某咨询财务分析CostAccounting(英文版)fusg.pptx

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1、Author:Collins QianReviewer:Bob Armacost bcCost AccountingMarch 1998Copyright 1998 Bain&Company,Inc.bcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting2CU7122397ECA Importance of cost allocationClient exampleDefinitionsdirect vs.indirect,fixed vs.variablebreakeven volumeExercisescost allocationbre

2、akeven volumeKey takeawaysAgendabcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting3CU7122397ECA Importance of cost allocationClient exampleDefinitionsdirect vs.indirect,fixed vs.variablebreakeven volumeExercisescost allocationbreakeven volumeKey takeawaysAgendabcBOS Copyright 1998 Bain&Company,In

3、c.Cost Accounting4CU7122397ECA本资料来源本资料来源bcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting5CU7122397ECA Which products are profitable?What is the breakeven volume by product?Which products require cost reduction efforts?How should we price our products?Which customer segments are most profitable?

4、It is critical to have accurate and complete cost data to make sound strategic and tactical management decisions.Why Allocate Costs?bcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting6CU7122397ECA Historically,only 20%of manufacturing costs were“shared”across product lines.Today,typically 50%of co

5、sts are“shared”across products.Shared costs might include rent,freight,and administrative costs.For simplicity,accounting tracks costs by function(e.g.,materials,salaries,benefits)rather than by the activity devoted to product lines(e.g.,maintenance of product A,freight for product B)For costs that

6、are not easily assigned to individual product lines,companies normally select the most convenient way to assign them,not necessarily the best wayfor example,companies tend to allocate rent costs based on something that is easy to measure,such as direct labor dollars for each product line.A better al

7、location method,however,might be the actual space resource demands of each product lineMost companies lack accurate cost data by product.Why Costs Are Often Not Allocated CorrectlybcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting7CU7122397ECA Importance of cost allocationClient exampleDefinition

8、sdirect vs.indirect,fixed vs.variablebreakeven volumeExercisescost allocationbreakeven volumeKey takeawaysAgendabcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting8CU7122397ECA Middle America Manufacturing,a Bain client,believed that all three of its product lines were profitable.Return on sales:1

9、0.0%2.4%1.6%Sales:$250MM$100MM$75MMMiddle America Manufacturing-Estimated ProfitabilitybcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting9CU7122397ECA After a thorough evaluation,the Bain team found that$8.0MM in costs had been allocated incorrectly among the three products.Middle America Manufac

10、turing-Cost AllocationbcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting10CU7122397ECA The Bain team also determined that an additional$18.8MM in costs should be allocated to the three products.Middle America Manufacturing-Additional CostsbcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting11CU7

11、122397ECA Bains analysis indicated that both bicycles and walking mowers were unprofitable.Middle America then began to investigate whether to exit or fix these two businesses.Return on sales:7.2%(3.0%)(6.9%)Sales:$250MM$100MM$75MMMiddle America Manufacturing-Actual ProfitabilitybcBOS Copyright 1998

12、 Bain&Company,Inc.Cost Accounting12CU7122397ECA Importance of cost allocationClient exampleDefinitionsdirect vs.indirect,fixed vs.variablebreakeven volumeExercisescost allocationbreakeven volumeKey takeawaysAgendabcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting13CU7122397ECA Definitions:Costs t

13、hat do not vary directly with changes in outputCosts that vary directly with changes in outputCosts incurred directly in the production or delivery of a firms product or service.These costs can easily be identified with,or assigned to,a particular productCosts generally incurred by the firm outside

14、of the production process.These costs cannot easily be identified with,or assigned to,a particular productAll costs can be broken down along two dimensions.FixedVariableDirectIndirectvs.vs.Examples:Equipment depreciationRentAdvertisingRaw materialsProduction laborDelivery costsDirect laborDedicated

15、equipmentRaw materialsSG&AOffice suppliesPlant managerRule of thumb:If a particular cost changes when production increases or decreases,the cost is variable.If a particular cost“goes away”when a product is dropped from the product line,the cost is direct.Types of CostsbcBOS Copyright 1998 Bain&Compa

16、ny,Inc.Cost Accounting14CU7122397ECA All costs are variable over a very long time horizon(i.e.,for very large increases in volume)Costs to run and maintain a computer system that tracks product orders are clearly fixed for a small change in volume,such as that associated with a slightly busy month.H

17、owever,they are variable for a large change in volume,such as that associated with a new plant.Most costs are semi-variable(i.e.,they tend to be added in lumps as volume increases)Supervisory labor tends to be considered fixed because it is unlikely that additional supervisors would have to be added

18、 to handle a small increase,say 10%,in volume.But the workforce can only increase so much before an additional supervisor is needed.In theory,production labor is variable.However,in many client situations,restraints placed by unions and difficulty in hiring and firing people in response to short-ter

19、m volume fluctuations make it,in practice,semi-variable.Defining the appropriate time horizon for the analysis is important.A meaningful analysis will isolate the fixed cost and variable components of a particular costFixed vs.VariablebcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting15CU7122397E

20、CA The following is an illustration of cost behavior for fixed,semi-variable,and variable costs:Cost(Dollars)Volume(Units)Variable costsSemi-variable costsFixed costsFixed vs.Variable-IllustrationbcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting16CU7122397ECA It is useful to know the following t

21、erms when doing cost analysis:Simplified income statement:-Variable Cost Gross Margin-Fixed Cost Operating MarginRevenue=Price per Unit x VolumeGross margin is also called“Gross Profit,”or“Contribution Margin”Operating Margin is also called“Operating Profit”RevenueIncome Statement TermsbcBOS Copyrig

22、ht 1998 Bain&Company,Inc.Cost Accounting17CU7122397ECA Breakeven volume is the volume at which the company covers its fixed costs.At breakeven volume,the operating profit is zero.VolumeContribution margin(i.e.,revenue less variable costs)Fixed costsBreakeven volume$Operating LossFixed costsUnit cont

23、ributionPrice per unit-Variable cost per unitBreakeven volume=Fixed costs=Operating Profit Contribution MarginBreakeven VolumebcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting18CU7122397ECA Operating Profit =Revenue-Costs =Revenue-Variable Costs-Fixed costs =(Price per unit x Volume)-(Variable c

24、ost per unit x Volume)-Fixed costs =Volume x(Price per unit-Variable cost per unit)-Fixed costs =Volume x Unit contribution-Fixed costsThe breakeven volume is the volume for which operating profit=0 0 =Breakeven volume x Unit contribution-Fixed costsFixed costsUnit contributionPrice per unit-Variabl

25、e cost per unitBreakeven volume =Fixed costs=Backup for Breakeven FormulabcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting19CU7122397ECA Importance of cost allocationClient exampleDefinitionsdirect vs.indirect,fixed vs.variablebreakeven volumeExercisescost allocationbreakeven volumeKey takeaways

26、AgendabcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting20CU7122397ECA All products are made using the same equipment and machineryPlant supervisors oversee production of all three productsEquipment capacity exists to increase production by 50%Sales people sell all three productsSales people are

27、paid a base salary,plus a commission which is a percentage of the selling priceMost advertising is product specificThe company uses a trucking company to deliver products to customers(costs are based on the length of trip and weight)Maple Leaf Company wants to allocate costs to the three products it

28、 makes and sells.Cost Allocation Exercise-BackgroundbcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting21CU7122397ECA How would you characterize the following costs over a time horizon in which the company plans to increase sales volume by 10%?FixedVariableDirectIndirectCEOs salaryRaw materialsSup

29、ervisory laborProduction floor laborRentEquipment depreciationOffice suppliesFreight to customerElectricity to run machinesInterest expense to finance inventoryAdvertisingGoodwill amortizationSales commissionsSales peoples salariesSales travel and expensesCosts:Cost Allocation Exercise-QuestionbcBOS

30、 Copyright 1998 Bain&Company,Inc.Cost Accounting22CU7122397ECACost Allocation Exercise-Answer Most costs are fixed indirect or variable direct.FixedVariableDirectIndirectAdvertisingRaw materialsProduction floor laborFreight to customerInterest expense to finance inventorySales commissionsEquipment d

31、epreciationCEOs salarySupervisory laborRentOffice suppliesGoodwill amortizationSales peoples salariesSales travel and expensesElectricity to run machinesbcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting23CU7122397ECA Cost ComponentsFixed vs.VariableDirect vs.IndirectAdvertisingFixed,because adve

32、rtising is usually not tied directly to volumeDirect,because,in this case,most of it is product specificEquipment depreciationFixed,because excess capacity exists for a 10%increase in volumeIndirect,because all products are made on the same machinesCEOs salaryFixed,assuming his/her salary does not c

33、hange with 10%sales increaseIndirect,because CEO oversees the whole companySupervisory laborFixed,because it is unlikely that additional supervisors will be needed to handle a 10%increase in volumeIndirect,because supervisors oversee production of all three productsIndirect,because all three product

34、s are produced at the same siteRentFixed,assuming current facility has excess capacityCost Allocation Exercise-Detailed Answer(1 of 3)bcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting24CU7122397ECA Cost ComponentsFixed vs.VariableDirect vs.IndirectOffice suppliesFixed,because it is unlikely that

35、 additional office supplies will be needed to handle 10%increase in volumeIndirect,because the office supplies are used to support all three productsGoodwill amortizationFixed,because goodwill is not directly related to volumeIndirect,assuming the goodwill is incurred to support the whole companySal

36、espeoples salariesFixed,assuming that current sales force can handle 10%additional volumeIndirect,because each salesman sells all three productsSales travel and expensesFixed,assuming that 10%volume increase will not require significant increase in sales activitiesIndirect,because sales-force handle

37、s all three productsRaw materialVariable,because a 10%increase in volume would require 10%more raw materialsDirect,because raw materials are directly traceable to individual productsCost Allocation Exercise-Detailed Answer(2 of 3)bcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting25CU7122397ECA Co

38、st ComponentsFixed vs.VariableDirect vs.IndirectDirect,because even though the products are made on the same machine,the hours spent working on each of the products are directly traceableProduction floor laborVariable,because more production labor will be needed to handle the increase in volumeFreig

39、ht to customersVariable,because the freight cost clearly increases with the volume increaseDirect,because weight and distance can be directly traced to individual productsInterest expense to finance inventoryVariable,because more inventory means more inventory financing and hence more interest expen

40、seDirect,because inventory is product specificSales commissionsVariable,because sales commissions are paid based on a percentage of salesDirect,because commissions are based on individual product salesElectricity to run machinesVariable,because it clearly varies with volumeIndirect,because all produ

41、cts are made on the same machinesCost Allocation Exercise-Detailed Answer(3 of 3)bcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting26CU7122397ECA LaborIn many client situations,restraints placed by unions and difficulty in hiring and firing people in response to short term volume fluctuations mak

42、e a portion of labor costs behave as fixed costsElectricity to run machinesIn theory this is direct,but in practice it is considered indirect because it is difficult to trace electricity cost to productsAlso,the 80/20 rule applies here.Electricity is usually a small cost item,and,for simplicity,coul

43、d be allocated using machine hours spent on productionAdvertisingUsually,advertising is not tied to volume.For example,advertising to support a corporate brand is not tied to the volume of the products under that brand.If advertising is not tied to volume,it is fixed and indirect.There are few cavea

44、ts:Cost Allocation Exercise-CaveatsbcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting27CU7122397ECA A dean of a business school is considering starting an executive program.She estimates the revenues and costs as follows:Question:How many students does the program need to break even?Costs:Revenue

45、:AdvertisingClassroom rental(Each classroom can accommodate 15 students)Program administrationProgram directors salaryFaculty salaries(The program will be staffed with 1 faculty member for every 5 students)Guest lecturerRoom and board per studentText and supplies per studentTuition per student$3,000

46、$13,500$500$30,000 per classroom$15,000$20,000$20,000 per faculty member$12,000$3,200Breakeven Exercise-BackgroundbcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting28CU7122397ECA Step 1:Categorize costsAdvertisingClassroom rentalProgram administrationProgram directors salaryFaculty salariesGuest

47、lecturesRoom and board per studentText and supplies per studentFixedVariableStep 2:Calculate fixed costsFixed costs:$3,000Advertising$15,000Program administration$20,000Program directors salary$12,000Guest lectures$50,000Semi-VariableFirst,you must categorize costs and calculate fixed costs.Breakeve

48、n Exercise-Answer(1 of 3)bcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting29CU7122397ECA Step 4:Calculate unit contributionUnit contribution=Price per unit-Variable cost per unit=$13,500tuition -3,200room and board-500text and supplies$9,800Step 3:Calculate semi-variable costsClassroomFaculty10

49、students$30,000$40,00015 students$30,000$60,00020 students$60,000$80,000Then you must calculate semi-variable costs and the unit contribution.Breakeven Exercise-Answer(2 of 3)bcBOS Copyright 1998 Bain&Company,Inc.Cost Accounting30CU7122397ECA*The most effective way to calculate the breakeven volume

50、is to write a simple formula in ExcelStep 5:Calculate breakeven volumeBreakeven volume=For 10 students:=12.2 students with 10 students the program does not If you keep increasing the number of students by one and redoing the calculation*,you will find that the business school needs to have 15 studen