ACC507 – COST AND MANAGEMENT ACCOUNTING

ACC507: Cost and Management Accounting

Lecture #0
The Kick Start Session

18/11/2020
 ACC507 – COST AND MANAGEMENT ACCOUNTING

Course Details
LTP
2 – 1 – 0 [Two lectures/week]

Text Book
Cost Accounting: A Managerial Emphasis By
Charles T. Horngren, Shrikant M. Datar,
Madhav V. Rajan, Pearson

Reference Book
A Textbook of Cost and Management
Accounting By M.N. Arora, Vikas Publishing
house
 ACC507 – COST AND MANAGEMENT ACCOUNTING

Course Assessment Model

• Exam Category : X3 (No MTE only ETE)

• Exam Pattern : MCQs + Subjective

• Marks Break Up :
a) Attendance : 05 Marks
b) CA : 45 (All CA’s are compulsory (3 out of 3)
c) MTE : No MTE
d) ETE : 50 Marks
Total : 100 Marks
 ACC507 – COST AND MANAGEMENT ACCOUNTING

‘Accounting in Trimester 1’ Vs. ‘Accounting in Trimester 2’

What we will
What we learnt
learn in
in ‘previous
‘current
trimester’
trimester’
Analysing & Analysing cost
Interpreting concepts, cost Cost &
Financial financial variances & cost Management
Accounting statements management Accounting

Business
Identifying & decision making
Interpreting using cost
economic events volume profit
analysis
 ACC507 – COST AND MANAGEMENT ACCOUNTING

1.) News Analysis

Higher input costs impacting biscuit makers’ profitability
• Trade Council of India ‘ascertained’ ‘raw
material cost’ in biscuit manufacturing has
increased to 40%.

• This is due to increase in commodity

prices like wheat flour and palm oil.

• On this basis of this ‘cost ascertainment’,

it was concluded that this industry must
find alternate ways to procure its raw
materials.
 ACC507 – COST AND MANAGEMENT ACCOUNTING

2.) COMPANY ANALYSIS

“Low – cost” business model of Southwest Airlines

• Recognised as popular ‘low – cost firm’
in history of US airline industry.

• Pioneer in having ‘low operating cost’.

• Only airline which survived the

challenges posed by coronavirus crisis.
 ACC507 – COST AND MANAGEMENT ACCOUNTING

‘Cost Control’
The main ‘focus’ of Southwest Airlines: How do they do it?

a. Cheaper airports: It uses secondary airports

which reduces the cost of landing.
b. Single fleet type: It uses only one aircraft type
which reduces training for pilots, skills required of
mechanics required to remain operational.
c. Schedule: It intelligently schedules its flights, with
short turnaround times which reduces the fuel
cost.
d. Point to point: Runs only short, in-demand routes
at a high frequency.
e. Low fares: Passes the benefits of ‘low cost’ in
form of ‘cheap air tickets’ to its all customers.
 ACC507 – COST AND MANAGEMENT ACCOUNTING

Poll – I
• On the basis of case discussed, how ‘Southwest Airlines’
achieved the massive success in running its’ airlines at the
low cost?
a) It checked the prices charged by its competitors for
airline tickets and deliberately kept it low compared to its
competitors.
b) It calculated its operating cost and significantly focused
on to keep it in check all the times.
c) It took suitable measures during Coronavirus pandemic
and established special control to prevent its spread
during its airlines operations.
d) It scheduled its flights having long turnaround times that
operated only in one city.
 ACC507 – COST AND MANAGEMENT ACCOUNTING

3.) News Analysis

‘Pandemic forces PVR to go for cost reduction’
• It went for
a) salary cuts,
b) laid off employees and
c) deferred increments

• Such ‘cost reduction’ made to mitigate adverse

impact of Covid – 19 on its business.

• Currently not having any cash flows from its

operations.
 ACC507 – COST AND MANAGEMENT ACCOUNTING

Poll – II
• On the basis of case discussed, why it is
important for the PVR to go for cost reduction?
a) It will enable the PVR to remain out of the
business, till the normal business situation
arises.
b) It can suitably lay – off old employees during
pandemic and can hire fresh talent at high cost
in future.
c) It can pay low salaries during and after the
pandemic.
d) It will help PVR to reduce the negative impact
on profitability & cash flows during pandemic.
 ACC507 – COST AND MANAGEMENT ACCOUNTING

Three Pillars of ‘Cost Accounting’

Cost Cost
Cost
Ascertain Reductio
Control
ment n
 ACC507 – COST AND MANAGEMENT ACCOUNTING

Poll – III
• The managers of Tesla company found that, “The batteries
used in electric vehicles are very expensive. It requires the use
of costly metals like cobalt, nickel, lithium and manganese.”
• This information has been found by using the concept of:
a) Cost control
b) Cost determination
c) Cost reduction
d) All of the above
 ACC507 – COST AND MANAGEMENT ACCOUNTING

Course Learning Outcomes

• CO1 :: Employ the understanding of cost concepts to work analytically with
cost data.

• CO2 :: Apply cost-volume-profit analysis in business decision making and

performance evaluation process.

• CO3 :: Calculate material and labour variances, identify causes and

develop skills for controlling the adverse variances.

• CO4 :: Illustrate the use of cost management techniques for performance

evaluation and goal congruence.
 ACC507 – COST AND MANAGEMENT ACCOUNTING

Course Contents
Introduction to
Inventory and
Cost &
Budgetary Marginal Costing
Management
Control
accounting

Activity based Responsibility

Standard Costing
costing Accounting

Cost
Transfer Pricing
Management
 ACC507 – COST AND MANAGEMENT ACCOUNTING

4.) News Analysis

IT firms go aggressive on ‘cost-cutting’ amid COVID-19
crisis
• Top Indian IT firms,
have taken aggressive
cost take-out measures:
a) reduction in salaries
and wages
b) travel expenses,
c) freeze in salary hikes,
and
d) holding back variable
payments.
 ACC507 – COST AND MANAGEMENT ACCOUNTING

Careers in Cost & Management Accounting

 ACC507 – COST AND MANAGEMENT ACCOUNTING

Careers in Cost & Management Accounting

 ACC507 – COST AND MANAGEMENT ACCOUNTING

American Airlines – After 9/11 attacks

‘A Major Cost Cutting measure'
• Terrorist attack on the World Trade Center and Pentagon had
left people a little uneasy about airplane travel.

• ‘American Airlines’ was doing so poorly that they would have

needed to fill 103% of their seats just to break even.

• Bob Crandall, the former chief of AA, made many cost cutting
decisions- including removing one olive from each salad.

While one olive might not seem like much cost saving, all the
olives taken out made up a $40,000 drop in in-flight meal
costs per year.
 ACC507 – COST AND MANAGEMENT ACCOUNTING

We’ll do it with……
 Books…not FACEBOOK
 Case based discussion
 Problem Solving
 Homework
 Assignments
 Group discussions
 Class Discussions
 ACC507 – COST AND MANAGEMENT ACCOUNTING

YOUR
Role………..
 ACC507 – COST AND MANAGEMENT ACCOUNTING

In General.......
 ACC507 – COST AND MANAGEMENT ACCOUNTING

In particular….
Attending Taking
class notes
regularly

Practicing
at home

Working and
solving problems
in groups
Converting
theory into
practice
ACC507 – COST AND MANAGEMENT ACCOUNTING

• THANK YOU