Lecture 4 - Single entry bookkeeping. Variability accounting

Question 1

(!!!!) Describe variability accounting

Answer 1

General:
- Registration/recording system
- CM system
- SEB instead of DEB
- Serve all purposes
- Allocate as far down as poss.
- Initial data stay intact
- Database of unspoiled data
- All cost recorded as direct
- No already set calculations
- Individual analysis: No cross-ref. between dim.
- Multipurpose system
- Not focused on specific task
- Handling outside system possible
- Theoretical constructed
- No VC & FC
- Excl. Depreciations & interests
- Statistic > Double-entry principle
- Consumption at standard prices
- Cost vs. Value of info
- Data as disaggregated & accessible as poss.
- Only cost with same divisibility, variability & reversibility on same level
- Info to make ABC
- Monetary & non-monetary

Try to solve all accounting task:
— Profit/loss
— Costing/pricing
— Cost control
— Deliver cost data for DM
— Budgeting

Critique:
- Less used than contribution margin model
- Overruled by technological development: More indirect costs
- Less used today since many costs high in hierarchy

Counter terms:
- Problem-determined hierarchy

Key message:
- “No arbitrary allocation”

Question 2

(!!!!) Describe the five registration dimensions in the variability accounting system

Answer 2

General:
- Ref. Vagn Madsen
- Number of digits in account code signal how far down in hierarchy/account: Eg. Upper level: 1 digit, second: 2 digits
- Often: Firm - department - product - component
- Try answer all questions

__________

Type of production factor:
- “What”
- Carry the cost
- Used in departments & objectives
- No hierarchy
- Physical quantitative
- Input factor
- Basic record
- Eg. Mat. or Labour

__________

Department:
- “Where”
- Location, not responsibility
- Must consider cost of info
- Has hierarchy
- Physical quantitative
- Input factor
- Basic record

__________

Cost objective:
- “Why”
- The costing process
- Low level: Quantitative/objective
- High level: Qualitative/subjective
- All costs are direct
- Has hierarchy
- Not only products
- No depreciation
- Physical quantitative
- Input factor
- Basic record
- Only extra consumption cost
- Direct vs. indirect: Not VC vs. FC
- Eg. Product

Criteria 1:
- Production factor must vary with increase or decrease in variability factor

Criteria 2:
- Physical factor consumption/use actually measured as consumed input of objective

__________

Quantity of production factor:
- Physical quantitative input factor
- Acquired outside firm
- Multifunctional if in more depart. or objectives

__________

Total cost:
- # units * standard unit costs
- Basic record

Question 3

(!!!!) What is meant by natural cost & problem-determined hierarchies for cost objectives?

Answer 3

Natural cost hierarchy:
- Registered high: Joint costs
- Registered low: Specific cost
- Secure “no arbitrary allocation”
- Register cost as precise as poss.
- Where & why prod. factor has been used
- Ref. Vagn Madsen
- Ref. Paul Riebel

Problem-determined hierarchy:
- Product hierarchy
- Register according to cost objective
- Limit future queries

Question 4

(!) What is meant by variability factor?

Answer 4

• VC/unit cost = 100% variability
• Systemize cost in larger group by common factor
• Guide account code design: Natural cost hierarchy
• Cost & variability factor must vary proportionately: Auto. w. volume of output or cost varying w. volume
• Require measuring & registering consumption
• Identify, measure & record each unit of output
• Not for departments: Require change in activity
• Measure output
• Process that initiate & cause cost
• Converted into common measure: Eg. hours
• Harder for higher level objectives: Often require cross-reference between dimensions
• No 1-on-1 relation to objectives required

Question 5

Describe what is meant by the pagatorian costs & principle

Answer 5

Pagatorian cost:
- Cash payment
- Expenditure derived cost concept: Not reversible
- Each cost has own direct quantitative factor varying proportionately

The pagatoric principle:
- Change if activities change?
- Opportunity costs, depreciations & imputed cost not part of VAS

Question 6

(?) What is a process, objective & task

Answer 6

Process:
- Operation with given objective

Objective:
- Less specific than task

Task:
- More specific than objective

Question 7

(!) Draw the account system

Answer 7

Question 8

Describe the standard profit analysis

Answer 8

• Backward-looking
• Sales activity level directly define requirement for resources & capacity in certain period

Question 9

(!) Draw account codes for this workflow based on a natural cost hierarchy

Answer 9

• 3 finished products in principle main objectives
• Yet C2 & C11 used in more products –> Place in top of hierarchy
• C4 is a by product