Developing Human Capital

Human Capital :  The knowledge , skills, and capabilities of individuals that have economic value to an organization.

Human capital is intangible and elusive  and can not be managed the way organizations manage jobs, products and technologies

If a valued employee leave a company , he takes their human capital with them

Responding to the Market

• Total Quality Management
• Six Sigma
• Reengineering

Each of the above has direct implication for HR

Containing Cost

• Downsizing
• Outsourcing
• Productivity enhancements

Performance = f(ability, motivation, environment)

Demographic Changes

• The diversity challenge
• Age distribution of employees
• Gender distribution of workforce
• Rising level of education
• The changing nature of job

Cultural Change

• Employee rights
• Concern for privacy
• Changing attitude toward work
• Balancing work and family

Comparison of Financial and Managerial Accounting

General Cost Classifications

 Manufacturing Costs:

Manufacturing costs can be classified into three broad categories:

1.Direct Materials: Raw materials that become an integral part of the product and that can be conveniently traced directly to it. For example: A radio installed in an automobile.

2.Direct Labor: Those labor costs that can be easily traced to individual units of product. For example: Wages paid to automobile assembly workers.

3.Manufacturing Overhead: Manufacturing costs that cannot be traced directly to specific units produced. For example: Indirect materials and indirect labor.

Indirect Materials: Materials used to support the production process. For example: lubricants and cleaning supplies used in the automobile assembly plant.

Indirect labor: Wages paid to employees who are not directly involved in production work. For example: maintenance workers, janitors and security guards.

Nonmanufacturing Costs:

Nonmanufacturing costs are often divided into two categories:

1.Selling Costs: Costs necessary to secure the order and deliver the product.

2.Administrative Costs: All executive, organizational, and clerical costs associated with the general management of the organization.

Product Costs Versus Period Costs

Prime Cost and Conversion Cost

 Prime Cost is the sum of direct materials cost and direct labor cost.

 Conversion cost is the sum of direct labor cost and manufacturing overhead cost.

Cost Classifications on Financial Statements

The Balance Sheet

Inventories for a manufacturing Company:

Raw Materials: Materials waiting to be processed.

Work in Process: Partially complete products – some material, labor, or overhead has been added.

 Finished Goods: Completed products awaiting sale.

Schedule of Cost of Goods Manufactured

Calculates the cost of raw material, direct labor, and manufacturing overhead used in production.

Calculates the manufacturing costs associated with goods that were finished during the period.

Product Cost Flows

Cost Classifications for Assigning Costs to Cost Objects

A cost object is anything for which cost data are desired-including products, customers, jobs, and organizational sub units. For the purpose of assigning cost to cost objects, costs are classified as:

Direct Cost: A cost that can be easily and conveniently traced to a specified cost objects.

 Indirect Cost: A cost that cannot be easily and conveniently traced to a specified cost objects.

A common cost is a cost that is incurred to support a number of cost objects but cannot be traced to them individually.

A particular cost can be direct or indirect depending on the cost object.

Cost Classifications for Predicting Cost Behavior

  Cost behavior refers to how a cost reacts to changes in the level of activity within the relevant range.

Total variable costs change when activity changes.

Total fixed costs remain unchanged when activity changes.

Variable Cost

Total cost of batteries is based on the number of autos produced in a month.

Variable Cost Per Unit: The per unit cost of batteries remains constant at $24.

Fixed Cost:

Total cost of monthly rent is fixed for the number of lab tests performed in a month. The monthly rent does not change based on the number of lab tests that may be performed during the month.

Fixed Cost per Unit increases and decreases inversely and changes in activity. For example the average cost per unit will fall as the number of test performed increases.

Summary of Variable and Fixed Cost Behavior