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    Operational Accounting

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    The document discusses operational accounting and cost management. It outlines the planning process, including strategic planning, operating planning, and developing expense and capital budgets. Expense budgets cover operating costs while capital budgets fund improvements. The document also discusses key concepts like economic profit, cost categories, and ways to improve cost performance such as reducing waste.

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    Operational Accounting

    Uploaded by

    salman
    57 views16 pages
    The document discusses operational accounting and cost management. It outlines the planning process, including strategic planning, operating planning, and developing expense and capital budgets. Expense budgets cover operating costs while capital budgets fund improvements. The document also discusses key concepts like economic profit, cost categories, and ways to improve cost performance such as reducing waste.

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    The document discusses operational accounting and cost management. It outlines the planning process, including strategic planning, operating planning, and developing expense and capital budgets. Expense budgets cover operating costs while capital budgets fund improvements. The document also discusses key concepts like economic profit, cost categories, and ways to improve cost performance such as reducing waste.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    57 views16 pages

    Operational Accounting

    Uploaded by

    salman
    The document discusses operational accounting and cost management. It outlines the planning process, including strategic planning, operating planning, and developing expense and capital budgets. Expense budgets cover operating costs while capital budgets fund improvements. The document also discusses key concepts like economic profit, cost categories, and ways to improve cost performance such as reducing waste.

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    Operational Accounting

    Process Economics and Mgmt 423


    Curtin University Lectures
    2012
    By Dr Anbalagan Krishnan
    Key Learning Outcomes
    Planning and Control
    Describe how you would set up a system of cost
    control .
    Capital and Expense
    Why is this distinction important to understand?
    Cost Management
    What other activities are important to achieve
    improving cost performance?
    The Planning Process
    Strategic Plan

    Operating Plan

    Expense Capital
    (Operating) (Improvement)
    Budget Budget
    Strategic Plan
    Companys Vision and Mission
    Where the business is headed
    The path it intends to take
    The distance and rate at which it intends to
    move
    Strategic Analysis

    http://www.perdana.my/home.htm
    Operating Plan
    Set direction
    Develop plan
    Implement plan
    Monitor progress on the plan
    Sets sales / marketing plan
    Flows to production plans
    Identifies non-financial indicators
    Devolved to operating centres, departments, and crews
    Identify customer & business requirements

    http://www.umw.com.my/Pages/def
    ault.aspx
    Expense (Operating) Budget
    Process initiated by management, usually on an
    annual basis
    Input required from line, technical and functional
    personnel
    Use to assign responsibility to the departments.
    Zero-based budget is ideal
    Exercise
    What are the Major Components of a Refinery Expense
    Budget?

    Raw material usages


    People levels
    Maintenance costs
    Cash expenses (supplies, contractors)
    Depreciation (non-cash cost)
    Raw material prices
    Salary levels
    Capital (Improvement) Budget

    Process initiated by management, usually


    on an annual basis
    Input required from line, technical and
    functional personnel
    Engineering focussed
    Budget levels usually based on availability
    of cash to finance new assets and business
    goals designed to increase shareholder
    value
    What is Shareholder Value?
    Shareholder value is ultimately represented by the
    market value of the companys shares
    The share price is determined by market
    expectations of long term cash flows
    Measures of shareholder value need to be sensitive
    to management actions which improve results in
    the short term but have long term detrimental
    consequences
    What Drives Shareholder Value ?
    Business Profitability .
    Organization stability .
    Demand of the company product.
    Business expansion .
    Social involvement .
    Staff commitment .
    Economic conditions.
    What is Economic Profit?
    A way of measuring an operations real
    profitability.
    The operation raises capital to manufacture
    products, and sell it at an operating profit.
    Then the cost of that capital is paid.
    Shareholders receive the balance.
    It is a measure of value added to the
    shareholders.
    Economic Profit - An Example
    Which company is more likely to have an
    improving share price?
    Company A: profit of $1 million, using assets
    which cost $5 million
    Company B: profit of $5 million, using assets
    which cost $50 million
    The weighted average cost of capital for
    both companies is 15%
    Economic Profit - An Example
    Co A: $1 m - (15% of $5 m) = $0.25 m EP
    Co B: $5 m - (15% of $50 m) = -$2.5 m EP

    Company A has increased shareholder


    value, while company B has destroyed it
    Cost Management
    What are Costs?
    Not just expenditure
    Waste is usually hidden cost within our
    normal processes - appears normal
    Waste usually develops as changes to
    systems and processes are implemented, but
    not all the related systems are changed
    Categories of Total Costs
    Strategic Operational
    Debt costs Labour
    New plants Materials
    Product Energy
    Tangible development Supplies
    Market development Contractors

    Poor product Poor quality


    positioning Absenteeism
    Technological Turnover
    Intangible obsolescence Poor morale
    Poor facility Lost output
    location Late delivery
    Unnecessary
    conveyance

    Source: Cost Containment, Peter R Richardson 1988


    Key Learning Outcomes
    Revisited
    Planning and Control
    Describe how you would set up a system of cost
    control at a chemical refining operation
    Capital and Expense
    Why is this distinction important to
    understand?
    Cost Management
    What other activities are important to achieve
    improving cost performance?

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