Sustainability – an accountant’s brief thoughts
Sustainability is a huge issue for us all, not just for accountants. It is not my specific area of expertise, so over the next few weeks Dr Stephen Jollands, University of Exeter, will be writing a few guest posts on my blog. He will give you much more on sustainability actually means, but let me tell you what inspired me to ask Dr Jollands to write some stuff.
I was travelling back to Ireland on an Aer Lingus flight recently. It was an early flight, so I ordered a breakfast, some muffins and drinks for my kids and a tea and cake for my wife. So we started to eat. As I was eating my breakfast I realised I had a portion or marmalade I did not want to eat just then, and portions of salt/pepper I did not use, and some plastic cutlery and some milk. So I thought why not bring some of it home and use it for lunch – which I duly did. Then I started to think about how many similar items would be simply waste on the flight. And, thinking further, the effort (and cost) that goes into produced all these portions is simply wasted too. This, I thought is completely daft, and here it come, not sustainable. All sorts of questions came into my mind – why do we waste so much, why do the flight attendants not ask if you want certain portions, how much money is wasted in this one flight, what natural resources are wasted etc.
This simple everyday experience of mine shows the kind of issues that might be part of the broader sustainability field. I’ll leave it up to Dr Jollands to give you some more insights over the coming weeks.
Book going to press
For a few years now myself and three co-authors have been working on a management accounting text book. Well, it’s finally gone to press today and will be available to buy in mid-January. See here for more.
A graphical look at business performance – Apple Retail stores
I have written quite a few posts on performance management of firms and how management accountants can use both financial and non-financial performance measures. One thing I have not thus far mentioned is the actual presentation of such information. I am not one of those people who uses the bells and whistles and products like Powerpoint, but I do appreciate that information presenting in a short, concise format. One way to do present information in a clear way is to use a graphical format. So, here I give a great example which a kind reader of my blog referred me to.
We all know how successful Apple Inc are. Now you can look into their annual reports and analysts presentations to get a view of how much money they make. But wouldn’t you love to know what Apple’s managers get to see on a regular basis in terms of the company performance. That is, what kind of performance measurements might they use and report on internally. Below you’ll see a great infographic on the performance of Apple’s retail stores. The data shown is self-explanatory, so I will not detail it here. When I first saw this graphic, I thought wow, wouldn’t this be a great internal performance measurement tool. Of course, we don’t know if Apple actually prepare something like this infographic, but it is certainly quite effective at getting the message across.
From onlinemba.com, see http://www.onlinemba.com/blog/apple-stores/
Accounting textbooks for free!
A while ago, I promised some Facebook friends to review some text books from bookboon.com, a website where you can download free accounting books. Given my teaching and research area is management accounting I choose the text on Managerial and Cost Accounting. As I am an author myself, I have had quite a bit of experience in both writing and reviewing text books. So, I will try to be critical but fair. So here goes.
First, the authors seem well experienced and qualified to write the text, so that’s good. The writing style is pretty clear, although it uses US English (not an issue, just a minor comment). There are a total of 21 chapters (see below for the full contents), which covers the vast majority of the important management accounting topics. Now to be fair, I have not read all chapters word-for-word, but the text does seem to cover all topics pretty well at an introductory level. The authors use some graphics to explain stuff and give normally one example of a technique per chapter.
So far so good, but now for the downsides. I suppose it must be remembered this a free text. And even though it is free, it is actually quite good in terms of basic content. But it does fall down on what I as an author/lecturer would expect of a textbook. The pitfalls are in the area of exercises within the text (I know there is a separate book of exercises, which I have not reviewed yet) and basic things from a pedagogical nature – learning objectives, key terms, real life examples and so on. The content, as I said previously, is also at an introductory level and for the more advanced or specialist management accounting courses simply would not be enough – for example, there is little is no references to academic research. The downloaded file also has adverts, which I can live with, but some might find this annoying.
And finally, as I am a bit of a techie, I tried to download the book first on my Android Tablet (in July 2012). This did not work. I actually think this is a major pitfall. Why? Well, the book is absolutely fine for a non-specialist introductory course in management accounting or accounting. The audience for this book is less likely to be those in universities in developed countries (although I have nothing to verify this, but I am quite sure that it would be difficult to challenge the embedded text books), but more so developing countries. I have read in The Economist and several other sources that countries like India are considering given cheap (less than $100) tablets to students with texts pre-loaded. This text would be ideal for such students to introduce them to the basics of management accounting, with the more traditional texts helping them in more advanced areas.
So my overall opinion, a reasonable book for the fact that it is free. But, I would suggest it is most suitable for introductory courses and get it working on tablets.
Table of Contents of the book.
Part 1. Introduction to Managerial Accounting
1. Managerial Accounting
1.1 Professional Certifications in Management Accounting
2. Planning, Directing, and Controlling
2.1 Decision Making
2.2 Planning
2.3 Strategy
2.4 Positioning
2.5 Budgets
2.6 Directing
2.6.1 Costing
2.6.2 Production
2.6.3 Analysis
2.7 Controlling
2.7.1 Monitor
2.7.2 Scorecard
3. Cost Components
4. Product Versus Period Costs
4.1 Period Costs
5. Financial Statement Issues that are Unique to Manufacturers
5.1 Schedule of Raw Materials
5.2 Schedule of Work in Process
5.3 Schedule of Cost of Goods Manufactured
5.4 Schedule of Cost of Goods Sold
5.5 The Income Statement
5.6 Reviewing Cost of Flow Concepts for a Manufacturer
5.7 Critical Thinking About Cost Flow
Part 2. Cost-Volume-Profit and Business Scalability
6. Cost Behavior
6.1 The Nature of Costs
6.2 Variable Costs
6.3 Fixed Costs
6.4 Business Implications of the Fixed Cost Structure
6.5 Economies of Scale
6.6 Dialing in Your Business Model
7. Cost Behavior Analysis
7.1 Mixed Costs
7.2 High-Low Method
7.3 Method of Least Squares
7.4 Recap
8. Break-Even and Target Income
8.1 Contribution Margin
8.2 Contribution Margin: Aggregated, per Unit, or Ratio?
8.3 Graphic Presentation
8.4 Break-Even Calculations
8.5 Target Income Calculations
8.6 Critical Thinking About CVP
9. Sensitivity Analysis
9.1 Changing Fixed Costs
9.2 Changing Variable Costs
9.3 Blended Cost Shifts
9.4 Per Unit Revenue Shifts
9.5 Margin Beware
9.6 Margin Mathematics
10. CVP for Multiple Products
10.1 Multiple Products, Selling Costs, and Margin Management
11. Assumptions of CVP
Part 3. Job Costing and Modern Cost Management Systems
12. Basic Job Costing Concepts
12.1 Cost Data Determination
12.2 Conceptualizing Job Costing
12.3 Tracking Direct Labor
12.4 Tracking Direct Materials
12.5 Tracking Overhead
12.6 Job Cost Sheets
12.7 Expanding the Illustration
12.8 Another Expansion of the Illustration
12.9 Database Versus Spreadsheets
12.10 Moving Beyond the Conceptual Level
13. Information Systems for the Job Costing Environment
13.1 Direct Material
13.2 Direct Labor
13.3 Overhead and Cost Drivers
14. Tracking Job Cost Within the Corporate Ledger
14.1 Direct Material
14.2 Direct Labor
14.3 Applied Factory Overhead
14.4 Overview
14.5 Financial Statement Impact Scenarios
14.6 Cost Flows to the Financial Statements
14.7 Subsidiary Accounts
14.8 Global Trade and Transfers
15. Accounting for Actual and Applied Overhead
15.1 The Factory Overhead Account
15.2 Actual Overhead
15.3 The Balance of Factory Overhead
15.4 Underapplied Overhead
15.5 Overapplied Overhead
15.6 Influence of Gaap
16. Job Costing in Service, Not For-Profit, and Governmental Environments
16.1 The Service Sector
16.2 Capacity Utilization
17. Modern Management of Costs and Quality
17.1 Global Competition
17.2 Kaizen
17.3 Lean Manufacturing
17.4 Just in Time Inventory
17.5 Total Quality Management
17.6 Six Sigma
17.7 Reflection on Modern Cost Management
Part 4. Process Costing and Activity-Based Costing
18. Process Costing
18.1 Process Costing
18.2 Comparing Job and Process Costing
18.3 Introduction to the Cost of Production Report
18.4 Job Costing Flows
18.5 Process Costing Flows
18.6 Job Costing Flows on Job Cost Sheets
18.7 Process Costing Flows on Cost of Production Reports
19. Equivalent Units
19.1 Factors of Production
19.2 An Illustration of Equivalent Units Calculations
19.3 Cost per Equivalent Unit
20. Cost Allocation to Completed Units and Units in Process
20.1 Cost of Production Report
20.2 Journal Entries
20.3 Subsequent Departments
20.4 The Big Picture
20.5 FIFO Process Costing
21. Activity-Based Costing
21.1 Pros of ABC
21.2 Cons of ABC
21.3 The Reality of ABC
21.4 A Closer Look at ABC Concepts
21.5 The Steps to Implement ABC
21.6 A Simple Analogy
21.7 A Case Study in ABC
21.8 Study Process and Costs
21.9 Identify Activities
21.10 Determine Traceable Costs and Allocation Rates
21.11 Assign Costs to Activities
21.12 Determine Per-Activity Allocation Rates
21.13 Apply Costs to Cost Objects
21.14 What Just Happened?
21.15 A Great Tool, But not a Panacea
The importance of integrating cost and risk into decision making
Olympic Stadium at Stratford, London (Photo credit: Wikipedia)
It’s always great to find and example of where some simple planning and management accounting type work would have done quite a bit for a particular company or decision.
During the summer just past, a great example came to life. The London 2012 Olympics have come and gone, but I’m sure you can imagine such an event needed a lot on planning. Mostly, the games went fine. However, a few weeks before the games kicked off, a story broke about how G4S would not be able to deliver the number of security personnel they were contracted to provide. You can read more on the BBC website here, but in a nutshell G4S racked up losses of £30-50m. Why? Well it seems to boil down to not been able to recruit enough new staff and train them within the timeframe, and thus G4S have to cover the cost of army personnel provided instead. According to the BBC, the value of the contract was £280m and one would think there should be scope for profit in this. I wonder did anyone ever ask this key question: What if we cannot recruit enough staff? If this question was asked, then the next question might be: how much will it cost us if we cannot provide enough staff. These two relatively simple questions might have forced managers at G4S to think about the risk of this happening and the costs. This does not mean they would have not faced the problems and costs they did, but at least they may have been more prepared to deal with the problem as it happened – or better still planned better from the start.
Business recovery plans – a must, but a cost?
This summer, customers of the Irish based Ulster Bank faced 3-4 weeks of problems getting paid and paying bills as the banks payment system failed. Customers had to queue to get cash from their accounts and go to other banks to pay bills- see my post 2 weeks ago about how some countries are limiting the amount that can be paid in cash; these limits would be too low to pay a mortgage in Ireland for most.
When I worked in a paper firm, I was involved in the decision to set up a simple business recovery plan. At the time, I was IT manager at a plant with about €30m turnover and 150 staff. The whole place was more or less run by a single system which managed sales orders, production planning and invoicing. We had a server onsite which done all this. This was not always so, so once I realised we were so dependent on a single piece of hardware/software I initiated a discussion with the plant management board to get a recovery plan in place. To keep it brief the cost of having a server available to us at any location within 4 hours was €7000 per annum. As part of the contract we could also do a free trial run once a year to test how long it would take to recover our systems. I always remember the production manager saying this was a cheap deal as if we had no systems we would basically loose wall customers within a week. And all we did was made cardboard boxes. Surely a bank should have a much better system in place. The cost does not really matter in the decision, it’s much more about the list revenue and lost customers.
The photo by the way comes from a friends Facebook page .
Martin's accounting blog 