An interesting view on assets and income…
Here is a good post from worthytoshare.com which looks at a lady seeking a partner from an interesting view. It is worth a read, trust me
Accounting and public services
Accounting and accounting information is used for many purposes. Even the public sector immune to accounting information, and accounting-based controls. Recently (March 4th, 2014), BBC Radio 4 broadcast a very interesting programme (The Accountant Kings) on accounting in the provision of public services in the United Kingdom. Here is a link to the series website http://www.bbc.co.uk/podcasts/series/fileon4, and the podcast itself can be found at http://downloads.bbc.co.uk/podcasts/radio4/fileon4/fileon4_20140304-2050c.mp3.
A lively accountant’s website…
Have a look at this post from Accountancy Age. There is a link within to the website of a firm called Wood & Disney. It’s a well designed website, but with a touch of humour.
Promotions on price
As a management accountant, when price is dropped we probably want to be sure that we still make a profit- or at least cover cost. An article I found on inc.com gives some very useful hints to ensure that price promotion is effective in the longer term. Your can read is at this link.
How the cloud makes businesses possible
I have written a few posts previously on cloud computing and how it affects costs, software and business models.
I came across a nice article in Forces which details how businesses like Instagram and Snapchat can use the cloud to grow very quickly at minimum cost. Once such businesses grow, they can acquire a large value (e.g. WhatsApp recently), without actually having much in terms of what accountants would associate with value i.e. assets.
You can read the full article here.
Happy Christmas
Well, that’s it for 2013. I wish you all a very Happy Christmas and a prosperous 2014. I’ll be back in the new year. Meanwhile, keep warm and safe.
Nollaig Shona Dhaoibh
Martin
Stick to the cooking – restauranteurs and accounting knowledge?
Cuisine 3 etoiles de Jacques Lameloise (Photo credit: Wikipedia)
In October of this year, Michelin star chef Derry Clarke had a go at Dublin restaurants selling “cheap meals” – see here. I guess Clarke was thinking from his own view when he said “the number of restaurants offering meal deals at economically non-viable prices just isn’t sustainable, it’s the same cost in McDonalds, but we have all of the overheads”.
He may have a point about the number of restaurants being sustainable, but Derry, stick to the cooking. Any management accountant could figure out that even if meals are sold cheap (and I doubt they are below cost as Clarke suggests), they still make a contribution towards overhead costs. It would be better to have 50 guests in a restaurant earning a contribution of €5 a head (€250 in total) than having an empty restaurant. In the latter case, costs such as labour, heating, rent and so on are still incurred.
What cost can you sell at?
Factory (Photo credit: howzey)
In this post, I recount a conversation I had with a great mentor some years ago. It questioned my notion of what costs are relevant and how to set prices once a plant/factory is not at full capacity.
In a factory ( or any business perhaps ) when there is free capacity we can start to look at the make up of costs a little closer. Traditionally, management accounting would suggest we should at least cover all variable costs in the selling price. But think about it like this – if we have spare capacity, then perhaps the only additional cost is the material cost. Let’s assume we have a machine with a full crew, but not at full capacity. The fixed costs of the machine are just that – fixed, and we cannot avoid them. The labour costs are in effect fixed too, as workers will be paid. So, in this case, only the material costs are relevant. And this, any selling price above the material cost contributes to profit.
Yes, there may be many simplistic assumptions in the above. However, it made me think back then and I always give this example to my students. It is of course an example of throughput accounting, which I will mention next week.
Related articles
The Science May Be Settled, But the Economics Isn’t
A re-blog this week. This is a great post from the Freakonomics blog on the climate change debate – or fact perhaps more correctly. It makes interesting reading.
The Science May Be Settled, But the Economics Isn’t.
Related articles
Anyone can call themselves an accountant
Accountant upstairs ↑ (Photo credit: jah~)
Yes it’s true, anyone – in Ireland at least – anyone can call themselves an accountant. And, this has been the case for as long as I have been an accountant. I was reminded of this recently by an article in the Irish Times. To quote from the article:
“Don’t fret, because no qualifications are necessary to trade as an accountant. Anybody can open up a practice, no matter how innumerate they may be – there are no absolutely restrictions on the use of the term “accountant”. Remarkable, isn’t it?”
I guess it is remarkable. Yes, there are professional accounting bodies whose members must pass examinations and keep their training up to date. And yes, to be an auditor you must generally be a member of such bodies. But after that anyone can claim to be an accountant. As noted in the Irish Times, even an upcoming review and consolidation of Irish company law has failed (as yet) to include a provision of who can use the term accountant.
Related articles
- So, you think you are an accountant? (irishtimes.com)
Hidden costs – what are they?
Opportunity Cost (Photo credit: maxymedia)
The term “hidden cost” is one which we are probably quite familiar – the media like to use if a lot. But what is a hidden cost? Where do these costs hide? Can we avoid them in decision-making? Too many questions to answer in a single post, but let’s start with the term itself.
If you do a google search, you will get many definitions which define hidden costs as a similar concept to opportunity costs. I disagree with such definitions as if you have identified an opportunity cost, then it is not hidden is it? Ok, perhaps I am being a bit unfair here, but to me hidden costs are those which you may not foresee when making a decision. Of course, it’s never possible to foresee all costs when making a decision, but perhaps the hidden costs might emerge if more time is given to the decision – easier said than done in a business scenario.
Take the example of a house purchase decision. This is a big decision in anyone’s life, and we normally take the time to make the right decision on location, size, internal layout, price, amount to borrow and so on. After a few years in the house we might discover we are far from schools or work, or that it is hard to heat the house – these would be hidden costs of our house purchase as we probably did not factor them into our initial decision. There’s a good chance though that we would include such things in a second house purchase decision.
Product development and advertising costs
It’s probably fairly obvious that product development costs affect the overall profitability of any product. Some products like drugs and new technology incur huge development costs. New technology, at least at the consumer end, often incurs huge advertising and promotion costs too. And simply, if sales are not sufficient, then losses occur.
As an example, consider a report from the Irish Times on Microsoft’s efforts in the tablet market.
“Microsoft’s Surface tablets have yet to make any profit as sputtering sales have been eclipsed by advertising costs and an accounting charge, according to the software company’s annual report.
The two tablet models, introduced in October and February to challenge Apple’s popular iPad, have so far brought in revenue of $853 million, Microsoft revealed for the first time in its annual report filed with regulators yesterday.
That is less than the $900 million charge Microsoft announced earlier this month to write down the value of unsold Surface RT – the first model – still on its hands.
On top of that, Microsoft said its sales and marketing expenses increased $1.4 billion, or 10 per cent, because of the huge advertising campaigns for Windows 8 and Surface. It also identified Surface as one of the reasons its overall production costs rose.
The Surface is Microsoft’s first foray into making its own computers after years of focusing on software, but its first attempts have not won over consumers. By comparison, Apple sold almost $24 billion worth of iPads over the last three quarters.”
(Above is copyright of Irish Times/Reuters)
Management accountant’s travelogue- part 2 – merendero
While in Northern Spain – Asturias to be exact – we were invited one evening to a meal at a merendero. From my limited knowledge of Spanish, this translates loosely to a picnic area. What we in fact had was a lovely tapas evening in a restaurant with a merendero attached. I have written before about business being child-friendly, or not as is often the case. The merendero concept is so simple; a lot of picnic tables, some play areas/equipment, a simple ordering system where you collect you food. And, all this at minimum cost to the restaurant I would imagine – at least in fixed costs. On the revenue side, the turnover of the restaurant is probably increased quite a bit as 1) more parents come and 2) future customer (the kids) are secured. In the particular merendero we visited, there were at least 100 places outside for people to eat and drink – a sizeable increase in volume without equally high costs. If only the Irish weather were good enough to do this! But, I’m sure a clever restaurant owner could take some of the idea and increase their business success (and revenues).
Management accountant’s travelogue- part 1 – free ferry trips
(Photo credit: Wikipedia)
Sorry about the somewhat cheesy title ! This summer, I spent about 3 weeks on a driving holiday in France and Spain. I love driving to Europe – no airports, luggage limit is a much as you can carry in your car, and you can stop when you want where you want. I drove just over 3,000 miles and stayed in some beautiful places. During my journey, the old business brain was not completely switched off so I’d like to share some things I noticed and thought about. Of course, they will be related to management accounting one way or another.
The first thing I noticed was that the ferry trip to France gave us a free trip to the UK. A free something is nothing new – you can lots of examples of free products, two for three deals etc. in books like Freakonomics and Undercover Economist. The deal was simply I got a free trip in a car ferry to the UK for a car and 2 adults once I completed my trip to Europe. On my return, I phoned and all went perfect. I had to pay a small amount for the kids, but we got the dates we wanted. So how much is this promotion costing the ferry company. I guess there are two ways of looking at it:
1) it costs them the lost revenue from two other paying passengers with a car – so a sort of opportunity cost
2) it costs nil, and in fact increases contribution.
Which one would you use if you were making the decision/reporting to management ? I’d go with the second view, especially in off-season. The ferry in question hardly ever leaves the Irish Sea – going back and forward to the UK three times every 24 hours, all year round. In off-season, the boat is not full – but the costs of running it are the same – both fixed and variable costs. Thus, any extra monies I spend – buying food for example – reduces the fixed costs burden. If I were to think about this free trip in full cost terms, I would probably not offer it to passengers as the fixed cost are unlikely to be covered. This would be the wrong decision in my view, as anything that contributes to the bottom line is better that nothing, or suffering the fixed costs regardless.
Tune in over the coming weeks for some more holiday stories.
Martin's accounting blog 