Chapter 1: Managerial Ac.

& Business Environment Code of Conduct for Management Accountants: Practitioners of management accounting and financial management have an obligation to the public, their profession, the organization they serve, and themselves, to maintain the highest standards of ethical conduct. In recognition of this obligation, the Institute of management Accountants has promulgated the following standards of ethical conduct for practitioners of management accounting and financial management. Adherence to these standards internationally is integral to achieving objective of management accounting. Competence: Practitioners of management accounting and financial management have a responsibility to: Maintain an appropriate level of professional competence by ongoing development of their knowledge and skills. Perform their professional duties in accordance with relevant laws, regulations and technical standards. Prepare complete and clear reports and recommendations after appropriate analysis of relevant and reliable information. Confidentiality: Practitioners of management accounting and financial management have a responsibility to: Refrain from disclosing confidential information acquired in the course of their work except when authorized, unless legally obligated to do so. Inform subordinates as appropriate regarding the confidentiality of information acquired in the course of their work and monitor their activities to assure the maintenance of that confidentiality Refrain from using or appearing to use confidential information acquired in the course of their work for unethical or illegal advantage either personally or through third parties. Integrity: Practitioners of management accounting and financial management have a responsibility to: Avoid actual or apparent conflicts of interest and advise all appropriate parties of any potential conflict. Refrain from engaging in any activity that would prejudice their ability to carry out their duties ethically. Refuse any gift, favor, or hospitality that would influence or would appear to influence their actions. Refrain from either activity or passively subverting the attainment of the organization's legitimate and ethical objectives. Recognize and and communicate professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity. Communicate unfavorable as well as favorable information and professional judgment or opinion. Refrain from engaging or supporting any activity that would discredit the profession. Objectivity: Practitioners of management accounting and financial management have a responsibility to: Communicate information fairly and objectively Disclose fully all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, comments, and recommendations presented. Resolution of Ethical Conflicts:

In applying the standards of ethical conduct, practitioners of management accounting and financial management may encounter problems in identifying unethical behavior or in resolving an ethical conflict. When faced with significant ethical issues practitioners of management accounting and financial management should follow the established policies of the organization bearing on the resolution of such conflict. If these policies do not resolve the ethical conflict, such practitioner should consider the following course of action. Discuss such problems with immediate superior except when it appears that superior is involved, in which case the problem should be presented to the next higher managerial level. If a satisfactory resolution cannot be achieved when the problem is initially presented, submit the issue to the next higher managerial level. If the immediate superior is the chief executive officer or equivalent, the acceptable reviewing authority may be a group such as the audit committee, executive committee, board of directors, board of trustees, or owners. Contact with a level above the immediate superior should be initiated only with the superior's knowledge. assuming the superior is not involved. Except where legally prescribed, communication of such problems to authorities or individuals not employed or engaged by the organization is not considered appropriate. Clarify relevant ethical issues by confidential discussion with an objective adviser to obtain a better understanding of possible course of action Consult your own attorney as to legal obligations and rights concerning the ethical conflict. If the ethical conflict still exists after exhausting all levels of internal review, there may be no other recourse on significant matters than to resign from the organization and to submit an informative memorandum to an appropriate representative of the organization. After resignation, depending on the nature of the ethical conflict, it may also be appropriate to notify other parties.

Electronic commerce, commonly known as e-commerce, eCommerce or e-comm, consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. It is more than just buying and selling products online. It also includes the entire online process of developing, marketing, selling, delivering, servicing and paying for products and services. The amount of trade conducted electronically has grown extraordinarily with widespread Internet usage. The use of commerce is conducted in this way, spurring and drawing on innovations in electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the World Wide Web at least at some point in the transaction's lifecycle, although it can encompass a wider range of technologies such as e-mail, mobile devices and telephones as well. A large percentage of electronic commerce is conducted entirely electronically for virtual items such as access to premium content on a website, but most electronic commerce involves the transportation of physical items in some way. Online retailers are sometimes known as e-tailers and online retail is sometimes known as e-tail. Almost all big retailers have electronic commerce presence on the World Wide Web.

Opportunity cost is the cost of any activity measured in terms of the best alternative

forgone. It is the sacrifice related to the second best choice available to someone who has picked among several mutually exclusive choices.[1] It is a key concept in economics. It has been described as expressing "the basic relationship between scarcity and choice."[2] The notion of opportunity cost plays a crucial part in ensuring that scarce resources are used efficiently.[3] Thus, opportunity costs are not restricted to monetary or financial costs: the real cost of output forgone, lost time, pleasure or any other benefit that provides utility should also be considered opportunity costs.

Sunk costs: In economics and business decision-making, sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered. Sunk costs are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken. Both retrospective and prospective costs may be either fixed (that is, they are not dependent on the volume of economic activity, however measured) or variable (dependent on volume).

Prevention Cost
Cost related to the activity of any hindrance in production or process approaches, quality planning, quality function deployment, and/or complete quality enhancement issues falling into a category of value adding activities. Most parts of a Six Sigma program is to prevent various types of costs from raising. These costs may include the cost of insuring a quality product using a QA, (Quality Assurance) department to implement activities such as SPC, (statistical process control), quality inspections, gauge repeatability and reproducibility, and the like.

The Activity Base (Cost Driver): A "cost driver" is the unit of an activity that causes the change of an activity cost. A cost driver is any activity that causes a cost to be incurred. The Activity Based Costing (ABC) approach relates indirect cost to the activities that drive them to be incurred. In traditional costing the cost driver to allocate indirect cost to cost objects was volume of output. With the change in business structures, technology and thereby cost structures it was found that the volume of output was not the only cost driver. Some examples of indirect costs and their drivers are: maintenance costs are indirect costs and the possible driver of this cost may be the number of machine hours; or, handling raw-material cost is another indirect cost that may be driven by the number of orders received; or, inspection costs that are driven by the number of inspections or the hours of inspection or production runs. Generally, the cost driver for short term indirect variable costs may be the volume of output/ activity; but for long term indirect variable costs, the cost drivers will not be related to volume of output/ activity. John Shank and Vijay Govindarajan list cost drivers into two categories: Structural cost drivers that are derived from the business strategic choices about its underlying economic structure such as scale and scope of operations, complexity of products, use of technology, etc and Executional cost drivers that are derived from the execution of the business activities such as capacity utilization, plant layout, work-force involvement, etc. To carry out a value chain analysis, ABC is a necessary tool. To carry out ABC, it is necessary that cost drivers are established for different cost pools. "Cost drivers are the structural determinants of the cost of an activity, reflecting any linkages or interrelationships that affect it" (M. Porter), therefore we could assume that the cost drivers determine the cost behavior within the activities, reflecting the links that these have with other activities and relationships that affect them. True Variable Cost: A cost that varies in direct proportion to the level of activity is called true variable cost. Direct material is an example of true variable cost because the amount used during a period will vary in direct proportion to the level of production activity. Moreover, any amounts of direct materials purchased but not used can be stored and carried forward to the next period as inventory. Step-Variable Cost: The wages of maintenance workers are often considered to be a variable cost, but this variable cost does not behave in quite the same way as the cost of direct materials. unlike direct materials, the time of maintenance workers is obtainable only in large chunks. More any maintenance time not utilized cannot be stored as inventory and carried forward to the next period. If the time is not used effectively it is gone forever. Furthermore, a maintenance crew can work at a fairly leisurely pace if pressures are light but intensify its efforts if pressures build up. For this reason small changes in the level of production may have no effect on the number of maintenance people employed by the company. A resource that is obtained only in large chunks (such as maintenance workers) and whose costs increase or decrease only in response to fairly wide changes in activity is known as a step-variable cost.

Schedule of Cost .
Direct materials: Opening Raw materials inventory 500 (+) Purchase of Raw Materials 200 =Raw Materials available for use 700 (-) Closing Raw Materials 300 = Raw material used in Production Direct Labour Manufacturing Overhead: Insurance, Factory 100 Indirect labour 100 Machine Rental 200 Utilities, factory 150 Supplies 120 Depreciation, factory 130 Property taxes, factory 200 = Total overhead costs Total Manufacturing cost (+) Opening Work in process inventory (-) Closing work in process inventory

400 200

= Cost of goods manufactured

800 1400 800 200 500 2500 300 2200

2000

(+) Opening Finished goods inventory Goods available for sale (-) Closing Finished goods inventory Cost of Goods sold

Income statement:
Sales (-) Cost of Goods sold) Gross margin (-) Salelling & Admin Exp. Advertisemetn Managers salary Total Selling & Admin exp. Net operating income 900 700 200 50 100 150 50

High Law method: Variable cost= Cast at high activity level-Cost at law activity level) / (High activity level-Law activity level) Y=a+bx Least Square Regression: Y=a+bX b = n(XY) (X)(Y) / n(X2) (X)2 a = (Y) b(X) / n (X= Level of Activity (independent variable) (Y= Total Mixed cost (Dependent variable)