Management Accounting

Class #1
Fall 2023
Sofia Tomás
General Information

Course Instructors:
Rui Augusto
Email: raugusto@novasbe.pt Office Hours: 5 p.m. on Tuesdays

Sofia Tomás
Email: sofia.tomas@novasbe.pt Office Hours: 2 p.m. on Thursdays

Bianca Vieira
Email: bianca.vieira@novasbe.pt Office Hours: 5 p.m. on Thursdays

Daniel Gonçalves
Email: daniel.b.goncalves@novasbe.pt Office Hours: 11 a.m. on Thursdays

Joana Cocco
Email: joana.cocco@novasbe.pt Office Hours: 11 a.m. on Tuesdays

Matilde Alves
Email: matilde.alves@novasbe.pt Office Hours: 2 p.m. on Thursdays Confirm your attendance to Office Hours
by email at least 24 hours in advance
General Information

Evaluation:
Regular Exam Period:
• Home Quizzes: 10% of the final grade (2nd of October and 27th of November)
• Midterm Exam: 35% of the final grade (30th of October)
• Final Exam: 55% of the final grade (16th of December)

Resit Exam Period:

• Final Exam: 100% of the final grade (11th of January)
General Information

Rescheduled Classes:
• 5th of October – 16th of October
• 1st of November – 4th of December
• 1st of December – 5th of December

Bibliography:
Drury, C. (2015) Management and Cost Accounting, 9th Edition, South-Western / Cengage Learning

Moodle Enrolment Key: MA_2324

If you have any questions, feel free to ask, go to Office Hours, or write on the Help Center on Moodle!
Theoretical Recap
Manufacturing Companies

Manufacturing Finished Goods Sales

Costs (COGM) (COGS)

Factory FG Inventory

WIPop WIPcl FGop FGcl

• Manufacturing Costs = Direct Materials + Direct Labour + Manufacturing Overheads

Prime Costs = Direct Materials + Direct Labour
Conversion Costs = Direct Labour + Manufacturing Overheads
• Opening Stock + Production = Sales + Closing Stock
• Cost of Goods Manufactured (COGM) = MC + Op Inventory Work in Progress – Cl Inventory Work in Progress
• Cost of Goods Sold (COGS) = COGM + Op Inventory Finished Goods – Cl Inventory Finished Goods
or Cost of Goods Sold (COGS) = COGM/unit x Units Sold
Important Clarification

Manufacturing Costs (MC):

Costs related to direct materials, direct labour, and manufacturing overheads, incurred during a period

Cost of Goods Manufactured (COGM):

Costs incurred in order to produce the units that were completed during a specific period, regardless of
whether their production had already started in a previous period

Cost of Goods Sold (COGS):

Cost of the goods that were sold during a period, irrespective of when their production took place
Methods of Inventory Valuation

First In First Out (FIFO): items bought or produced first will be used first

Last In First Out (LIFO): items bought or produced last will be used first

Weighted Average Cost (WAC): value of the inventory will be the weighted average value of the available
inventory of materials / finished goods. The average cost per unit is obtained by dividing the total cost by the
total number of units
 Profit & Loss Statement

Financial Accounting: P&L by Nature P&L by Function

• External reporting (+) 1. Sales (+) 1. Sales
• Legally required
• Costs by nature (+) 2. 𝚫 Inventories (-) 2. Cost of Goods Sold
(=) 3. Operating Revenue (=) 3. Gross Profit
Management Accounting: 4. Cost of Merchandises Sold & 4. Selling, General &
(-) (-)
• Internal reporting Materials Used (C.M.S.M.U) Administrative Costs
• Optional for companies (-) 5. Miscellaneous Costs (=) 5. Operating Profit
• Costs by function
(-) 6. Personel Costs (-) 6. Financial Costs
(=) 7. EBITDA (+) 7. Financial Revenues
(-) 8. Depreciation Costs (=) 8. Profit Before Taxes (PBT)
(=) 9. EBIT
(+) 10. Financial Revenues
(-) 11. Financial Costs
(=) 12. EBT
𝚫 Inventories = (Cl Inv WIP – Op Inv WIP) + (Cl Inv FG – Op Inv FG)
 Problem 3

The Alimentar Company

Differences in 𝜋 - FIFO vs LIFO vs WAC

P&L by function: difference is explained by the difference in the COGS

P&L by nature: difference is explained by the difference in the 𝚫 Inventories and/or C.M.S.M.U.

Different valuation methods will impact:

• Direct Materials valuation - will show up in C.M.S.M.U (P&L by nature) and COGS (P&L by function)
• Finished Goods valuation - will show up in 𝚫 Inventories (P&L by nature) and COGS (P&L by function)
Differences in 𝜋 - FIFO vs LIFO vs WAC

When COGM/unit of the units produced > COGM/unit of Op Inv FG:

• COGSFIFO < COGSWAC < COGSLIFO

• Cl Inv FGFIFO > Cl Inv FGWAC > Cl Inv FGLIFO

• πFIFO > πWAC > πLIFO

When COGM/unit of the units produced < COGM/unit of Op Inv FG:

• COGSFIFO > COGSWAC > COGSLIFO

• Cl Inv FGFIFO < Cl Inv FGWAC < Cl Inv FGLIFO

• πFIFO < πWAC < πLIFO

Note: in problem 3, we were given the Manufacturing Costs and so, it was implicit that MC(LIFO) = MC(FIFO) = MC(WAC).
However, that is not always the case. Whenever we are given consumption of DM, the value of DM can be different using
LIFO/WAC/FIFO and so, we can have different MC, COGM and COGS because of differences in DM consumption (see problem 1).