Engineering Management Accounting Lecture 5

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Engineering ManagementAccounting Lecture 5
ELE 2EMT
George Alexander G.Alexander_at_latrobe.edu.au http/
/www.latrobe.edu.au/eemanage/
24 August, 2007
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Review

• Accounting Definitions
• Financial
• Management
• Simple model of firm
• QANTAS
• TELSTRA
• flows in/out
• Define assets/types
• Depreciation
• Other expenditure

• Liabilities
• Owners equity (Assets-Liabilities)
• Balance sheet/ Statement of Financial Position
• Profit and loss/Statement of Financial
  Performance
• Forms of ownership
• Business ratios and other concepts elasticity,
  breakeven, EOQ

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The Firm a simple model
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Financial Accounting

• That part of an accounting system that tries to
  meet the needs of various external users.
• Bazley et al

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Management Accounting

• That part of an accounting system that tries to
  meet the needs of management and internal users.
• Bazley et al

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Resources Human Materials Equipment Financial Inf
ormation
managerial Planning Organisation Leading Controll
ing Technology
Outcomes Products services Profit
loss employees growth satisfaction
Inputs
Transformation Process
Outputs
Bartol Management A Pacific Rim Focus,
McGraw-Hill, 2001
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Summary of this week

• Management Accounting
• The budget process
• Inputs to the budget process
• Internal organisation structure
• Functions within a typical organisation
• Typical types of expenditure

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Budget

• This is a key aspect of management accounting
  within the organisation.
• Bazley et al define the budget as
• A short and long-term plan of action for the
  future operating activities of a business,
  expressed in monetary terms.
• It covers a period of time called the budget
  period which is normally one year.

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Overall Purpose of the Budget

• Budgetary Control actual performance can be
  compared with the budget to identify any
  deviations so that management can take corrective
  actions. (Bazley et al).
• Budgetary control provides a useful mechanism for
  predicting likely financial outcomes to the
  stakeholders.

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Some Specific Purposes of Budgets(Bazley et al)

• Compels planning.
• Co-ordinates the functions within the
  organisation.
• Form of communication
• Provides a basis for responsibility accounting.
• Provides a basis for a control mechanism.
• Authorise expenditure.
• Motivate employees.

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PL/Balance Sheet/Budget

• PL reports receipts and expenditure over the
  period in question the accounting period.
• The Balance Sheet records the financial position
  of the organisation at a given point in time.
• The budget is attempting to predict in advance
  what the PL will look like in the same timeframe
  the budget period, and what the balance sheet
  will look like at the end of the same period.

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Telstra Income Statement
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The budget process iterative aspect
Budget Targets
Budget Process
Budget
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Budget Inputs Required

• Overall targets, revenues, profitability
• Specific volumes including any new products
• Any specific new market initiatives
• Any new RD initiatives
• The latest comparison of budget and actuals
• Forecasts of inflation rates and salary
  increases.
• Specific cost reduction/efficiency initiatives.

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Some Specific Expenditure Types

• Salaries and wages
• Rent and other building-related expenses
• Insurance
• Taxes and charges
• Marketing and advertising
• Communications
• IT charges
• Motor vehicles and travelling
• Entertainment
• General supplies
• Assets equipment, inventories

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Note

• Organisation structure, and the specific
  responsibilities that reside within the various
  units, can vary greatly from one organisation to
  another.
• The following structure and descriptions
  illustrate possible functional responsibilities.

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Possible Organisation Structure
Board of Directors
CEO
Operations
Human Resources
Finance Treasury
RD
Sales Marketing
Budget Control
IT Services
Production
Engineering Support
Service
Logistics
Quality Assurance
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Sales and Marketing

• Market strategies and planning
• Selling
• Bids and tenders
• Direct customer liaison
• Develop potential new customers

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Research and Development

• In Line with Market demand -
• Research new products and technologies
• Develop new products
• Enhance existing products.

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Operations

• Logistics supply, distribution
• Production staged transformation
• Engineering support
• Production Engineering
• Test engineering
• Maintenance
• Buildings/facilities
• Service customer support, installation

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Human Resources

• Co-ordinate such activities as
• Recruitment
• General working conditions
• Award compliance
• Job classifications
• Pay scales
• Appraisal systems
• Encourage corporate culture and values
• Employees surveys

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IT Services

• Provide an effective IT infrastructure.
• Support the IT infrastructure through helpdesk
  facilities and internal consultancy services.

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Finance/Treasury

• Ensure that the necessary funding is provided to
  support the organisations cash flow needs.
• Ensure this is done in the most economical way.
• Ensure the organisations financial commitments
  are met loan repayments, accounts payable etc.
• Ensure accounts payable to the organisation are
  made in a timely way so minimising the need for
  borrowings.

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Budget Control

• Co-ordinates budget activities including regular
  budget reviews.
• Monitors actual expenditure compared to budget
  and highlights discrepancies.
• Acts as a general promoter of cost reductions and
  efficiency improvements.
• Reports on company financial performance.

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Quality Assurance

• Co-ordinates all quality matters within the
  company.
• Ensures compliance with accredited quality
  standards through internal audits.
• Promotes the concept of Total Quality Management
  within the organisation.
• Liaises with external Quality organisations.
• Promotes benchmarking.
• N.B. Is not in itself responsible for meeting the
  organisations quality standards.

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Next Week

• Look at the operations/production budget in more
  detail.
• Examine how that affects the product cost
  calculation.

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Reference

• Bazley, Hancock, Berry, Jarvis Contemporary
  Accounting, Thomson

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Thanks for your attention