Cost Accounting

Session 1 - Introduction
2023/24
 Course outline

• Introduction

• The Budget approach

• Key concepts of Management Accounting / Cost Accounting: definition and types of costs

• Costing methods and their decision-making context

1- Cost-Volume-Profit (CVP) analysis

2- Full cost method

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 Course planning
Session Topics Applications- Instructions for students
1 Introduction to the course: guidelines and types of work/evaluation – Introduction What cost?
to key concepts Peintures Deluxe (introduction)
2 MCQ1 at the beginning of the class (Key concepts) Madeleine
The Budget approach(1) Optima (start and finish it as personal work)
3 MCQ1 Correction Optima (correction)
The Budget approach(2): Exercises Optima (correction) and Lodurin Lodurin
4 MCQ2 at the beginning of the class (the Budget approach) Toquedor
CVP analysis (1st part)- Support : Case ‘fil rouge’ Jardiland
5 MCQ2 correction Jardiland (following)
CVP analysis (2nd part)- Support: Case ‘fil rouge’ Entreprise industrielle

Teachers: Provide the groups on C@mpus before Session 6

6 Board game - ¾ h NO COMPUTER !
Group work graded – Imposed groups – 1,5h- on paper format Calculator fx 92 or 92 + OBLIGATORY
7 MCQ3 at the beginning of the class (CVP analysis) Peintures Deluxe
Full cost method – Support: Case ‘fil rouge’ INDU (to be completed for Session 8)
8 MCQ3 correction INDU
1st part of the session: INDU correction Make sure you are on time after the break (10 min). Work will begin at 10h. Being late
Individual work graded (CVP analysis and full cost method – 2 nd part of the is not accepted, once the door is closed. Grade of 0 in case of absence noted. NO
session)- on paper format COMPUTER! Calculator fx 92 or 92 + OBLIGATORY
Teachers : Provide the groups on C@mpus before Session 9
Bring your computers for the next session. No break in Session 9.
9 MCQ4 at the beginning of the class (Full cost) On computer
Group work graded- Imposed groups Prepare your questions for Session 10.
10 MCQ 4 Correction Answers to revision questions.
Exam revision Individual case correction (Session 8) and Budget revision case.

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Cost Accounting
 Sustained work throughout the module

• Your teacher may ask you to prepare the applications for the next session. Your work may be selected
for verification. All corrections will be submitted to C@mpus at the end of the course week.

• 4 tests of personal work will be carried out in the form of automated MCQ: sessions 2, 4, 7 and 9

• In Session 6 : Board Game and Group case study graded

• In Session 8 : INDIVIDUAL case study graded

• In Session 9 : Group case study graded

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 Sessions 2, 4, 7 and 9- MCQ

• On C@mpus

• In class and in the presence of your teacher. Any remote connection will be noted as absent, which is equivalent
to a score of 0 and recorded as ABSENCE. An attendance check to control attendance will be made before the
MCQ.

• At the beginning of the class: Make sure you are on time! If the room door is closed, you will have to wait until
the break to enter the class. You will be considered absent and your grade for the MCQ will be 0.

• 5 questions; Duration: 8 minutes

• Information: +1 point for good answer; no negative points for wrong answer

• Computer required. It will be prohibited from use after the MCQ.

• No mobile phones. Calculator fx 92 or Fx 92 + OBLIGATORY.

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 Session 6

• Topic: CVP Analysis

Board Game Case Study
Groups of 3 students of balanced level. Imposed by Same groups as for the board game
your teacher.
Duration: ¾ h maximum Duration: 1,5 h maximum
Bonus on the case study grade of Session 6 On paper format

• You will only succeed in the job if you have worked regularly and have a collaborative attitude
within your team.

• Break of max. 10 minutes after the board game. To be strictly respected.

• COMPUTER PROHIBITED

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 Sessions 8 and 9

 Session 8 : Case study to be completed individually ! GRADED. ON PAPER FORMAT.

COMPUTER PROHIBITED. Do not forget your calculator fx 92 or fx 92 + !

 Session 9 : Case study to be completed in GROUP ! GRADED. ON COMPUTER

Groups of maximum 4-5 students : imposed by your teacher

At the end of the session : upload your work on C@mpus for each group

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 Summary of evaluation methods

• Average of continuous assessments : 40%. A good/bad behavior of +2/-2 can affect your average.
Average of the 4 MCQ : 10%
Individual case study : 20%
Average of the 2 group case studies : 10%
No possibility of retakes for continuous assessments !
In case of plagiarism : grade of 0 for all groups concerned
Reminder of absences policy : grade of 0 in case of absence from continuous assessments.

• Final Exam : 60%.

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 Work instructions

• Computer FORBIDDEN except for MCQ tests and for the case study of Session 9.

• Calculator obligatory for all courses : Casio fx 92 Collège / Casio fx 92 +

• Mobile phone prohibited, unless expressly authorised by your teacher.

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 Business Game at the end of the semester (April 2024)

• 2-day game session

• Business management situation

• Using marketing and accounting knowledge to understand business interactions

• Knowledge application from the accounting courses : calculation of projected production

costs, break-even analysis, cash budget, profit and loss account and balance sheet …

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 Any questions ?

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A.
What is Management
Accounting ?
 What are the responsibilities of a manager ?

To manage performance:
1- Planning : set objectives and determine the action plans to achieve them

2- Directing: overseeing day-to-day operations and action plans

3- Controlling : evaluate results and compare them to the objectives, explain

discrepancies/deviations

4- Decision-making : Make corrective action decisions, i.e., review the strategy and redefine the
objectives, adjustment of action plans
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 It is based on a tool : Management Accounting

To manage performance, managers must control their budgets and costs.

Management Accounting (or Analytical Accounting) provides managers with the methodological tools to
determine a cost that is relevant to the decision-making context :

• Implementation of a financial and non-financial information system to measure and help managers to
make decisions

• Using the analysis of the past to project into the future

The goal of this course is to define and present the main costing and budgeting approaches, emphasising
their usefulness and limitations

The distinction between Management Accounting and Cost Accounting is not clear cut and we use these
terms interchangeably.
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B.
Management Accounting vs
Financial Accounting ?
 Users are different !

State services
Shareholders

Financial Accounting = external

Suppliers
Financial
institution Customers
s

Managers Employees
Management Accounting = managerial = internal
Directors
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 Time frame of reported information is different

Financial Accounting Management Accounting

Relates to the past, Relates to the present and

historical forward-looking

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 The frequency of information is different !

Financial Accounting Management Accounting

Yearly Daily, weekly, monthly

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 The scope is different !

Financial Accounting
Management
Accounting

Detailed departments, divisions,

Global, for the organisation products, … and global
as a whole
Oriented towards particular
decisions and actions

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 There are no regulations in Management Accounting !

Financial Accounting
Management
Accounting

Each company defines the

information system that meets
IFRS, PCG its strategic and operational
needs

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 The nature of information is different !

Financial Accounting Management Accounting

Objective, accurate, reliable, More subjective, uses certain

systematic judgments (relevance, accuracy,
timeliness)

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 Summary
Financial Accounting Management Accounting

Users External: shareholders, bankers, Internal: leaders, managers

fiscal, ….
Goal Inform third parties about performance Inform internally for decision-making.
and assets.
Time frame Deferred, historical. Relates to the present and the future.

Constraints Regulated information No regulation. System and information to meet

strategic and operational needs.

Financial, operational and physical measures of

Type of information Measures only financial. processes, technologies, suppliers, customers and
competitors.

Nature of « Objective », verifiable, reliable, More subjective, uses some judgment (relevance,
information systematic, accurate. accuracy, and timeless).

Very general, covers the organisation Detailed, oriented towards particular decisions and
Scope
as a whole. actions.
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C.
Introduction to Costs
 Why do you think costs are calculated?

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 Calculation and analysis of costs: Why ?

•To calculate sales price

•To understand the results of a product, service, geographical region, sales store
…
•To evaluate inventory

•To determine standard costs

•To measure performance

•To understand the internal functioning of a company

•To make decisions about how to improve performance

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 Let’s take a product

List the costs associated with this product

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 Different costs for different purposes !

• Costs are calculated and used for a specific reason

• The reason to determine costs affects the calculation method

• 2 main calculation methods:

• Cost-Volume-Profit (CVP) analysis

• Full cost method

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Definition and types of costs
 What is a cost ?

• Monetary value of the resources consumed to perform a service

Example of resources : raw materials, labour, marketing, money.

• A cost is an accumulation of expenses on a product/service (cost object)

• A cost is an opinion that only makes sense if it is supported/justified

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 Characteristics of a cost

Characteristics
Definition
Scope(cost purpose)
A cost object is defined as any item for which a separate cost measure is

considered useful

Ex.: product completed, customer segment, etc

Its moment/time of calculation

An actual cost is a cost calculated ex-post from the expenses that have been
incurred.
A standard cost is a budgeted/projected cost based on standards and can be an
objective

Its scope and content The scope of the cost consists of all the expenses that one chooses to take into
account for its calculation

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 Example of cost objects

Cost object Examples

An activity Repair service, recruitment, training

A product Computer, car, yoghurt

A department Accounting, human resources, factory, commercial

services, marketing

A project Designing a house, building a bridge

A geographical region A city, region, country, continent

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 Types of costs

Behaviour in relation to the

activity level
Variable Fixed
Causal link to Direct
the cost object
Indirect

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 Attachment of expenses: direct cost vs. indirect cost

•The direct cost of a cost object consists of all the expenses that can be

unambiguously assigned to it

Ex.: the cost of wood needed to make a table

•The indirect cost of a cost object refers to a resource consumed by several objects

Ex.: the salary of a foreman responsible for supervising several products. Common

therefore to all products. It must be broken down by product according to a distribution

basis.

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 1. A cost may be direct or indirect. It depends on the cost
object.
Ex: The salary of the manager of Plant A, which produces
several types of products P1, P2, P3
• Is an indirect cost if the cost object is P1.
• Is a direct cost if the cost object is Plant A.

2. Total cost = direct cost + indirect cost

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 Examples of direct cost and indirect cost

Activity of the company Cost object Direct cost Indirect cost

Hair salon Individual hairdressing service Time valued in € of the hairdresser Rent, electricity, insurance,
products used, administrative
expenses

Parcel delivery Parcel delivered Supplies used (cardboard, Delivery men

envelopes, labels) Maintenance, insurance and
depreciation of transport equipment
Administrative expenses

Jeans sales store Jean Purchase price of jeans, Rent, electricity, insurance, store
commissions paid to the vendors maintenance, administrative
expenses

Computer manufacturer Computer Cost of purchasing components, Production supervision, rent, other
cost of assembling workers plant expenses, quality control
expenses, administrative expenses

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 Cost behaviour: variable cost vs. fixed cost

• A cost is variable when its overall amount changes •A cost is fixed when it is not affected by changes in the

proportionally with changes in the level of activity level of activity, for a given time period and relevant

Ex.: the cost of wood needed to produce wooden tables range of activity

Cost of wood to produce tables

Ex.: the rent of a store
= quantity of wood (which depends on the number of tables to produce)
Rent is fixed for a given area.
x unit cost of wood
If the area increases, the rent increases.

The fixed costs increase in stages.

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 Example of variable costs

Cost object Variable costs Variability factors

Product manufactured Material consumption Number of units produced

Training Salaries of trained staff Number of hours of training

Machine Energy Number of hours of machine

operation

Product sold Sales commissions Number of units sold

Or Turnover (= Sales)

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 Example of fixed costs

Cost object Fixed costs Saturation criteria level

Product Depreciation of machines Quantities produced

manufactured Product diversity and complexity
Costs of production
workforce

Product sold Fixed salaries of salespeople Quantities sold

Number of customers
Rent stores

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 Graphical representation of a variable cost

Total
variable
cost

Activity level

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 Variable cost (VC) behaviour

It is the total amount of VC that changes according to the level of activity :

Total VC = Quantity x VCu
• The variable cost per unit CVu is constant !

Example :

Purchase price of a t-shirt = 10 €/unit

Purchase amount and value:

Purchase of 200 t-shirts : 200 x 10 € = 2 000 €

Purchase of 300 t-shirts : 300 x 10 € = 3 000 €

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 Graphical representation of a fixed cost

For a store sales capacity of 100 000 €, Fixed costs = 30

000 € (rent, energy, publicity, fixed salaries of vendors,
administrative expenses,..). Whether the store sell nothing,
sells 50 000 € or 100 000 €, the FC are always 30 000 €
Fixed cost

If you buy a 2nd store with the same sales capacity, the
possible maximum activity levels become 200 000 €. The
fixed costs increase to 60 000 €, whether the stores sells 0
€, 50 000 €, 100 000 €, 150 000 € or 200 000 €

Activity level

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 Fixed cost (FC) behaviour

 For a given activity capacity, the fixed cost do not change.

Ex : Production capacity: 100 000 units

Fixed cost: 30 000 €

 In contrast, the fixed cost per unit FCu is variable.

o Number of units produced = 30 000
FCu = 30 000 €/30 000 = 1,00 €/unit
o Number of units produced = 50 000

FCu = 30 000 €/50 000 = 0,60 €/unit

o Number of units produced = 100 000

FCu = 30 000/100 000 = 0,30 €/unit

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 The behaviour of variable costs vs. fixed costs

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 Summary

Variable Fixed
Raw materials Depreciation of a single-
Direct product machine
Direct labour (production
bonuses) Direct labour (fixed
Sales commission salary)

Energy related to the Supervision (foreman)

Indirect production activity Depreciation of a multi-
product machine
Rent

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 Homework

• Learn Session 1 material

• ATTENTION : MCQ in the next session !

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