Chapter48 An introduction to management accounting

1. Chapter48An introduction to management accounting

2. What is management accounting? Management means decision making. Accounting means The systematic recording, reporting, and analysis of financial transactions of a business. Management accountingis used within a business to provide them with the basis to make informed business decisions that will allow them to be better in their management and control functions.

3. Management accounting The cost recording component is called cost accounting. Cost accounting is needed for a company management in measuring financial performance. There are many types of costs!!!! =()=‘’

4. Management accounting Historical cost A measure of value used in accounting in which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company.Examples 100 units of an item were purchased one month back for $10 per unit. The price today is $11 per unit. The inventory shall appear on balance sheet at $1,000 and not at $1,100.

5. Management accounting Product costs Costs that become part of the cost of goods manufactured Product costs are further classified into direct material, direct labor and factory overhead. E.g. raw material, labor, factory depreciation, fuel and packaging costs. Period costs Period costs are expenses in the period in which they are incurred.e.g advertising, sales commissions, office supplies, office depreciation, legal and research and development costs.

6. Management accounting Cost control Costs are collected form cost centre for individual cost units (unit of product or service)

7. Management accounting Costing approaches! These are a number of ways costs can be added and recorded. The two most commonly used are 1. Absorption costing 2. Marginal costing

8. 1. Absorption costing Absorption costing uses the total variable costs and fixedcostsassociated with manufacturing a product as the cost base. Marginal costing Where costing is used which takes account of only the variable cost of products rather than the full production cost. e.g. Calculate the variable production cost € Direct materials 8.00 Direct labour 5.00 Variable production o/h’s 3.00 Variable production cost 16.00

9. Management accounting Costing systems There are two main types of costing system Job costing When production consists of separate jobs eg. a Rolls-Royce is made to each customer’s specification. An average cost per unit of product is then calculated for each job. Process costing. When the production is continuous flow. In industries such as oil, textiles, food processing etc.

10. Management accounting Budgeting and budgetary control · A control technique whereby actual results are compared with budgets. · Any differences (variances) are made the responsibility of key individuals who can either exercise control action or revise the original budgets.

11. What is management accounting? is used within a business to provide them with the basis to make informed business decisions State 3 types of cost. Historical cost Product costs Period costs 3. How Absorption costing is different from Marginal costing? Absorption costing includes both the total variable costs and fixed costs. Marginal costing only the variable cost of product is included.