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Management Accounting

HO III – Management Accounting. Management Accounting. Financial Statements ( review & analysis ) Cost Management Budgeting Cash Management. Stephan DEMAEGHT. Financial Statements. Balance Sheet presentations. Europe / USA Country legal presentation Internal presentation.

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Management Accounting

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  1. HO III – Management Accounting

    Management Accounting

    FinancialStatements (review & analysis) Cost Management Budgeting Cash Management Stephan DEMAEGHT
  2. Financial Statements Balance Sheet presentations Europe / USA Country legal presentation Internal presentation Income Statement presentations Legal presentation Contribution Margin presentation USALI presentation Stephan DEMAEGHT
  3. USALI Uniform System of Accounting for Lodging Industry + Department Incomes - Cost of sales (Variable Direct Costs) = Department Gross Margin - Department Payroll (Specific Salary Cost) - Department other Direct Costs = Department Net Margin Stephan DEMAEGHT
  4. USALI ∑ Department Net Margins for Operating Dpts. - ∑ Department Net Margins for Non Operating Dpts. - UndistributedSalaryCost - UndistributedGoods & Services Undistributed other operating costs = GOP (Gross Operating Profit) Management Fes Rent & Property expenses = EBITDA (or NOP) +/- Financial result (+financial incomes – financial costs) - Depreciation/Amortization = Gross Ordinary Profit +/- Outstanding result (+outstand. incomes – outst. costs) = GrossProfit - Revenue Tax = NI (Net Profit or Net Income) Stephan DEMAEGHT
  5. Financial Statements Ratios Profitability ratios (BS & IS) Liquidity ratios (BS or BS & IS) Investors ratios (Result from IS & Other infos) Solvency ratios (BS) Department ratios (need a detailed IS + extra information) Stephan DEMAEGHT
  6. Cost Management COST MANAGEMENT Where are thecosts? Stephan DEMAEGHT
  7. Cost Management Direct & Indirect Cost Direct Cost: linked to ONE particular department/division/product. Indirect Cost: linked to more than one particular department/division/product Stephan DEMAEGHT
  8. Cost Management The same cost can be direct or indirect in function of the company. Fast-food restaurant: Only hamburger and cheeseburger: cheese is a direct cost for the product “cheeseburger” Hamburger + cheeseburger + special cheese: cheese is an indirect cost (for 2 products). Hotel: Most probably, the cheese will be a direct cost for the department “kitchen”. Stephan DEMAEGHT
  9. Hamburger: bread + meat + ketchup + mustard Cheese: bread + meat + cheese + ketchup + mustard Big Bacon: bread + big meat + cheese + barbecue sauce + bacon King Fish: bread + fish + tartar sauce + cheese Chicken Burger : bread + chicken + salad + pepper sauce Bread Meat 100 gr Meat 200 gr Fish stick Chicken filet Cheese Bacon Salad Ketchup Mustard Tartar sauce Pepper sauce Cost Management Fast Food Stephan DEMAEGHT
  10. Cost Management Indirect costs splitting As a % of the sales (food cost, advertising,…) Per m2 occupied (fire insurance, interests for mortgage loan, building depreciation,…) Estimating labor time (salaries, social security,…) … Stephan DEMAEGHT
  11. Cost Management Fixed & Variable Cost Fixed cost: doesn't change with sales revenues fluctuation. Variable cost: change in direct proportion of the sales revenues. Semi Fixed or Semi Variable costs: not directly variable with revenues but not strictly fixed Stephan DEMAEGHT
  12. Cost Management Fast Food Meat, cheese, fish sticks, bread, salad, sauces,...(food cost) Restaurant Manager Salary. Restaurant Assistants Manager salaries. Crew salaries. Restaurant rent. Kitchen furniture's renting. Electricity. Phone invoices. Administration furniture's. Bags, boxes and packing papers. Cleaning products. Fire insurance. Stephan DEMAEGHT
  13. Cost Management

    How to split Total Costs into FC & VC?

    Linear regression Stephan DEMAEGHT
  14. Cost Management

    CVP

    The Cost – Volume – Profit Method Stephan DEMAEGHT
  15. Cost Management Formula Sales = Total Costs + Profit Sales = Fixed C. + Variable C. + GP Sales = FC + (VC% * Sales) + GP Sales – (VC% * Sales) = FC + GP Sales * (1 – VC%) = FC + GP Sales = (FC + GP) / (1 – VC. %) Stephan DEMAEGHT
  16. Cost Management Formula Sales = (FC + GP) / (1 - VC%) Where: 1-VC% = Contribution Margin Stephan DEMAEGHT
  17. Cost Management Break-Even Point It’s the Sales Revenue Level necessary to cover all operating costs. Below the Break-Even Point, you are loosing money. Above the BEP, you are winning. At the Break-Even Point: Fixed Costs + Variable Costs = Sales Stephan DEMAEGHT
  18. Cost Management From CVP to BEP Sales = (FC + GP) / (1-VC%) at BEP, GP = 0 Sales = FC / (1-VC%) Stephan DEMAEGHT
  19. Cost Management

    At Break Even Point:

    Sales = FC/(1-VC%) Stephan DEMAEGHT
  20. Cost Management Forecasting Incomes Required Profit Wanted = GP Sales = (FC + GP) / (1- VC%) Sales = (150.000 + 50.000) / 0,63 Sales = 317.460 euros Stephan DEMAEGHT
  21. Cost Management By how much Room Sales Revenue increase to cover a new fixed cost? New Sales Revenue = (original FC + additional FC + GP) / (1 – VC%) Stephan DEMAEGHT
  22. Cost Management By how much Room Sales revenue increase to cover a new investment? New Sales Revenue = (FC + Investment Depreciation + GP) / (1 – VC%) Stephan DEMAEGHT
  23. Cost Management How much Room Sales revenue increase to get a new GP? New Sales Revenue = (FC + New GP) / (1 – VC%) Or = (FC + original GP + additional GP) / (1- VC%) Stephan DEMAEGHT
  24. Cost Management What about replace a Fixed Cost by a Variable Cost? New Sales Revenue = (original FC + variation FC + GP) / (1 – (VC% + variation VC%) Stephan DEMAEGHT
  25. Cost Management IncomeStatement Sales Variable Costs = GrossMargin FixedCosts = GrossProfit RevenueTax = Net Income Stephan DEMAEGHT
  26. Cost Management Taxes effect Net Income = GP – Tax GP = NI + Tax CVP Formula: Sales = (FC + GP) / (1-VC%) Sales = (FC + Net Income + Tax) / (1-VC%) Stephan DEMAEGHT
  27. Cost Management Taxes rate GP = NI + Tax (where Tax = GP * TR) GP = NI + (GP * Tr) GP – (GP * Tr) = NI GP (1 – Tr) = NI GP = NI / (1- Tr) CVP Formula: Sales = (FC + GP) / (1-VC%) Sales = FC + (NI / (1 – Tr)) / (1-VC%) Stephan DEMAEGHT
  28. Cost Management FC ∆ FC + ∆ GOP ∆ NI BEP u = -------- ∆ SALES = ------------------- ∆ GOP = ---------- CMu 1 – VC% 1 - TR FC FC + GOP NI BEP = ------------- SALES = --------------- GOP = --------- 1 – VC% 1 – VC% 1 – TR CM = 1 – VC% SALES VC = VC% * Sales -VC = GM VC% = VC / Sales - FC = GOP Taxes = Tr * GOP -Taxes = NI Tr = Taxes/GOP Stephan DEMAEGHT
  29. Cost Management Stephan DEMAEGHT
  30. Cost Management

    Exercises

    E.8.1 to E.8.9 P.8.1 to P.8.12 Stephan DEMAEGHT
  31. Budgeting BUDGETING Stephan DEMAEGHT
  32. Budgeting Types of Budgets Operating (sales & expenses analyze) or Pre-Opening (Operating before opening) Budget. Long Term (1 to 5 years) & Short Term (<1 year) Budget. Fixed (based on a certain activity level ) or Flexible (including several activity levels) Budget. Department Budget (limited to a specific dpt.) Capital Budget (plan on several years to analyze a new investment). Master Budget (Sum of various previous budgets). Stephan DEMAEGHT
  33. Budgeting Budget Cycle Stephan DEMAEGHT
  34. Budgeting Goals & Objectives establishment. Prudence and realism. Real limiting factors: Number of rooms in a hotel. Number of seats in a restaurant. Staff productivity and quality. Link between wage conditions and available staff (you have the staff quality you pay for). Customer demand and competition. Stephan DEMAEGHT
  35. Budgeting Plan to achieve objectives. Meeting and stimulate the staff. Order food, beverage and goods (quality and quantity) to achieve sales forecasting. Financial plans to achieve budget. Stephan DEMAEGHT
  36. Budgeting Analyze & comparison Analyze differences between budget and actual results, explain, comment and assign responsibilities. Use the Comparative Horizontal Analysis. Stephan DEMAEGHT
  37. Budgeting Variances Actual Price Variance: (Pr-Pb) * Vr Pr Budget Pb Volume Variance = (Vr-Vb)* Pb Vb Vr Stephan DEMAEGHT
  38. Budgeting Variance Analysis Price Variance: Real Average Check – Budget Av. Ch. Sales Volume Variance: Sold Units – Sales Quantities Budgeted Percentage Variance: Variance / Budgeted Figure Cost Variance: Same as Price & Sales Volume variances but for the costs. Stephan DEMAEGHT
  39. Budgeting Corrective actions Changes to reach the budget (staff motivation, advertising, improve communication, staff changes,…) Forecasting changes (change the prices, modify goals or objectives,…) to modify the budget !!!When you change one element of a structure, you change the whole structure!! Stephan DEMAEGHT
  40. Budgeting Improve the budget Information provided from past budgeting cycles will help you to budget the future. Never forget we work with people, not only with numbers. Action – Reaction (you never finish). Stephan DEMAEGHT
  41. Budgeting Advantages of Budgeting Anticipation. Communication & motivation involving department staff. Brain storming. Open to alternative ideas. Evaluation possibilities comparing budget to reality after budget period. Budget cycle management. Stephan DEMAEGHT
  42. Budgeting Disadvantages of Budgeting Time & cost to prepare budgets. Many unknown factors. Could oblige to give confidential information before requirement. Tendency to spend to the budget (in big structures) or to overspend with the objective to increase expenses forecasting in next budget. Stephan DEMAEGHT
  43. Budgeting Read & learn Advantages and disadvantages of Budgeting in the book pages 372 & 373. Stephan DEMAEGHT
  44. Cash Management

    Cash Management

    Cash Flow & Working Capital Stephan DEMAEGHT
  45. Cash Management Importance of Cash Management Difference between Net Income and Cash Flows (inflows – outflows) To be able to pay what you have to. Cash forecasting. Stephan DEMAEGHT
  46. Cash Management Total Cash Flow Total Cash Flow = Net Cash Flow from Operating Activities + Net Cash Flow from Investing Activities + Net Cash Flow from Financing Activities Stephan DEMAEGHT
  47. Cash Management Cash Flow from Operating Act. Net CF from Op activities = NI + not paid charges – not received sales Net Cash Flow from Operating Activities = Net Income + Current Assets Decreases Current Assets Increases + Current Liabilities Increases - Current Liabilities Decreases + Depreciation / Amortization Expenses Stephan DEMAEGHT
  48. Cash Management Cash Flow from Investing Act. Net Cash Flow from Investing Activities = Sales of Fixed Assets - Purchase of Fixed Assets Stephan DEMAEGHT
  49. Cash Management Cash Flow from Financing Act. Net Cash Flow from Financing Activities = Long Term Liabilities Increases Long Term Liabilities Decreases Dividends Paid + Equity Capital Increases - Equity Capital Decreases Stephan DEMAEGHT
  50. Cash Management Exercises Book pages 452 – 461 E.10.1 to E.10.3 P.10.1 to P.10.2 P.10.4 P.10.7 Stephan DEMAEGHT
  51. Cash Management Working Capital Working Capital = Current assets – Current Liabilities. Statement of Changes in Working Capital is very similar to the Statement of Cash Flow. Stephan DEMAEGHT
  52. Cash Management Statement of Changes in Working Capital Changes = Inflows – Outflows Inflows = Income from operations (NI) + Depreciation + Fixed Assets Decreasing + LT Liabilities Increasing + Equity Capital Increasing Outflows = Loss from operations (Negative NI) + Fixed Assets Increasing + LT Liabilities Decreasing + Equity Capital Decreasing + Dividends payment Stephan DEMAEGHT
  53. Cash Management Preparing Cash Budget Cash Receipts = Current month cash sales revenue + Current month credit card receivable collections + Previous month credit card receivable collections + Previous month accounts receivable collections Cash Disbursements = Current month cash purchases + Previous month account payable Net Cash = Cash Receipts – Cash Disbursements Stephan DEMAEGHT
  54. Cash Management Exercises Book p. 486- 487: E.11.7 to E.11.9 Book p. 487- 488: P.11.1 to P.11.5 Stephan DEMAEGHT
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