FINANCIAL AND COST MANAGEMENT
Learning outcomes of the course unit
Upon successful completion of the module, students will be expected to have developed the following learning outcomes and competences.Knowledge and understandingThe student:- examines the three basic types of financial statements;- differentiates among different ratios to measure profitability, asset utilization, liquidity, and debt utilization- recognizes the various methods of financial forecasting to consider seasonal and other effects on cash flow;- explains the difference between operating and financial leverage;- recalls the process of matching sales and production, the financial aspects of working capital management and the factors that go into development of an optimum policy;- describes the fundamental themes underlying the design of cost systems;-differentiates cost assignment in job order and process systems;-compares activity-based product costing to traditional department product costing methods;- explains how activity-based cost management can be used to improve operations.Application of knowledge and understandingThe student:- assesses changes in the cash position of the firm;- applies the Du Pont system of analysis to identify the true sources of return on assets and return to stockholders;- prepares the pro forma income statement, the cash budget, and the pro forma balance sheet;- employs break-even analysis to determine the magnitude of operations necessary to avoid loss;- produces a report combining sales forecast, cash receipts and payments, and cash budget;- designs and operates a two-stage allocation system for product costing;- calculates overhead allocation using predetermined rates;- prepares and analyzes a production cost report;- applies the hierarchy of costs to manage costs;- produces a flow of costs report through accounts using activity-based costing.Making judgementThe student is able to collect and interpret relevant data with the aim to:- provide a meaningful comparison of a company to its industry;- determine the amount of new funds required in advance to sustain a firm’s growth;- assess product, channel and customer profitability- inform strategic decisions related to quality, efficiency and effectiveness of operations.Communication: Students will demonstrate capabilities to communicate information, ideas, problems and solutions within the field of financial analysis and cost management. The student is able to communicate information and solutions in written as well as oral formats.Learning skills: the student has the necessary learning skills to embark on the development of both a decision-support tool and a follow-up financial analysis/forecasting project requiring a high level of autonomy. Special effort will be put in developing students’ learning skills via a “Problem-Solving Learning” approach in approaching problems and discussing integrative case studies. Such an approach encompasses two sequential stages: Stage 1) represent the problem (frame the problem in the students’ own words - define key terms and concepts - determine statements that accurately represent the givens of a problem - identify analogous problems - determine what information is needed to solve the problem);Stage 2) devise and implement a strategy for solution .
Course contents summary
The module is designed to provide students with a detailed introduction to the subjects of financial analysis & forecasting, costing systems in different industrial settings and cost-based decisions to improve quality, efficiency and effectiveness of operations.The main subjects covered are:• Financial statements and ratio analysis for financial analysis purposes• Cash Flow Analysis and cash budgeting• Leverage analysis and working capital financing• Job and process costing• Activity-based costing and management• Cost management for profitability, efficiency, effectiveness and quality
Review of AccountingIncome StatementBalance SheetStatement of Cash FlowsDepreciation and Funds Flow Free Cash Flow Income Tax ConsiderationsFinancial AnalysisRatio AnalysisTrend Analysis Impact of Inflation on Financial AnalysisOther Elements of Distortion in Reported IncomeFinancial ForecastingConstructing Pro Forma Statements Pro Forma Income StatementCash BudgetPro Forma Balance SheetPercent-of-Sales MethodOperating and Financial LeverageLeverage in a Business Operating LeverageFinancial LeverageCombining Operating and Financial LeverageDegree of Combined LeverageWorking Capital and the Financing DecisionThe Nature of Asset Growth Controlling Assets—Matching Sales and ProductionPatterns of FinancingThe Financing Decision A Decision ProcessShifts in Asset StructureToward an Optimal PolicyFundamentals of Product and Service Costing- Cost Management Systems- Fundamental Themes Underlying the Design of Cost Systems for Managerial Purposes- Costing in a Single Product, Continuous Process Industry- Costing in a Multiple Product, Discrete Process Industry- Multiple Allocation Bases and Two-Stage Systems- Different Companies, Different Production and Costing SystemsJob CostingDefining a JobUsing Accounting Records in a Job Shop Computing the Cost of a JobUsing Job Costing in Service Organizations Ethical Issues and Job CostingManaging ProjectsProcess CostingDetermining Equivalent Units Using Product Costing in a Process IndustryThe Production Cost ReportAssigning Costs Using First-In, First-Out (FIFO) Process CostingDetermining Which Is Better: FIFO or Weighted Average? Computing Product Costs: Summary of the Steps Using Costs Transferred in from Prior Departments Choosing between Job and Process Costing Operation CostingComparing Job, Process, and Operation CostingActivity-Based Costing Reported Product Costs and Decision MakingTwo-Stage Cost AllocationActivity-Based Costing Cost HierarchiesActivity-Based Costing IllustratedCost Flows through Accounts Choice of Activity Bases in Modern Production SettingsActivity-Based Costing in Administration Who Uses ABC?Fundamentals of Cost Management Using Activity-Based Cost Management to Add ValueManaging the Cost of Customers and SuppliersDetermining the Cost of Suppliers Managing the Cost of CapacityManaging the Cost of Quality
Required textbookFinancial and cost management, Mcgraw-Hill Create, 2020.The textbook (custom publishing) is a collection of the following chapters:a) Selected chapters from “Foundations of Financial Management”, 16th Edition, 2017, by Block, Hirt, Danielsen:Chapter 2 - Review of AccountingChapter 3 - Financial AnalysisChapter 4 - Financial ForecastingChapter 5 - Operating and Financial Leverage Chapter 6 - Working Capital and the Financing Decisionb) Selected chapters from “Fundamentals of Cost Accounting”, Fifth Edition, 2017 by Lanen, Anderson, MaherChapter 6 - Fundamentals of Product and Service Costing Chapter 7 - Job Costing Chapter 8 - Process Costing Chapter 9 - Activity-Based Costing Chapter 10 - Fundamentals of Cost Management
The course unit is allocated 9 ECTS; the overall workload for the student is, thus, equivalent to 225 hours. This includes:a) attending theory and practice face-to-face lectures (in class), b) filing an individual report of solutions to end-of-chapters exercises and integrative cases (self-study), c) the individual study and preparation for the exam (self-study).50% of classroom lectures are expository (theory) classes (40 hours) and 50% are practical classes (exercises and problems - 40 hours). Texts of exercises, problems and integrative cases (both for practical classes and self-study) are included in the required textbook.
Assessment methods and criteria
Assessment is based, for both attending and non-attending students, on:a) a written exam (30 marks carrying 50% on the global mark) on theory and simple numerical exercises. Possible questions formats are “short essay”, “multiple choice”, “true/false” and “fill in the blanks” types. Marks carried by each single question will be printed out on test papers.A minimum score of 14 marks is a pass on to subsequent oral exam.b) an oral exam (30 marks carrying 50% on the global mark) for application and practical skills assessment. The oral exam consists in:- discussion of parts of the report on exercises and supplementary cases that the student has collected in his/her personal file; - resolution of a comprehensive and multi-requirements problem.The two tests must necessarily be taken in the same exam session.Global mark (30-point scale) is the weighted average of both exams; passing grade is 18 out of 30 or above.“Cum laude," is added to the maximum grade for outstanding candidates with maximum marks in both written and oral exams.
Each student is provided with a file (downlodable from the Elly platform) for the exercises and integrative cases to be solved. Students are encouraged to work in teams (up to 3 members). Each member of the group will bring his/her copy when running the oral test of the final exam.Active participation and discussion of the course contents is encouraged. Therefore, study of the given literature in advance of each class is strongly recommended. Lectures’ slides (downloadable from the Elly platform) are just a tool used to set major concepts and can in no way be a substitute for the textbook.Further teaching material includes Virtual Lectures, Interactive FinSims, online training multiple choice tests, excel templates for exercises solutions. Links are provided throughout the Elly platform.