5.10. Product mix under capacity constraints

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En provenance du cours de Moscow Institute of Physics and Technology

Core Concepts of Accounting – Numbers and People

2 notes

Moscow Institute of Physics and Technology

Core Concepts of Accounting – Numbers and People

2 notes

Cours 3 sur 5 dans Specialization Understanding Modern Finance

Whenever the word “accounting” is pronounced, it is immediately associated with the need to memorize endless boring numbers. However, it is the common financial statements that contain important information that provides inputs for valuation of investment projects. The only challenge is how to properly extract them. Accounting and finance are indeed intertwined. Sometimes people that are not experienced in the area even mix them up. But most often emphasis in accounting is on numbers. Still, the deep understanding of key accounting concepts helps reveal the interests and actions of people behind these numbers. And the human dimension of accounting adds invaluable insight in the potential of successful project implementation. This Course discusses core ideas and concepts of both financial and managerial accounting. It by no means pretends to be comprehensive to any extent. But, being rather an accounting overview, it focuses on the issues that are most relevant and important for effective valuation of investment projects. The learners will gain insight into the essence of accounting. They will be able to use the obtained knowledge and skills to successfully advance in their career at a financial institution, as well as in the area of financial management at non-financial businesses. To pursue a career in accounting, a more detailed study is strongly recommended.

À partir de la leçon

Activity-Based Costing (ABC). Relevant Costs

In Week 5 we will study the more advanced approaches to costing – activity-based costing (ABC) and relevant costs – that provide for the more accurate costing of products, projects, and divisions, and allow to reveal actual relationship between numbers and people. We start with the analysis of ABC on an example of a small retail firm. Then we move on to the more detailed example of the use of ABC in manufacturing. Both examples will help us gain insight in the role of ABC in identifying ways to improve performance. Finally, we analyze the idea of relevant costs and its application to managerial actions –make-or-buy decisions, product mix under capacity constraints, customer profit analysis. Of special attention will be the role of relevant and opportunity costs in valuation.

5.1. Activity-based costing (ABC) – an overview8:38

5.2. ABC for a retail firm (1)9:01

5.3. ABC for a retail firm (2)13:21

5.4. ABC in manufacturing (1)13:37

5.5. ABC in manufacturing (2)13:21

5.6. Insights provided by ABC8:30

5.7. Relevant costs – an idea10:53

5.8. Make-or-buy decisions (1)6:04

5.9. Make-or-buy decisions (2)10:30

5.10. Product mix under capacity constraints8:33

5.11. Customer profit, ABC, and relevant costs7:32

5.12. Irrelevance of past costs10:43

Rencontrer les enseignants

Konstantin Kontor
Director and Professor of Finance and Strategy
American Institute of Business and Economics (AIBEc)

Well, we proceed with some of our conclusions.

And this episode we have a sort of a scheme of some conclusions that we are already,

when we are now ready to come up with.

So, here I am briefly wrapping what we have done throughout

this course so we said that for any in pursuit of success,

we're in pursuit of this notorious synergy.

We start with the idea then,

this idea should be sort of linked to a strategy and then,

we create a plan.

We hopefully overcome all legal and regulatory obstacles

or challenges and we get an approval then,

we arrive at the valuation which is the key part here.

Finally from here, we move onto a transaction that includes financing, closure,

fighting the anti-takeover defense and then many other issues and that,

was the point of the transaction closure.

Now, there is a post merger integration and if it is successful,

then hopefully, we will reach some success and we will have created some value.

And like I said, you can see that the break up of any of these arrows or a failure

on any of these stages that attests of the fact

that we actually arrive at the failure and,

we can arrive at the failure much earlier compared to

any chance of arriving at the success.

Now, well, and the key story

to increase the probability of success is that along this process,

regardless of how generic it might sound,

we do we have to take into account multiple feedback because it derives from

various individuals and groups of people and it can allow us to fine tune or sometimes,

even drastically change our decision at any stage.

For example, next thing is never push for the initial goal.

Let's say, we wanted to buy this company.

But if in the process,

someone offers a great price for our company,

why wouldn't we sell?

Because there's always a time to buy and a time to sell and

if we keep pushing because we just decided to set our goal then,

we can arrive at a huge failure.

And again, there have been various examples when people were too pushy and then,

that would lead to the blunderous failures unfortunately.

And then, the next thing,

although we are repeating that but this is by far

the most important issue in this whole course and actually,

in all the process of valid creation.

This is the stakeholders' interests at all stages

because we might have a big picture and see the overall stakeholders' fine.

But the thing is,

that the different stages of the transaction and of this path to value,

the stakeholders' interests might change,

and that must be recognized and taken into account.

Now on top of that,

there are major things like technology challenges and

global dimension because now we live in the world that is changing so fast.

And now, we see these transactions against the global background.

So, if we stick to what was good,

some two three decades ago we might commit some import mistakes.

So, in what I just mentioned,

there are so many things that you must do that you cannot overlook.

So, it's really a question of how would we try to avoid getting lost in all this.

And here, I would give you sort of a short,

it's not even a road map.

It's just some ideas about how we can sort of insure

ourselves against committing a potential serious mistake.

So first of all, ideally we have to see the big picture

that deals with the market that deals with the participants all the challenges.

It is difficult but it is very important.

Now, we have to avoid wishful thinking perhaps to the best extent, we can.

Because again, remember overpaying is a wishful thinking, over optimism thing.

Now, thinking that everything will go smoothly

after the closure of the transaction is a huge wishful thinking thing,

and being more pragmatic.

We've learned something about capital markets, about corporate finance,

about accounting and previous courses,

why wouldn't we try to take advantage of this knowledge,

skills and understanding that will save us some time and effort,

and that will allow us to see the major stakeholders' interests and sometimes,

to see clearer, and that allows us to identify key stakeholders at any stage.

We talked about that before and we've had numerous examples of these assignments

in which the focus was on just seeing how this unfolds.

And finally, this is my small advice here,

is that whenever possible,

stick to the knitting that means that try to do with you know how to do best.

If you see that here you have the competitive edge, now press for it.

If you are not doing anything specific,

that may be defined to just complete the transaction at any cost,

is sort of bound to fail.

And again, the overall conclusion here goes that we've focused on value creation motives.

And here, I put that only value matters.

You know, that sounds like a motto,

a statement that sort of provokes challenging comments.

And again, we say that unfortunately,

value is perceived differently by different stakeholders and the different stages.

So, here in order to be able to increase

the probability of reaching this red success or add value,

we have to at any stage,

try to understand what are the actual interests of the key stakeholders.

Again, we've started with that and we are ending with that.

There is nothing more important in not only on a Mondays,

but in evaluation in general,

as the interests of these stakeholders.

Well, we are almost done,

and the next episode will be final to this course and to this whole specialization,

and that will be,

so we are about to reach the special point at this long, long path.

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