BBP SYLLABUS

Chapter 1 Management Information Lesson 1

Chapter 2 Accounting for Materials Lesson 6
Chapter 3 Managing Inventory
Chapter 4 Labour Lesson 9
Chapter 5 Overheads Lesson 7
Chapter 6 Absorption and Marginal Costing Lesson 8
Chapter 7 Process Costing Joint Products and
Further Processing
Chapter 8 Cost Classification Lesson 2+3
Chapter 9 Job Batch and Service Costing
Chapter 10 Alternative Cost Accounting Methods
Chapter 11 Sampling and Expected Values Lesson 4
Chapter 12 Forecasting Costs and Revenues
Chapter 13 Time Series Analysis Lesson 5
Chapter 14 Index Numbers
Chapter 15 Spreadsheets
Chapter 16 Compounding and Discounting
Chapter 17 Investment Appraisal
Chapter 18 Nature and Purpose of Budgeting
Chapter 19 Fixed and Flexible Budget, Budgetary
Control, and Reporting
Chapter 20 Behavioural Aspects of Budgeting
Chapter 21 Presenting Information Lesson 3
Chapter 22 Summarising and Analysing Data Lesson 4
Chapter 23 Standard Costing and Variance Analysis
Chapter 24 Introduction to Performance
Management
Chapter 25 Analysing Performance
Chapter 26 Monitoring Performance, Cost
Reductions, and Value Enhancement

LESSON 1
 CHAPTER 1: MANAGEMENT INFORMATION
1. Types of Accounting
Definitions
- Financial accounting: the recording, processing, and reporting of financial information to
produce financial statements
- Management accounting: the preparation of financial and non-financial information to support
management activities
- Cost accounting: focuses on identifying costs (a monetary valuation or assessment) of resources
and their allocation to products, services, inventory or other items. It is a function of management
accounting
Comparing
MA FA
Users of Internal management only Shareholders, banks, creditors, potentials
information investors, tax authorities, government
Requirements Voluntary, no requirement to produce It is required by law
Presentation and content governed by law
and generally accepted accounting practices
Format It can take any form – no legal Presentation regulated by law and the
profession through accounting standards
Content Financial and non-financial A summary of mainly (past) historical
predominantly current with future financial information with supporting notes
predictions (e.g: in budgets)
Level of More detailed (e.g: costs and revenues As prescribed by legislation
detail by department, product)
Frequency of As frequently as needed by Usually annually (more frequently for
preparation management: quarterly, monthly, certain types of “public interest” companies)
weekly, daily, or on demand
Purpose of Used to plan, control and make Stewardship and investment decisions
information decisions
Bases of Standard costs, relevant costs, Historical costs
valuation marginal costs, absorption costs
Other bases may also apply

2. Planning, Decision-making, and Control

Managers requires information for three essential activities:
Planning Managers plan a course of action for the future
- Setting objectives
- Selecting the best method
- Plans
Controling Managers use information
- Comparing actual results with planned results (variance)
- Reviewing strategic plans when circumstances change
Decision- Managers use information to help them make decisions about the organization
making - Preparing information for investment decisions
- Making decisions on actions to take
Strategic, Tactical, and Operational Planning
Different types of planning and decisions are taken at each different levels in the management hierarchy.
These levels have ben identified by Robert Anthony as:
senior managers
business objectives & strategies
long-term planning

middle managers
business control & resources’ allocation

junior managers/ supervisors

short-term, day-to-day operation

3. Data and information

- Data: raw facts and figures
- Information: data that has been processed to have meaning
Classifying Data
- Primary data: is data that has been collected directly from the sources
- Secondary data: is collected by someone other than the primary user

Sources of Data and Information

- Internal source: The accounting system and records, Employees and managers, Production
records, Administration and other records
- External source
- Sources of Data: Machine/ Sensor, Transactional, and Human/ Social
- Direct and Indirect Data capture costs
Direct data: captured directly from the source
Indirect data: any data which is not obtained directly from the source. Probably obtained
through secondary sources and aggregators
Direct Costs of Information: Day-to-day running costs, Storage costs

Attributes of Good Information

A C C U R A T E
Accurate Complete Cost- User- Relevan Authoritative Timely Easy-to-
effective targeted t use

Big Data and Data Analytics

 - Big data: collections of data that increase exponentially over time, with too much volume,
variety, and velocity for traditional data-processing methods to analyse effectively
- Aspects:
Volume Velocity Variety Varacity Value
số lượng lớn tốc độ thay đổi đa dạng đáng tin cậy có giá trị
- Structured and Unstructured Data
Structured data: this data is stored within defined fields (baking systems: record the receipts
and payments), requires a data model, easily accessible
Unstructured data: refers to information that does not have a pre-defined data model
- Data analytics: the process of deriving meaning from data
- Use of Big Data by organizations: DECISION-MAKING - Organizational strategy, Customer
satisfaction and Forecasting demand
- Problems
Big data veracity: sometimes be imprecise, inconsistent or biased since the sources include social
media and the Internet
Big data technology: challenging to implement and costly
Big data analysts: need suitably skilled data analysts
Security and privacy: laws vary across the world

Limitations of Management Information

- Time and cost affect the quality of management information
- A lot of management information is based on past events
- Computer systems reports may contain errors
- Information can be based on incorrect assumptions
- Too much focus on financial information
 LESSON 2: COST ACCOUNTING
[CHAPTER 8] Cost Classification:
- Cost classification is the process of organizing costs according to their common
characteristics and in a way that will be useful to the managers of an organization
Classification type Description
Element THE MOST BASIC CLASSIFICATION: Materials, Labour,
Expenses
Nature Each element of cost can be further classified according to its nature:
Direct, Indirect (direct and indirect materials, labour, expenses)
Function Production costs: direct materials, direct expenses, direct labour,
overheads
Non-production costs:
 Administration (expenses for general operations management:
manager’s salary, head office rent, etc)
 Selling: expenses for making sales (wages of sales staff, retail
premises)
 Distribution: Expenses for delivering goods to customers (driver
salaries, vehicle fleet maintenance, fuel)
 Finance: costs of financing (loan interest)
Behavior Variable
(không dùng trong Semi-variable
KT tài chính) Fixed
Stepped fixed

Direct and Indirect Costs

- Cost unit: a cost unit – a product or unit of product or service – has direct and indirect
costs
- Direct costs: costs that can be measured reliably and directly traced to a specific cost
unit. Prime costs: the total sum of direct costs, also known as the total direct cost
- All other costs are indirect costs. Indirect costs: costs that are not directly traceable to a
cost unit; also known as overheads
Production and Non-production Costs
- The value of inventory and output affect the GROSS PROFIT
- An inventory at the end of an accounting periods is stated as an ASSET in SOFP
 - Non-production costs: are written off in an accounting period

Cost Card: a record of the costs associated with producing and selling a single product or service
Producting a Cost Card
- Allocate direct costs to cost unit

- Including indirect production and non-production costs

- Calculate overhead cost per unit
 - Calculate the total cost per unit

Cost Behavior: is the way that costs behave as activity levels changes
- Variable costs: are costs that change or vary directly to a change in the activity level
(materials).
- Fixed costs: a cost that remains the same irrespective of the output level (overheads).
- Semi-variable/ Mixed costs (chi phí hỗn hợp): are costs which are partly fixed and
partly variable.
- Stepped fixed costs: are fixed within a range of output (activity) and increase to a higher
fixed constant when that range is exceeded (warehouse)
Ranges of Activity
- Cost behavior is only relevant within a particular activity range
- Once an activity range’s upper limit is reached, a higher fixed cost is incurred.

High-Low Method
- The high-low method is a technique for identifying the fixed and variable elements of a
semi-variable cost so that more accurate predictions of costs can be made
- It requires a range of data collected over a period, corresponding to costs with different
activity levels
- It assumes a linear relationship between total cost and output
y = a + bx
b the slope or gradient (độ nghiêng) (variable cost per unit)
a the intercept on the y-axis (total fixed cost)

Total cost (TC) = Fixed cost (FC) + (Quantity (Q) x Unit variable costs (VC))
 Eg:

- Step 1: Select the highest and lowest activity levels (20X1 – lowest, 20X3 – highest)
- Step 2: Identify the total activity and costs

- Step 3: Calculate the variable cost per unit

Variable cost per unit
= (Total costhighest activity – Total costlowest level) / (Total unitshighest activity – Total unitslowest activity)
Variable cost per unit = ($1,050 - $750) / (55 – 25) = $10 per unit
- Step 4: Calculate the fixed cost per unit
Fixed cost = Total cost – (variable cost per unit x output)
Fixed cost = $750 – ($10 x 25 units) = $500
- Step 5: Calculate the total costs at the target level of activity
Total cost = Fixed cost + Variable cost = $500 + ($10 x 58 units) = $1080
 LESSON 3
[CHAPTER 8] RESPONSIBILITY ACCOUNTING
Cost unit: a unit of product or service with which costs are associated
- To determine a selling price
- To decide what to produce
- To help with cost control
- To plan and budget
Cost object: is something for which costs can be collected

Responsibility accounting: accounting method for costs according to the manager responsible
for those costs
Responsibility centre: an activity or area of responsibility in an organization a manager is
responsible for and has control over
Controllable cost: a cost that is within the control of a manager
Uncontrollable cost: a cost that is beyond the control of a manager

Cost Centres: an activity or area of responsibility in an organization that generates costs but is
not responsible for generating revenue or producing direct profit
Revenue Centres: department or division where the revenues are collected
Profit Centres: an activity or area of responsibility in an organization to which costs and
revenue can be attributed
- Organizational hierarchy
- The seniority of profit centre managers
- External and internal revenue
- From cost centre to profit centre
Investment Centres: an activity or area of responsibility in an organization to which costs and
revenue can be attributed and capital deployment
Business unit: a particular activity or area of responsibility in an organization that has a degree
of autonomy in deciding plans and processes for generating profits

Responsibility Centre Structure

Asset Expenditure
- Occurs when a new non-current asset is bought, or existing non-current assets are
improved
- Entry: Dr Asset (SFP)
Cr Cash/ Bank/ Payables (SFP)
Expenses
- Occur when paying for the ongoing costs of running the organization
- Entry: Dr Expenses (SPL)
Cr Cash/ Bank/ Payables (SFP)

Codes and Coding Systems

Code: a unique set of characters used to identify an item, consisting of numbers, letters or other
symbols
Coding system: system by which codes are created, managed and used

[CHAPTER 21] PRESENTING INFORMATION

Presenting Information
Emails
Reports
- Elements: Distribution list and date, Introduction, Sections, Summary
- Writing process: Plan, Write, Review

Presenting and Interpreting Data

Tables
Data Visualisation (Charts)
- Bar charts: comparison between two data series
- Line chart: trends over time
- Pie chart: the proportions of multiple data series at a single period or point (sales in
different regions)
- Scatter diagram: correlations and trends (total costs & output)
FC + (v+1)x8000 = 39400
FC + (v+1)x15000 + 5000v = 68000
 v=$1.8

LESSON 4
[CHAPTER 11] Sampling and Expected Values
1. Sampling techniques
Population (tổng thể): the set of items from which a sample (mẫu) is drawn to form conclusions
Sample (mẫu): a subset of items selected from a population which is analyzed to form
conclusions about the population

Random sampling: the selection of a sample from a population where every item has an equal
chance of being selected
Systematic sampling: is a technique that involves selecting every nth item after the first item,
which is selected randomly
Stratified sampling: is used when the population is divided into different strata or groups. A
random sample is then taken from each group  reduce the chance of accidentally putting
together a sample that is not representative of the population as a whole
Multistage sampling: is a sampling technique that involves dividing a large population (such as
a country) into different areas.
Cluster sampling: is a technique that involves dividing the total population into small groups (or
clusters) and then randomly select one cluster and interviewing the entire population of the
chosen cluster (chọn 1 bệnh viện, hỏi ngẫu nhiên tất cả bệnh nhân)
Quota sampling: is a technique that involves dividing the population into different groups with
interviews and then questioning a particular proportion or quota of people in each group (1 người
interview hỏi 1 group)
2. Expected values
Probability: the likelihood of an event, quantified between 0 (certainty event will not happen)
and 1 (certainty event will happen)
Number of events
P=
Number of possible outcomes

Expected values: weighted arithmetic mean of possible outcomes

[CHAPTER 22] SUMMARISING AND ANALYSING DATA

1. Understanding data
Structured and Unstructured data
- Structured data: appears in a standardised format
- Semi-structured data
- Unstructured data: appears in various formats (images, video, audio, etc)
Categorical vs Numerical data
Categorical Nominal data cannot be ordered
Data (sex, Ordinal data a set order from lowest to highest (scale 1-10)
race, etc)
Numerical Continuous can have any value
Data data
(weight,
height, etc)

Discrete data coutable and cannot be made more precise

Data analytics
- Descriptive analysis: explains or summarises what the data shows
- Inferential analysis: use a sample to produce theories or conclusions about a
population

2. Averages
Mean (trung bình)

Mean=
∑ of items =
∑ n (n=number of items)
Number of items n

Eg1: Footie Boots Co is an independent football boot manufacturer. The sale of

football boots over seven days is as follows: 4,2,1,4,4,3,3
 The total number of boots sold = 4 + 2 + 1 + 4 + 4 + 3 + 3 = 21
Number of items = 7
Mean = 21/7 = 3
Eg2: Mean of ungrouped data
In a series of 20 “spot checks”, the following passengers were counted at a
particular bus stop. Calculate the mean number of passengers.
37 36 35 36 Total = 727
Number of bus stops = 20
35 35 37 38  Mean = 727/20 = 36,35

36 37 36 36

38 37 36 37

36 36 38 35
Frequency distribution tables
Mean=
∑ fx
∑f

Mode (giá trị xuất Median (trung vị): is the average that represents the
hiện nhiều nhất) middle item in a set of data that is arranged in increasing
order
Footie Boots Co is an independent football boot manufacturer. The sale of
football boots over seven days is as follow: 4,2,1,4,4,3,3
 The most frequently-occurring value is 4, which occurs 3 times (more than
any other value). The mode is, therefore, 4
 The data given may be arranged in ascending order as follows: 1,2,3,3,4,4,4.
The middle item in this data set is the fourth item, 3.

3. Measures of dispersion
Range: the difference between the highest and lowest values in a set of data values
Variance (phương sai: σ2 – sigma squared): measures the spread of data values
in a data set
Variance(for ungrouped data)=
∑ ( x−x)2
n

Variance(for grouped data )=

∑ f (x−x)2
∑f
Standard Deviation (σ - độ lệch chuẩn): measures the spread of data around the
arithmetic mean
Standard Deviation of ungrouped data

 Variance = x̅ = 5  σ2 = (5-4)2+(5-3)2+(5-8)2+(5-5)2 / 4 = 3.5

 Standard deviation = σ = 1.87

Standard Deviation of grouped data

  x̅ = 60/12 = 5
 σ2 = (5-1)2+(5-4)2+(5-7)2+(5-10)2 / 12 = 3.83  NGƯỢC + THIẾU: f(x - x̅ )
 σ2 = 2x(1-5)2+5x(4-5)2+4x(7-5)2+1x(10-5)2 / 12 = 78/12 = 6.5
σ=…

Coefficient of Variation (hệ số biến thiên): is a measure of dispersion that

compares the spreads of two or more data sets. The higher the value of the CV, the
wider the data spread
Standard deviation σ
Coefficient of variation= =
Mean x̅

4. The normal distribution (phân phối chuẩn)

- It is symmetrical (đối xứng) about the mean (μ)
- The area under the curve is equal to 1
- The graphical shape of the normal distribution is bell-shaped curve
Interpretation: the spread about the mean is measured using the standard
deviation σ
Normal distribution tables: used to calculate probabilities
X−μ
Z=
α
Z: the number of standard deviations above or below the mean
X: the data value
μ: the mean (also known as x ̅ ¿
α : the standard deviation

(1) Draw the diagram: Required areas = < 198ml

(2) Calculate Z-score: Z = (198 – 200) / 3 = 0.67
(3) Find the value of the Z-score in the tables and label it on the diagram

(4) Calculate the required are using the drawing, remembering that the total area under the curve
is 1 and the area under each half of the curve is 0.5
 Percentage of cartons containing less than 198ml = 0.5 – 0.2486 = 0.2514 = 25.14%

Ex1: Monthly sales of product B at Green Co were recorded as follows. Calculate the standard
deviation
Sales ($000s) Number of months (f)
0-2 2
3-5 5
6-8 4
9-11 1

Ex2: A normal distribution has a mean of 50 and a standard deviation of 5

What percentage of frequencies lie in the range 50 – 55 (to two decimal places)?
What percentage of frequencies lie above 45 (to two decimal places)?
What percentage of frequencies lie below 40 (to two decimal places)?
What percentage of frequencies lie in the range 40 - 63 (to two decimal places)?

Ex3: The test scores of students in a class test has a mean of 70 and with a standard deviation of
12. What is the probable percentage of students scored more than 85?

Ex4: The average time and standard deviations of two job types are as follows:
Job A Job B

Minutes Minutes

Average time 75 100

Standard
deviation 15 10
(a) Calculate the proportion of time that a Job A will take longer than the average time for a Job
B.
(b) Calculate the proportion of time that a Job B will take less than the average time for a Job A.
 LESSON 5
[CHAPTER 12] FORECASTING COSTS AND REVENUES
Correlation
- Correlation: The measure of how strongly related two variables are. If they are related, a
change in one variable will cause a change in the other variable
- Degrees of correlation: Perfect positive correlation, Perfect negative correlation, Partial
positive correlation, Partial negative correlation, No correlation
Correlation Coefficient
The degree of correlation between two variables can be determined by calculating a correlation
coefficient, r

Interpreting the Correlation Coefficient

Establishing a correlation between two variables does not prove that one thing causes the other
(‘causation’)
r value Description
1 perfect positive correlation
-1 perfect negative correlation
between 0 and 1 partial positive correlation
between 0 and -1 partial negative correlation
Coefficient of determination
- It is a VARIATION of the correlation coefficient
- It just looks at an ABSOLUTE VALUE – measures the degree of variability of A
DEPENDENT VARIABLE that can be explained by the degree of variability of THE
INDEPENDENT VARIABLE
Coefficient of determination = r2
High/low Method & Linear Functions
y = a + bx
Total semi-variable cost = Fixed cost + (Variable cost per unit x number of units)
(dependent variable) (independent variable)
Linear Regression Analysis (Phân tích hồi quy tuyến tính):
Calculate the values of ‘a’ and ‘b’  linear regression coefficients

Forecasting costs and revenues using regression coefficients

Difficulties when forecasting costs and revenues
- PEST changes
- Trend and seasonal variations that occurred in the past may not continue
- Uncertainty increases with time
- Uncertainty increases if data is scarce
Advantages and Disadvantages of linear regression analysis

[CHAPTER 13] TIME SERIES ANALYSIS

Time series analysis
Principles of time series analysis
Component Description
Trend the underlying long-term movement in values over time
Seasonal variation short-term fluctuations in value, resulting from differing
circumstances affecting results at different times of the day,
week, month, year, etc

Cyclical variation medium-term changes in values resulting from factors that

repeat in cycles. Cyclical variations are longer-term than
seasonal variations
Random variation fluctuations that are not part of a pattern and are difficult to
predict
Predicting future values
An additive or multiplicative model Short-term forecasting
 Y = Data point T = Trend
S = Seasonal variation C = Cyclical variation R = Random variation
Time series analysis approach: is a technique that makes budget forecasts using
TREND and SEASONAL VARIATIONS
(1) Identify the trend of a time series (either by moving averages or linear regression
analysis)
(2) Forecast the times series’ trend into the future
(3) Identify seasonal variations
(4) Adjust the trend

Determining the trend

The trend
Moving averages: calculate the average of a set of consecutive periods
- Odd: the middle data point
- Even: must be calculated twice to ensure the mid-point trend figure coincides with
a data point

1. Calculate a three-point moving average from the data

2. Calculate a two-point moving average from the data
Average periodic increase

SOLUTION:
Using regression coefficients to calculate the trend

Seasonal variations in time series analysis

Calculating a time series The seasonal variation
Steps to calculate the seasonal variation:
(1) Calculate the trend
(2) Calculate the variation for each season
(3) Average the variation for each season and normalise
- Additice model: ensure the sum of the average variations is zero
- Multiplicative model: ensure the sum of the average variations equals the number
of seasons

1. Using the additive model, calculate the quarterly seasonal variation. (use a
three−point moving average for calculating the trend)
(1) Calculate the trend
2. Using the additive model, forecast the quarterly sales for 20X4.
Budget forecasts
Advantages and Disadvantages of time series analysis

[CHAPTER 14] INDEX NUMBER

Single item index numbers
- Index: a measure to compare values over time
- Simple price index: measures the changes in prices of a single item over time
FIXED BASE METHOD: the base year is allocated an index of 100, and subsequent
years are measured against this base  changes relative to the base year
CHAIN BASE METHOD: the base year is always the year immediately before the
year under consideration  change from year to year

Eg:
Price Fixed base index (%) Chain base index (%)
20X1 270 100 100
20X2 300 111,11 111,11
20X3 340 125,93 113,33
20X4 380 140,74 111,76
- Quantity index:
Weighted index: must be calculated when multiple items (variables) are considered
(1) Calculate the simple price index for each product
PI(A) = P1/P0 x 100 = 12/10 x 100 = 120 PI(B) = 125 PI(C) = 110
(2) Weight the price indices using the number of units sold
Price index Weighting (sales units) PI x Weighting
A 120 8,000 960,000
B 125 4,000 500,000
C 110 2,000 220,000
Total 14,000 1,680,000
(3) Calculate the weighted price index = 1,680,000 / 14,000 = 120
Weighted PI = (PI x Weighting) / Weighting
Eg:
20X2 20X5
Commodity Quantity Unit price PxQ Unit Price PxQ
$ $ $ $
Bread 100 0.51 51 0.62 62
Cheese 25 1.60 40 2.00 50
Eggs 50 0.80 40 0.90 45
131 157
(1) PI of each commodity
B = 62/51 x 100 = 122
C = 125
E = 113
(2)
PI Weight PI x W
B 122 100 12,200
C 125 25 3,125
E 113 50 5,650
Total 175 20,975
(3) WPI = (PI x W) / W = 20,975 / 175 = 119,8
 QUICK: PI for 31 Dec 20X5 = 157 / 131 x 100 = 119,8
Laspeyre and Paasche indices

A Laspeyre price index uses QUANTITIES A Paasche price index uses QUANTITIES
from the BASE PERIOD as WEIGHTS from the CURRENT PERIOD as WEIGHTS

A Laspeyre quantity index uses PRICE A Paasche quantity index uses PRICE
from the BASE PERIOD as WEIGHTS from the CURRENT PERIOD as WEIGHTS

Eg:
A Laspeyre quantity index for 20X4: Price - base year x Q
= (28 x 85) + (22.6 x 65) + (19.8 x 100) / (28 x 150) + (22.6 x 68) + (19.8 x 96)
= 2380 + 1469 + 1980 / 4200 + 1536.8 + 1900.8 x 100 = 5829 / 7637.6 x 100 = 76,32

Paasche quantity index: Price – current period

20X4 = 21x85 + 18.8x65 + 17.7x100 = 1785+1222+1770=4777
20X3 = 21x150 + 18.8x68 + 17.7x96=3150+1278.4+1699.2=6127.6
 Index = 77.96
LESSON 6
[CHAPTER 2] MATERIALS
ACCOUNTING FOR MATERIALS
Purchasing materials
Step Process stage Department Control process

1 Request for materials Stores Purchase requisition

2 Find supplier Purchasing No document necessary

Purchasing
process
3 Order goods Purchasing Purchase order

4 Receive goods Warehouse Goods received

5 Pay for goods Finance Invoice

Accounting entries for materials
- Material inventory account
Transaction Debit Credit

Purchases Materials control Bank or payables

Issues to production (direct) Work-in-progress Materials control

Issues to production (indirect) Production overhead Materials control

Returns from production Materials control Work-in-progress

Returns to supplier Payables Materials control

- Accounting for direct materials
Issue of direct materials to production: Dr Work-in-progress
Cr Materials control

- Accounting for indirect materials

Issue of indirect materials to production: Dr Production overheads
Cr Materials control

- Absorption of production overheads into production: Dr Work-in-progress

Cr Production overheads
 - Transfer to finished goods: Dr Finished goods
Cr Work-in-progress
- Sale of finished goods: Dr Cost of goods sold
Cr Finished goods
- Material control (T-account)
Inventory control and costing system
Recording inventory
Inventory control
Inventory discrepancies

INVENTORY VALUATION
Inventory valuation methods
 First-in, first-out (FIFO)
 Last-in, first-out (LIFO)
FIFO LIFO

Goods sold Oldest first Newest first

Closing inventory valued at Latest prices Oldest prices

 Cumulative weighted average pricing (CWA)
 Periodic weighted average pricing (PWA)
CWA PWA

Frequency of price Every time upon receipt of At the end of the

calculation new material period.

Price of issued At the latest calculated At the average price

material weighted average price for the period.

[CHAPTER 3] MANAGING INVENTORY:

INVENTORY COSTS AND CONTROL
Inventory cost Description

The price paid for inventory.

Includes the price paid and any applicable taxes and charges.
Purchase cost
Total purchase cost for the period = Units purchased in the period ×
Unit purchase price

Costs incurred for ordering inventory

Includes transport and administration costs.
Ordering cost
Ordering cost for the period = Number of orders in period × Cost per
order

Costs incurred for holding inventory.

Includes storage, finance costs, security, insurance, obsolescence,
deterioration, spoilage, theft, etc
Holding cost
Holding cost for the period = Average inventory held for the period ×
holding cost per unit for the period

Costs are incurred if inventory is unavailable.

Stockout cost Includes price premiums for emergency supplies, lost sales revenue, and
incentives to retain dissatisfied customers.

- Obsolescence: reduction in inventory value due to it becoming irrelevant to the

organization’s need
- Deterioration: reduction in inventory value due to degradation in its qualities
 - Buffer inventory (safety stock/ inventory): the minimum amount of inventory an
organization should hold in stock to deal with an unexpected rise in the demand for its
products
- Just-in-Time: minimizes inventory holding costs

Purchasing costs = 20,000 x 20 = 400,000

Holding costs = 2,500 x 20 x 10% = 5,000
Ordering costs = 1,400 x 4 = 5,600
--> Total = 410,600

MANAGING INVENTORY COSTS

- Order size: cheaper to buy materials in bulk  increase holding costs, could become
damaged or obsolete
- Stockout costs: running out of materials
- Balancing inventory costs
INVENTORY CONTROL: REORDER LEVEL
- Lead time: the waiting time to receive goods after placing an order
- Reorder level: the inventory level held at which the company should place an order to
minimise inventory holding costs and stockout risk

INVENTORY CONTROL: OTHER CONTROL LEVELS

- Maximum inventory level
 - Average inventory level

- Minimum inventory level  Buffer inventory

Reorder level = Max lead time x Max use = 15 x 1,300 = 19,500

Minimum level = Reorder – (Ave use x Ave time) = 19,500 – 1,000 x 10 = 9,500
Maximum level = Reorder level + Reorder quantity – (Min time x Min use) = 19,500 + 20,000 –
(5 x 800) = 35,500
Average level = Buffer + (Quantity / 2) = 9,500 + (20,000 / 2) = 19,500

a. 2,800
b. 1,000
c. 4,600
d. 2,500

ECONOMIC ORDER QUANTITY (EOQ)

Variable Description

cost of holding one unit of inventory for one time

CH period

Co cost of ordering a consignment from a supplier

D Demand during period

Applying EOQ:
 The number of orders = Demand/EOQ
 The average inventory held = equal to half of the EOQ = EOQ/2 + buffer inventory
This is because as the order arrives, 100% of the stock is available, and at the end, there will
not be any stock remaining (0%), so on average, there will be 50% available (plus whatever
buffer stock is kept).
 Total ordering costs = Demand/EOQ × Co (cost per order)
 Total holding costs = Average inventory × Ch (cost of holding a unit for a year)
 The total cost of ordering and holding costs = (Demand/EOQ × Co) + (Average inventory × Ch)
 Total inventory cost = total holding cost + total ordering cost + total purchase cost

ECONOMIC ORDER QUANTITY WITH DISCOUNTS

500 units – dis 5% - $40 per unit before dis

holding: $5 per unit
ordering: $200

Total inventory = Total holding + Total ordering + Total purchases = $7,681,250

Total purchase costs = 200,000 x 0.95 x $40 = $7,600,000
Total ordering costs
 Number of orders = 200,000/500 = 400
 Total cost of orders = 400 x $200 = $80,000 per year
Total holding costs = Average inventory x Ch
= (EOQ / 2 + Buffer inventory) x Ch
= 250 x 5 = 1,250 (EOQ khong phai 200,000 - EOQ: size order PER PERIOD)
! EOQ (minimum của holding và ordering)  nên có discount phải tính cả total cost và so sánh
2 mức xem có nhận dis hay không
ECONOMIC BATCH QUANTITY (EBQ): 1 lần nên sx số lượng bao nhiêu

Production rate (R) = 1,000 x 50 = 50,000 units

Weekly demand = 800 units  Yearly demand (D) = 40,000
Setting up a batch (C0) = 4,500
Holding cost of one unit (Ch) = 15

360,000,000
 LESSON 7: [CHAPTER 5] OVERHEADS
DIRECT AND INDIRECT EXPENSES
Expenses: decrease in economic benefits during the accounting period in the form of
outflows, depletions of assets, or incurrences of liabilities.
Classifying expenses by function
Function Expenses
Buildings management Rent
Utility bills (gas, electricity, water)
Telecommunications (phones, internet)
Taxes on property
Production department Repairs
Maintenance
Lease (hire) costs
Selling and distribution Advertising
Customer service
Delivery
Finance and legal Interest charges on loans
Legal fees (eg. on agreeing to a contract)
External audit
Insurance
Direct and Indirect expenses
- Direct expenses: are directly attributable to a specific product or service and are
part of its direct cost
- Indirect expenses: cannot be attributed to a specific product and are also known
as overheads
Treatment of direct and indirect expenses
Direct materials + Direct labour + Direct expenses = Prime cost of a product

Prime cost of a product + Share of overheads = Total cost of a product

ABSORPTION COSTING
Absorption costing process
- Overhead allocation: toàn bộ cost items được xác định và phân loại trực tiếp vào
1 cost unit/ cost center
Production department Production overheads
Production area service department
Administrative department Administration overheads
Selling and distribution department Sales and distribution overheads
(bộ phận phân phối) (chi phí bán hàng)
Overhead cost center Items of expense are shared by a
number of departments (chi phí sản xuất
chung – thuê vp, nhà xưởng, điện
nước…)
- Overhead apportionment and reapportionment: phân bổ chi phí gián tiếp
(1) Apportioning general overheads
i. Xác định tất cả những cost centers phát sinh chi phí: Production/ Production service/
Administration/ Selling and distribution department
ii. Xác định cơ sở phân bổ lại chi phí
Cơ sở phân bổ Chi phí áp dụng
Floor area occupied by each cost center Rent, rates, heating and light, repairs and
depreciation of buildings
Cost or book value equipment Depreciation, insurance of equipment
Number of employees, or labor hours Personnel office, canteen, welfare, wages
worked in each cost center and cost offices, first aid
(2) Phân bổ lại chi phí của bộ phận dịch vụ
i. Phân bổ lại chi phí của service cost centers cho production cost centers tương ứng,
bao gồm cả chi phí phân bổ trực tiếp và phân bổ lại
ii. Cơ sở của phân phối lại phải hợp lý theo bước 1, mỗi service cost center có thể có
cơ sở phân bổ khác nhau
Service cost centers Cơ sở có thể áp dụng để phân phối
Stores Number or cost of material requisition
Maintenance Hours of maintenance done per cost center
Production planning Direct labor hours worked in each production center
iii. 3 cách phân bổ lại chi phí
Direct method Chi phí 1 service cost center được phân bổ toàn bộ vào những
production cost centers tương ứng, không phân bổ vào
service cost centers kể cả khi service cost centers có sử dụng
dịch vụ của nhau
Step down method (1) Chi phí 1 service cost center được phân bổ vào tất cả
những cost center nào sử dụng dịch vụ của nó, cả service CC
và production CC

(2) Phân bổ chi phí của service CC còn lại vào production CC
tương ứng, bỏ qua service CC (giống direct method)

Reciprocal method Chi phí 1 service CC được phân bổ vào những production CC
(repeated distribution và service CC tương ứng, cứ sử dụng dịch vụ của nhau thì
method)
phân bổ cho nhau (giống step down)

Ở đây lặp lại đến khi không phân bổ được chi phí B  A vào
sản phẩm nữa thì pp ày sẽ bỏ qua phần chi phí đó
 - Overhead absorption: quá trình những chi phí overhead được phân bổ và phân
phối lại vào các production cost centers tương ứng, giờ được phân chia cho từng
đơn vị sản phẩm (unit), công việc (job) hay đơn hàng (batch) tương ứng
Hệ số phân bổ overhead
Budgeted overhead
Overhead absorption rate=
Budgeted activity level
4 bước kết tinh chi phí overheads:
(1) Dự toán chi phí overhead phát sinh trong kì tới (budgeted overhead)
(2) Dự toán mức độ hoạt động cho kì đó (budgeted activity level – số giờ máy làm việc
hay số giờ lao động của nhân công)
(3) Tính overhead absorption rate – OAR
(4) Phân bổ chi phí overhead thực tế (actual overhead) cho từng đơn vị sản phẩm (unit)
sử dụng OAR
Xử lí phân bổ thừa và phân bổ thiếu
- Over absorption: chi phí được phân bổ vào COGS > Chi phí thực tế phát sinh
(overheads actual incurred)
- Under absorption

Eg.
Mariott's Motorcycles absorbs production overheads at the rate of $0.50 per operating hour
and administration overheads at 20% of the production cost of sales. Actual data for one month
was as follows.
Administration overheads $32,000

Production overheads $46,500

Operating hours 90,000

Production cost of sales $180,000

What entries need to be made for overheads in the ledgers?
Production overheads
Cash 46,500 Absorbed in to WIP (90,000 x $0.05) 45,000
Under absorbed overhead 1,500
46,500 46,500

Administration overheads
Cash 32,000 To COS (180,000 x 0.2) 36,000
Over absorbed overhead 4,000
36,000 36,000

Over/Under absorbed overheads

Production overhead 1,500 Administration overhead 4,000
Balance to profit and loss account 2,500
4,000 4,000

Why calculate overhead absorption?

- To calculate a reasonable selling price and determine whether a product is
profitable
- To calculate inventory value accurately (SOFP & calculate COGS  Gross profit/
loss in SOPL)
Cost of sales = Opening inventory + Cost of production – Closing inventory

Production and Non-production (sales, distribution and delivery, finance, and HR) activities
Cost centres
Whole costs (overheads- indirect costs  attribute to a single cost center) and common
costs (need to be shared among different cost centers)

Apportionment principles: sharing common overheads between cost centres

(1) apportion all common cots across each production and production service cost
center
(2) reapportion all service costs between the production cost centers
 Establish the total overhead costs for each production cost center
Bases of apportionment
- Depreciation of machinery: carrying amount
- Rent and rates: floor area
- Heat and light: floor area
 - Power: kilowatt hours
- Insurance of machinery: carrying amount
Calculating apportionment
(1) Identify: cost centers, whole costs, and common costs
(2) Allocate whole costs to cost centers
(3) Select an appropriate base for common costs
(4) Apportion common costs on the proportion of the apportionment base used by the
cost center

Apportion of rent and rates

- Production cost center A = $100,000 x 1,000/2,000 = $50,000
- Production cost center B = $100,000 x 600/2,000 = $30,000
- Maintenance = $100,000 x 200/2,000 = $10,000
- Warehouse = $100,000 x 200/2,000 = $10,000
Apportion of power
- Production cost center A = $40,000 x 60%/100% = $24,000
- Production cost center B = $40,000 x 20%/100% = $8,000
- Maintenance = $4,000
- Warehouse = $4,000

Reapportionment
Reapportionment of service cost centre costs
Direct reapportionment method: when service CC overheads are only apportioned to
production CC. Services provided to other service CC are ignored.
- Reapportion maintenance overheads:
Production CC A = 20,000 x 40/160 = $5,000
Production CC B = $15,000
- Reapportion warehouse overheads
A = $21,000 B = $9,000
Step-down reapportionment method: the costs of one service center (CS1) are
reapportioned to the production cost centers and the other service center (CS2). The
cost of CS2 are then reapportioned to the production cost centres.

Reapportionment of maintenance department overheads by maintenance hours:

Production cost
centre Assembly Finishing Purchasing Total

Maintenance
hours 600 200 50 850

$122,012 $40,670 $10,168

(600 / 850 × $17 (200 / 850 × $172,8 (50 / 850 × $172,8
$172,85
2,850) 50) 50)
Reapportionment 0
The total purchasing department costs to be reapportioned are now $105,418 ($95,250 +
$10,168). Overheads are apportioned to production cost centres only.
Reapportionment of purchasing department overheads by the number of orders:
 Production cost centre Assembly Finishing Total

Orders 110 75 185

$62,681 $42,737
(110 / 185 × $105,418) (75 / 185 × $105,418)
Reapportionment $105,418
All service cost centre costs have been fully charged to production cost centres.
The completed overhead charge to production cost centres is as follows:

- Maintenance: Purchasing = $25,350 $172,850 x 50/850 = $1,491 $10,168

 Total purchasing department costs to be reapportioned are now $105,418
- Purchasing = $14,750 95,250 x 25/210 = $1,756 $11,339
Total overhead costs charged to the production CC = $3,037,347 $

Reapportionment Practice
Reciprocal method of service cost centre reapportionment
Bases of absorption and overhead absorption rates
Calculation of overhead absorption rates
Predetermined overhead absorption rates
Under and over-absorption
Accounting for production overheads
 LESSON 8: [CHAPTER 6] ABSORPTION AND MARGINAL COSTING
CONTRIBUTION
Concept of contribution (lợi nhuận đóng góp ~ gross profit, không bao gồm fixed cost):
the difference between a product or service’s selling price and marginal cost
Contribution = Selling price – Marginal cost (Total variable cost)

Total contribution = contribution per unit x number of units sold

Fixed overheads (Period costs in marginal costing): the expense is incurred over a
period and is unrelated to production levels
Contribution graph

Marginal costing:
- Fixed costs: not retaining in the inventory valuation
- Variable costs: included
INVENTORY VALUATION
Absorption and marginal costing inventory valuation
Absorption costing Marginal costing

Valuation of All production costs Variable production costs only.

production (including production Fixed production overheads are not
(finished goods) overheads) included.

Treatment of fixed Absorbed into cost units

Expensed off for the period as a cost
production (included in the value of
(period cost).
overheads finished goods)

Relationship with Selling price – absorption cost Selling price – marginal cost =
the selling price = profit contribution.

The total cost of production; The marginal cost of production is the

Description helps set a selling price that cost of making one additional unit.
covers all production costs. Useful for decision-making.
Absorption costing cost card

Marginal costing cost card

Absorption cost = $20  profit per unit = $10
Marginal cost = $17  profit per unit = $13

a. $15 x 2,500 = $37,500

b. $45,000
c. This means that the value of inventory under absorption costing will always be higher
than its value under marginal costing.

a. [Marginal costing] = $3 x 2.4 + $5 x 1.5 + $4 x 1.5 = $20.7

b. [Absorption costing] = $20.7 + $7 x 1.5 = $31.20

a. $31
b. $7
c. $12,250
d. $31 x 1,750 = $54,250
e. $25 x 1,750 = $43,750
! Absorption cost & Marginal cost chỉ tính chi phí PRODUCTION (không tính fixed
selling costs vào)
a. $30 b. $8 c. $14,000 d. $30 x 1,750 = $52,500 e. $43,750

Absorption and marginal costing profit differences

SOPL
Absorption costing Marginal costing
 Absorption costing Marginal costing
Sales revenue 255,000 Sales revenue 255,000
Cost of sales Cost of sales
Opening inventory 20,000 Opening inventory 20,000
Production cost 90,000 Variable production costs 72,000
Closing inventory (25,000 Closing inventory (25,000)
)

Production COS (85,000) Variable production COS (68,000)

Variable non - production
costs
Gross profit 170,000 Contribution 187,000
Non-production Fixed production overheads (18,000)
overheads Fixed non-production $2 x
overheads 9,000
Absorption profit 170,000 Marginal profit 169,000
Reconciling absorption and marginal costing profit
The difference between absorption and marginal profit may be expressed as:

This means the difference between absorption and marginal costing profit is the overheads
absorbed into inventory multiplied by the change in inventory.

Determining whether absorption or marginal cost profit will be higher

Absorption costing (AC) profit vs Marginal
Opening vs Closing Inventory
costing (MC) profit
 Opening = Closing AC profit = MC profit

Opening > Closing AC profit < MC profit

Opening < Closing AC profit > MC profit

The difference in profits can be calculated as follows:
Change in inventory × fixed production overhead cost per unit

Advantages and disadvantages of absorption and marginal costing

 MA FA
users managers external stakeholders
frequency monthly, weekly acc period
no standard standards (IAS, IFRS)

Planning – Controlling (compare with actual) - Decision making

COST CLASSIFICATION
Nature Direct
Indirect
Behavior Variable: direct materials
Fixed: rent
Semi variable: salesman’s salary (lương fixed
hàng tháng + thưởng theo doanh thu)
Stepped fixed
Function Production
Non-production: selling, administration,
distribution, fiance
Element Materials
Labour
Overheads

MATERIALS

Reorder level = maximum usage x maximum lead time ngưỡng cần đặt hàng để
tránh không đủ hàng bán
(minimize holding cost and
stockout risk)
Đặt hàng ít lần, số lượng nhiều: Holding cost tăng, Ordering giảm
Đặt hàng nhiều lần, số lượng ít: Holding giảm, Ordering tăng
 EOQ xác định số lượng hàng cần đặt để: HC + OC min
 LESSON 9: [CHAPTER 4] LABOUR
[ON CLASS NOTE]
1. Direct and Indirect labour
Tại sao phải phân loại đúng?
Direct (trả trực tiếp những người tạo sản phẩm)  Product cost  Pricing strategy (tính sai PC
 ảnh hưởng lãi gộp  kết quả kinh doanh trong kì)
Indirect  Overheads  period cost (P/L)
 allocated each product
 Direct labour costs
 Indirect labour costs: overtime, sick/holiday pay, idle time
Eg: làm thêm giờ lương 150%
Basic: 25K/h (direct)  Overtime: 37.5K/h  Premium: 12.5K/h (indirect)
2. Recording labour and the labour account
Direct: Dr WIP/ Cr Wages control
Indirect: Dr Overheads/ Cr
Pay: Dr Wages control/ Cr Cash
3. Remuneration methods
 Time-based system
 Piecework system: Quantity x Rate
 Incentive-based system
4. Labour turnover
Preventative costs
Replacement costs
Replacement
Labour turnover rate=
Average number of employee
Eg: 1/1: 100 người – 31/12: 70 người – cty cho 40 người nghỉ
 Turnover rate = 10/85

Eg2:
Thời gian TB: 3h
Standard time to make 1 unit: 3h
15 units: 42h  Productivity ratio = (tính theo unit) 15/14 = (tính theo time) 45/42
Normal: 40h  Capacity ratio = 42/40

- Standard time to make actual output: 45

- Actual: 42
- Budgeted: 40

Standard time of actual output

Production volume=
Budget
5. Labour ratios
[Studyhub]
1. Direct and Indirect Labour
Direct labour costs: the wages and salaries of workers making a particular product
- Basic pay
- Overtime worked for customer request
Indirect labour costs: the wages and salaries of the project managers
- Holiday/ Sick pay
- Idle time
- General overtime premium
Eg: If the basic rate is $10 per hour and the overtime rate is $15 per hour
 the overtime premium is $5 per hour
Act 1: D - I - D - I - D - D - I - I
Act 2: D - I - D - I - D – I
Act 3: I - I - D - I - D
Overtime
Eg1: Direct workers
The following information is available regarding direct workers of a company:

Hours worked Hourly rate ($)

Basic hours (including 50 hours of idle time) 900 7.50

Overtime 150 10.50

Calculate the amount to be classified as direct and indirect labour costs.
- Direct labour costs = Basic pay (active hour) + Overtime pay = 1050 x 7.50 (850 + 150) x
7.50 = $7,875 $7,500
- Indirect labour costs = Idle time pay + Overtime premium = (50 x 7.50) + (150 x 3) =
$450 $825
! NOTE: Working hours = Active hours (direct) + Idle time (indirect)
Overtime pay = Basic pay + Overtime premium (indirect)

Eg2: Indirect workers

The following information is available regarding direct workers of a company:

Hours Hourly rate

worked ($)

Basic hours, direct workers (including 50 hours of idle time) 900 7.50

Overtime, direct workers 150 10.50

 Basic hours, indirect workers 350 6.00

Overtime, indirect workers 50 8.50

Calculate the amount to be classified as direct and indirect labour costs.
- Direct labour costs = Basic pay (direct workers, active hours) + Basic pay overtime
(direct workers) = 850 x 7.50 + 150 x 7.50 = $7,500
- Indirect labour costs = Idle time (direct workers) + Overtime premium (direct workers)
+ Basic pay (indirect workers) + Overtime pay (indirect workers) = 50 x 7.50 + 150 x 3 +
350 x 6 + 50 x 8.50 = $3,350

Act 4:
15 workers, hourly rate: $3.60, 9 hours working day, 20 days in a month.
The firm budgets 6 hours per unit
October, hurricane: 14 working days. To compensate for lost production, each worker:
worked 45 hours over weekends for an overtime premium of 50%. Actual production for
October was 430 units, 20 units fewer than budgeted
Calculate the direct labour cost for October
Basic pay (14 days): $3.60 x 9 x 14 x 15 = $6,804
Basic pay (overtime) = $3.60 x 45 x 15 = $2,430
 Direct labour costs = $9,234
Overtime premium = $3.60 x 50% x 45 x 15 = $1,215

Act 5:
A summary of Perky's factory payroll for October showed the following:
Basic hours 7,000

Hours of overtime 1,000

Hours of idle time 500

The idle time, which arose due to a power cut, increased the hours of overtime worked
due to general work pressures. Basic pay is $15 per hour, and overtime is paid at a
premium of 3313 % .Calculate the indirect labour cost for October.
 Indirect labour costs = Idle time + Overtime premium = 500 x $15 + 1,000 x $5 =
$12,500
Direct labour costs = 6,500 x $15 + 1,000 x $15 = $112,500 (not sure: basic hours đã bao
gồm idle time hay chưa)
2. Recording Labour and the Labour account
3. Remuneration Methods
4. Labour Turnover
5. Labour Ratios