSales (units) = Fixed Costs / Contribution margin per unit

119 Cost or Revenue ($) Quantity Produced Break-Even Diagram

120 Cost or Revenue ($) Fixed Cost Total Cost Total Revenue Break Even Quantity Quantity Produced Fixed Cost Variable Costs Profit / Loss Corridor Break-Even Diagram Break Even Quantity

121 Cost or Revenue ($) Total Cost Total Revenue Break Even Quantity Quantity Produced Fixed Cost Variable Costs Profit / Loss Corridor Break-Even Diagram Increased Fixed Costs Total Cost Break Even Quantity

122 Vocabulary lDifferential costs and revenue vThe additional cost or revenue incurred when one alternative is chosen over another. lSunk cost. vCosts that are already incurred & not reversible. l Opportunity Costs. vThe benefit given up by selecting one alternative over another. i.e. Interest on stored grain.

123 Responsibility Accounting Model The responsibility accounting model is defined by four essential elements: vassigning responsibility vestablishing performance measures or benchmarks vevaluating performance vassigning rewards

124 Types of Responsibility Accounting Management accounting offers the following three types of responsibility accounting systems. vFunctional-based vActivity-based vStrategic-based

125 Functional-Based Responsibility Accounting System A functional-based responsibility accounting system assigns responsibility to organizational units and expresses performance measures in financial terms. – It is the responsibility accounting system that was developed when most firms were operating in relatively stable environments.

126 Responsibility is Defined Organizational Unit Financial Outcomes Individual in Charge Operating Efficiency Performance Measures are Established Standard Costing Currently Attainable Standards Unit Budgets Static Standards Elements of a Functional-Based Responsibility Accounting System

127 Performance is Measured Controllable Costs Financial Measures Financial Efficiency Actual versus Standard Individuals are Rewarded Based on Financial Performance Bonuses Salary Increases Promotions Profit Sharing Elements of a Functional-Based Responsibility Accounting System

128 Activity-Based Responsibility Accounting System An activity-based responsibility accounting system assigns responsibility to processes and uses both financial and nonfinancial measures of performance. – It is the responsibility accounting system developed for those firms operating in continuous improvement environments.

129 Responsibility is Defined Process Financial Team Value Chain Performance Measures are Established Dynamic Value- Added Optimal Process- Oriented Elements of an Activity-Based Responsibility Accounting System

130 Performance is Measured Quality Improvement Trend Measures Time Reductions Cost Reductions Individuals are Rewarded Based on Multidimensional Performance Bonuses Salary Increases Promotions Gain- sharing Elements of an Activity-Based Responsibility Accounting System

131 Strategic-Based Responsibility Accounting System A strategic-based responsibility accounting system (Balanced Scorecard) translates the mission and strategy of an organization into operational objectives and measures for four different perspectives: vThe financial perspective vThe customer perspective vThe process perspective vThe infrastructure (learning and growth) perspective

132 Strategy Strategy specifies how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives A thorough understanding of the industry is critical to implementing a successful strategy

133 Responsibility is Defined Customer Infrastructure Financial Process Performance Measures are Established Balanced Measures Link to Strategy Communicate Strategy Alignment of Objectives Elements of a Strategic-Based Responsibility Accounting System

134 Performance is Measured Customer Measures Infrastructure Measures Financial Measures Process Measures Individuals are Rewarded Based on Multidimensional Performance Bonuses Salary Increases Promotions Gain- sharing Elements of a Strategic-Based Responsibility Accounting System

135 DESENTRALISASI DAN HARGA TRANSFER

136 Learning Objectives lExplain why firms choose to decentralize lExplain the role of transfer pricing in a decentralized firm. lDiscuss the methods of setting transfer prices.

137 Decentralization: The Major Issues lThe degree of decentralization lPerformance measurement lManagement compensation lThe setting of transfer prices

138 Reasons for Decentralization There are many reasons to explain why firms decide to decentralize, including: – 1.better access to local information – 2.cognitive limitations – 3.more timely response – 4.focusing of central management – 5.training and evaluation – 6.motivation – 7.enhanced competition

139 Decentralization in Organizations Advantages of Decentralization Advantages of Decentralization Top management freed to concentrate on strategy. Top management freed to concentrate on strategy. Lower-level managers gain experience in decision-making. Lower-level managers gain experience in decision-making. Decision-making authority leads to job satisfaction. Decision-making authority leads to job satisfaction. Lower-level decisions often based on better information. Lower-level decisions often based on better information. Lower level managers can respond quickly to customers

140 Decentralization in Organizations Disadvantages of Decentralization Disadvantages of Decentralization Lower-level managers may make decisions without seeing the big picture. Lower-level managers may make decisions without seeing the big picture. May be a lack of coordination among autonomous managers. May be a lack of coordination among autonomous managers. Lower-level managers objectives may not be those of the organization. Lower-level managers objectives may not be those of the organization. May be difficult to spread innovative ideas in the organization. May be difficult to spread innovative ideas in the organization

141 Decentralization and Segment Reporting segment A segment is any part or activity of an organization about which a manager seeks cost, revenue, or profit data. Quick Mart An Individual Store A Sales Territory A Service Center

142 Superior Foods: Segmented by Geographic Regions Superior Foods Corporation could segment its business by geographic region

143 Superior Foods: Segmented by Customer Channel Superior Foods Corporation could segment its business by customer channel

144 Keys to Segmented Income Statements There are two keys to building segmented income statements: A contribution format should be used because it separates fixed from variable costs and it enables the calculation of a contribution margin. Traceable fixed costs should be separated from common fixed costs to enable the calculation of a segment margin

145 Identifying Traceable Fixed Costs Traceable costs arise because of the existence of a particular segment and would disappear over time if the segment itself disappeared. No computer division means... No computer division manager

146 Identifying Common Fixed Costs Common costs arise because of the overall operation of the company and would not disappear if any particular segment were eliminated. No computer division but... We still have a CEO

147 Traceable Costs Can Become Common Costs It is important to realize that the traceable fixed costs of one segment may be a common fixed cost of another segment. For example, the landing fee paid to land an airplane at an airport is traceable to the particular flight, but it is not traceable to first-class, business-class, and economy-class passengers

148 Segment Margin The segment margin, which is computed by subtracting the traceable fixed costs of a segment from its contribution margin, is the best gauge of the long-run profitability of a segment. Time Segment Margin

149 Traceable and Common Costs Fixed Costs TraceableCommon Dont allocate common costs to segments

150 Activity-Based Costing Activity-based costing can help identify how costs shared by more than one segment are traceable to individual segments. Assume that three products, 9-inch, 12-inch, and 18-inch pipe, share 10,000 square feet of warehousing space, which is leased at a price of $4 per square foot. If the 9-inch, 12-inch, and 18-inch pipes occupy 1,000, 4,000, and 5,000 square feet, respectively, then ABC can be used to trace the warehousing costs to the three products as shown

151 Levels of Segmented Statements Lets look more closely at the Television Divisions income statement. Webber, Inc. has two divisions. Webber, Inc. Computer Division Television Division

152 Levels of Segmented Statements Our approach to segment reporting uses the contribution format. Cost of goods sold consists of variable manufacturing costs. Cost of goods sold consists of variable manufacturing costs. Fixed and variable costs are listed in separate sections. Fixed and variable costs are listed in separate sections

153 Levels of Segmented Statements Segment margin is Televisions contribution to profits. Segment margin is Televisions contribution to profits. Contribution margin is computed by taking sales minus variable costs. Contribution margin is computed by taking sales minus variable costs. Our approach to segment reporting uses the contribution format

154 Levels of Segmented Statements

155 Levels of Segmented Statements Common costs should not be allocated to the divisions. These costs would remain even if one of the divisions were eliminated

156 Traceable Costs Can Become Common Costs As previously mentioned, fixed costs that are traceable to one segment can become common if the company is divided into smaller segments. Lets see how this works using the Webber, Inc. example!

157 Traceable Costs Can Become Common CostsProductLines LCD Plasma Television Division Webbers Television Division

158 Traceable Costs Can Become Common Costs We obtained the following information from the LCD and Plasma segments

159 Traceable Costs Can Become Common Costs Fixed costs directly traced to the Television Division $80,000 + $10,000 = $90,000 Fixed costs directly traced to the Television Division $80,000 + $10,000 = $90,

160 External Reports The Financial Accounting Standards Board now requires that companies in the United States include segmented financial data in their annual reports. 1.Companies must report segmented results to shareholders using the same methods that are used for internal segmented reports. 2.Since the contribution approach to segment reporting does not comply with GAAP, it is likely that some managers will choose to construct their segmented financial statements using the absorption approach to comply with GAAP

161 Omission of Costs value chain Costs assigned to a segment should include all costs attributable to that segment from the companys entire value chain. Product Customer R&D Design Manufacturing Marketing Distribution Service Business Functions Making Up The Value Chain

162 Inappropriate Methods of Allocating Costs Among Segments Segment 1 Segment 3 Segment 4 Inappropriate allocation base Segment 2 Failure to trace costs directly

163 Common Costs and Segments Segment 1 Segment 3 Segment 4 Segment 2 Common costs should not be arbitrarily allocated to segments based on the rationale that someone has to cover the common costs for two reasons: 1.This practice may make a profitable business segment appear to be unprofitable. 2.Allocating common fixed costs forces managers to be held accountable for costs they cannot control

164 Quick Check Assume that Hoagland's Lakeshore prepared its segmented income statement as shown

165 Quick Check How much of the common fixed cost of $200,000 can be avoided by eliminating the bar? a. None of it. b. Some of it. c. All of it

166 How much of the common fixed cost of $200,000 can be avoided by eliminating the bar? a. None of it. b. Some of it. c. All of it. Quick Check A common fixed cost cannot be eliminated by dropping one of the segments

167 Quick Check Suppose square feet is used as the basis for allocating the common fixed cost of $200,000. How much would be allocated to the bar if the bar occupies 1,000 square feet and the restaurant 9,000 square feet? a. $20,000 b. $30,000 c. $40,000 d. $50,

168 Suppose square feet is used as the basis for allocating the common fixed cost of $200,000. How much would be allocated to the bar if the bar occupies 1,000 square feet and the restaurant 9,000 square feet? a. $20,000 b. $30,000 c. $40,000 d. $50,000 Quick Check The bar would be allocated 1 / 10 of the cost or $20,

169 Quick Check If Hoagland's allocates its common costs to the bar and the restaurant, what would be the reported profit of each segment?

170 Allocations of Common Costs Hurray, now everything adds up!!!

171 Quick Check Should the bar be eliminated? a. Yes b. No

172 Should the bar be eliminated? a. Yes b. No Quick Check The profit was $44,000 before eliminating the bar. If we eliminate the bar, profit drops to $30,000!

173 Transfer Pricing The transferred good is revenue to the selling division and cost to the buying division. This value is called transfer pricing.

174 Some Major Issues Transfer Pricing: General Concerns lImpact on divisional performance measures lImpact on firm wide profits lImpact on divisional autonomy

175 Transfer Pricing Approaches lMarket price lNegotiated transfer prices lCost-based transfer prices vFull cost vFull cost plus markup vVariable cost plus fixed fee

176 A Transfer Pricing Problem Assume the following data for Division A: Capacity in units 50,000 Selling price to outside $15 Variable cost per unit 8 Fixed costs per unit (based on capacity) 5 Division B would like to purchase units for Division A. Division B is currently purchasing 5,000 units per year from an outside source at a cost of $14.

177 A Transfer Problem Example (continued) 1.Assume division A has idle capacity in excess of 10,000 units: Minimum transfer price= Variable cost + Lost contribution margin = $8 + $0 = $8 2.Assume division A is working at capacity: Transfer Price = Variable cost + Lost contribution margin = $8 + $7 = $15 (market price) 3. Assume division A is working at capacity, but a negotiated $2 in variable costs can be avoided on intercompany sales. Transfer Price = Variable cost + Lost contribution margin = $6 + $7 = $13 (negotiated price)


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