Chapter 3 Chapter 3 Flashcards
Changes in business that have rethought the approach to accounting systems and methodology
Globalisation – breaking down international business barriers due to better transport and communication networks
Technology – more powerful systems to help both production processes and decision making
Fast changing, consumer tastes – consumers have become more demanding and less loyal. They have the ability to easily research the market. 
The principal results of changes in production and accounting system methodology
Short of product life-cycle is – cannot rely on products remaining profitable for as long since new versions will quickly become available
Greater competitive pressures – in the market place due to more local and international players, able to compete. Increase need to listen to what the consumer wants. 
Impact that modern approachs to accounting systems has had on the management accountant
There is a need to report in a more meaningful way to provide information that is agreed to use the senior managers. This has resulted in them working more closely with business managers and holding more senior positions.
A constraint (or bottleneck resource)
And activity, resource or policy that limits the ability to achieve an objective
By limiting a bottleneck, you enable the business to get more goods through production, in any given period.
Desired outcome is to increase sales and lower inventories
Throughput, accounting
In this technique, the only truly variable costs is material cost.
Throughput accounting is sometimes referred to as super variable costing. 
Conversion cost
All operating costs except direct materials
Theory of constraints
A procedure based on identifying bottlenecks (constraints), maximising their use, subordinating other facilities to the demand of the bottleneck facilities, alleviating the bottleneck, and reevaluating the whole system 
Goldratts (1980s), five-step process for managing bottlenecks
Step one – identify the binding constraint
Step two – exploit the constraint - make sure you get the maximum output 
Step three – subordinates everything else. Make sure all operations prior to the binding constraints are operating at the same rate to avoid with the buildup. 
Step four – evaluate the constraint – increased resources to make the binding constraint more efficient - increase resources to make binding and straighten more efficient (increased costs) 
Step, five – return to step one – if you have a limitation of the original binding, constraint double now be a new constraint… So start the process again. 
Purpose of the throughput, accounting, ratio
Identify if a business is generating returned faster than it is incurring costs.
The TA ratio must be greater than one. 
Digital products
Products to the stored and used electronically 
A lot of costing taking place at the feature, rather than the product level.
Most digital costs are likely to be fixed costs as the marginal cost of reproducing digital products will often be minimal. 
Types of digital costs 
Design and development- some maybe product specific some may be shared. This may include customisation and the configuration of the software used as well as its installation. 
Individual features of functions, provision, such as messaging – subscriptions may be needed to delivery services supplies
Infrastructure of the platforms – hosting and storage fees.
Payment method – each method allowed increases costs
Marketing – pre-– launch costs may be significant if the product is tested,
License – fixed costs of being able to use the software
Royalty – variable cost, depending on the sales generated
Support – including monitoring and maintenance of the elements of the system also fixing problems with the product 
Administration - maintaining relationships with users, also managing the functional services and managing and updating the apps
Staff – mostly incurred during product development, but also updating and maintaining the product. 
Problems with digital costing
Standard time or cost may be impossible to determine -
Drivers of overheads and the impacts may be difficult to assess
Many related costs will be incurred upfront.
Product lifetimes may be difficult to estimate.
Several products may have common product features.
It may be difficult to determine who was responsible for controlling some digital activities,
Financial accounting treatment of digital costs 
Digital costing systems
Real-time market information about costs of supply, enabling rapid purchase decisions and greater choice of supplier.
Real-time information about cost drivers, leading to more accurate, absorption, decisions,
Conjunction of market information and product design information to help organisations find the highest quality and most cost-effective sources.
Use of analytics to assess supplier and supply behaviour over time
Use of intelligent decision support software to select best purchasing options.
Ability to deal with many decisions.
Use of micro services to breakdown, operational and accounting decisions in line with organisational responsibilities. 
Considerations to introduce digital costing systems
Protocols of data capture, considering lack of structure and possible and reliability of all data
Data available internally with comparison to external resources will need to be maintained effectively.
What skills are required to operate systems, affectively and maintain control, such as data assessment, business analysis, and service security.
