This section is created for the sole purpose of learning. Here I wish to share some terms, concepts, procedures and ideas that came across during my professional and academic journey. Knowledge has no end. The more we share, the more we gain. Let us Learn, Refresh, Enjoy and Guide.
Views expressed here are general. Expert opinion is required before implementing them into practise.
Kuwait Dinar, written as KD or KwD. KD is the strongest currency in the world. 1 KD equals around Rs. 210. 20 KD is the biggest currency.
IFRS. Financial Year is the Calendar Year.
Other than Sole Proprietorships and Partnerships, there are
Formation, Registration and Regulations are primarily governed by the Commercial Companies Law of 1960.
Foreign entities can carry out business in Kuwait under any one of the four arrangements:
Be happy. There is no personal income tax in Kuwait.
Yes. Income tax liability is NIL for Kuwaitis and NIL for expatriates.
There is no Wealth Tax. There is no Inheritance Tax.
Provision of Social Securities is for Citizens of Kuwait only.
Kuwaiti employees contribute 7.5% of their salary, subject to a ceiling of KD 2,500 p.m.
Employer contributes 11% of salary.
Though there is no Personal Income Tax, there exists corporate tax in Kuwait. Corporate Income Tax is applicable only to foreign entities carrying on a trade or business in Kuwait, with the exception of entities registered in GCC and fully owned by citizens of Kuwait/GCC.
Learning curves describe the fact that the more experience an individual has with something, the more efficient he or she becomes in doing that task.
The concept of learning curves is important because it means that higher costs per unit should be expected early in production as part of start-up costs, and the costs per unit should be expected to decline over time, up to a point.
There is a limit as to how fast or efficiently something can be done, and so the learning curve is not something that continues indefinitely. The rate of productivity improvement declines over time until it reaches a level where it remains, until another change in production occurs.
There are two models to describe how learning curve functions. One is called the CUMULATIVE AVERAGE TIME LEARNING MODEL and the other is INCREMENTAL UNIT TIME LEARNING MODEL.
CUMULATIVE AVERAGE TIME LEARNING MODEL
The cumulative average time learning model assumes that each time the cumulative quantity of units produced doubles, there will be a constant percentage of decline in the average time per unit required for the entire (cumulative) amount produced.
If a plant is subject to an 70% learning curve, and the time required to build the first unit is 10 hours, then the total time required to build 2 units will be 10 hours X (2 X 0.70), or 14 hours. This works out to an average of 7 hours per unit; however, the first unit will have taken 10 hours and the second unit only 4 hours. After4 units have been built, the total time required to build 4 units will be 10 X (2 x 0.70) 2 ,or 19.6 hours. Thus, the first unit took 10 hours; the second unit took 4 hours, and the third and fourth units took a total of 5.6 hours, or only 2.8 hours each.
INCREMENTAL UNIT TIME LEARNING MODEL
The incremental unit time learning model assumes that each time the cumulative quantity of units produced doubles, the time needed to produce the last unit (incremental unit time) declines by a constant percentage.
If the learning curve is 70% and the time required to build the first unit is 10 hours, then the time required to manufacture the second unit will be 0.70 X 10, or 7 hours. Thus, the total time required to produce the two units will be: 10 + 7 = 17 hours. The average time per unit will be 17 ÷ 2 = 8.5 hour.
Benefits of Learning Curve Analysis
The learning curve analysis is used in making decisions such as:
Limitations of Learning Curve Analysis
Theory of Constraints (TOC) is a means of making decisions at the operational level to speed up its manufacturing time resulting in higher profitability.
The main message of TOC to the manager is that your time and effort and the associated cost should be focused on speeding up the individual specific activities that cause production to slow down. Otherwise you could be devoting your time to improving efficiency and speed in all areas of the manufacturing process equally.
If time and effort is devoted to speed up activities that are not slowing the production process, the resources are actually wasted. Unnecessary efficiency just results in the buildup of work either at the slow process or before it or may be at both, while activities following the slow process do not have enough work to do because work is held up somewhere before. Total manufacturing speed is not improved despite the extra cost incurred to improve efficiency.
Let us see the key terms as used in Theory of Constraints
Theory of Constraints says that there are only a few areas in which changes in one unit‘s performance will bring about a meaningful change in overall profitability. Those areas are called constraints.
Changes in a constraint can impact overall profitability because the constraint represents a process that has a greater load than other processes or has less capacity than them. Because that resource is constrained, it sets the pace of the entire production line. Production cannot go faster than the speed that this one resource can go. Therefore, a change that relieves the constraint on that process and speeds up that process will also speed up the entire production line. For that reason, a change in that the unit will bring about a meaningful change in overall profitability.
Throughput time, or cycle time, is the time that elapses between the receipt of a customer order and the shipment of the order.
Throughput is a rate. It is the rate at which units can be produced and shipped. For example, if you need 2 days to produce and ship 1000 units, then the throughput rate is 500 units per day.
Throughput contribution is the rate at which contribution dollars are being earned. Throughput contribution is the revenue earned from the sale of units minus the totally variable costs only (such as direct materials) for those units produced during a given period of time.
Steps in managing constraint operations in light of TOC analysis
There are 5 steps to manage constraint operations under TOC analysis
DRUM - BUFFER - ROPE
Drum - Buffer - Rope (DBR) is the application of TOC Production Planning.
The drum is the bottleneck or the constraint, because it provides the "beat" that the entire operation must march to. It sets the rhythm that the whole system should follow.
The buffer is a minimum level of work-in-process inventory provided at the drum as protection against delays upstream that would delay the drum. There should be only one area of queuing (i.e., work-in-process inventory buildup) in the facility, and that should be in front of the bottleneck.
The rope is the schedule for releasing materials to the floor to begin processing, so that they will reach the drum at just the right time. The rope limits the amount of inventory in the system. Material is released only at the rate that the drum can consume, and the rope keeps it from being released too soon.
The whole idea of TOC analysis revolves around the following:
Inventory Costs within the theory of constraints (TOC) inventory management system.
In TOC terms inventory costs are limited to costs that are strictly variable, generally direct materials only. That is why they are also referred as "super-variable".
Kindly note: It only and simply means that inventory costs for internal TOC analysis purposes are different from inventory costs for financial reporting purposes. Absorption costing for external financial reporting purposes cannot be done differently when TOC is being used.
Current assets are assets that will be converted into cash or sold or consumed within 12 months or within one operating cycle if the operating cycle is longer than 12 months. This means that an asset that will be converted in 18 months may be classified as a current asset, but all assets that will be converted in less than 12 months will always be classified as current assets.
Some examples of current assets
Noncurrent assets are those assets that will not be converted into cash within one year or during the operating cycle if the cycle is longer than one year.
Some examples of noncurrent assets
Current liabilities are liabilities that will be settled within one year or during the operating cycle if it is longer than one year.
They will require either the use of current assets or the creation of other current liabilities to be settled.
Some examples of current liabilities
Current liabilities do not include
Noncurrent liabilities are those liabilities that will not be settled within one year or the operating cycle if the operating cycle is longer than one year.
Some examples of noncurrent liabilities
Owner's equity is the amount of the company's assets owned by and owed to the owners. If the company were to liquidate, this is the amount that would theoretically be distributable to the owners.
Owners' equity for corporations comes from three different sources
Budgetary slack is the difference between the budgeted performance and the performance that is actually expected.
It is the practice of
for the purpose of making the overall budgeted profit easily achievable.
Goal congruence means "aligning the goals of two or more groups."
As used in planning and budgeting, it refers to the aligning of goals of the individual managers with the goals of the organization as a whole.
How Budgetary Slack kills the essence of Goal Congruence
There is a hazard in the budgeting process. It may lead to behaviors on the part of managers that benefit them but are not congruent with the goals of the organisation. This is more likely to occur if manager'sperformance will be evaluated based upon budget achievement.
Managers who develop the budgets that they are going to be accountable to meet may build budgetary slack into their budgets in order to make sure their budgets are achievable. Sometimes, the performance of an individual manager's unit will benefit from an action, but the overall performance of the organisation is either not impacted or is negatively impacted. When this disconnect occurs, it is because the goals of the individual managers are not aligned with organisational goals.
"Management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization’s strategy."
For me Management Accounting is the branch of Finance that deals primarily with Analysis. Major tools of Management Accounting are Budgeting, Forecasting, Capital Rationing, Productivity Analysis, Financial/Process Analysis, Cost Prudence, MIS etc.
The video describes what Management Accounting is for others.