BACHELOR OF ACCOUNTING WITH HONOURS

BBMA3103

MANAGEMENT ACCOUNTING 1

TABLE CONTENT
 BBMA3103

1.0 Introduction of cost concepts and cost incurred in the selected business 2-3
organization ……………………
2.0 Explanation of the characteristics of management accounting information 3-5
……………………………….
3.0 Discussion on how the cost concepts and their features are important to the 5-6
management accountant …......................................
4.0 Implication of the importance of cost concepts and their features to 6-7
management accountants in making decision …
5.0 Conclusion ……………………………………………. 7
6.0 References ……………………………………………. 8

1
1.0 Many business decisions require a firm knowledge of several cost concepts. It is
process of accounting for cost, which is concerned more the ascertainment, allocation,
distribution, and accounting aspects of cost. Different types of costs have differing
characteristics. The cost information system plays an important role in every organization
within the decision-making process. Ann important task of management is to ensure the
control over operations, processes, activity sectors, and not ultimately on cost
the concepts of costs is important because it monitors the results of the others. The
detailed analysis of costs, the calculation of production cost, the loss quantification, the
estimating of work efficiency provides a solid basis for the financial control. Cost
concepts are the monetary expense incurred by organizations for various purposes such as
acquiring resources, producing goods and services, advertising, and hiring workers. Cost
concept is a facet of management accounting that determines the actual cost associated
with manufacturing a product or proving a service by looking at all expenses within the
supply chain. It is done for the purpose of budget preparation and profitability analysis.
The information derived from this process is useful to managers in determining which
products, departments or services are most profitable and which ones need improvement.
Cost can be defined as monetary expenses that are incurred by an organization for a
specified tiling or activity and aim to assist the management for planning and decision-
making  emphasizes on cost and deals with collection, analyses, interpretation and
prospective for managerial decision making on various business problems. Dutch Lady
Milk Industries Berhad could be a manufacturer of cow milk and dairy products in
Malaysia, since, 1960s. It had been previously under Royal Friesland foods, a
Netherlands-based multinational co-operative. Dutch Lady Malaysia is currently a
subsidiary of Friesland Camping, which was formed in December 2008 as a result, the
merger between Friesland food and Camping. Its current products include growing up
milk, UHT milk, milk, sterilized milk, family milk, low fat and 0% fat drinking yogurt
and low fat yogurt. Dutch Lady Malaysia Berhad incur several costs which are fixed,
variable, mixed costs, monetary value, overhead cost, cost and administration cost. A set
cost includes rent, payment paid and compensation to employees, doesn't change in lock
step with the extent of activity. The variable cost includes 2 direct material, raw
materials, fuel and water charges, stores, and spares, advertising expenses, marketing

2
expenses, distribution expenses, travel expenses, depreciation and communication
expenses will change the extent of activity changes. Those few costs that change
somewhat with activity are considers mixed costs. Monetary value is the total of variable
costs. It's supported the excellence between fixed and variable costs. Fixed costs are
ignored and variable costs are taken into consideration for determining the price of
products and value of work-in-progress and finished goods. Furthermore, the
merchandise costs. A product could also be an incidental by-product of a production
process, it doesn't really have any costs, since its cost would are incurred anyway as a
result, the assembly of the most product. The selling a by-product at any price is
profitable and no price is just too low. Overhead plays a really important role while
costing and pricing the products. Overhead provide a good price base for the merchandise
and costing and pricing. It required soaking up the relevant portion of the overheads.
Administration overhead is the indirect expenditure incurred in formulating the policy,
directing the organization and controlling the operations of an undertaking which isn't
related on the production or selling activity, or function. It consists of all expenses
incurred within the direction, control and administration. As an example, expenses in
running the office like office rent, light, salaries and wages of clerk. Cost asks the prices
incurred by a business from manufacturing a product or providing a service. Production
costs can include a spread of expenses like labor, raw materials, consumable
manufacturing supplies, and general overhead. Product costs also include those incurred
as a part of the delivery of a service are most profitable and which ones need
improvement. Cost can be defined as monetary expenses that are incurred by an
organization for a specified tiling or activity and aim to assist the management for
planning and decision making it primary emphasizes on cost and deals with collection,
analysis, interpretation and prospective for managerial decision making on various
business problems.

2.0 Management accounting information should comply with several of

characteristics including variability, objectivity, timeliness, comparability,
Understandability and relevance if it is to be useful in planning, control and decision-
making. Variability helps assure that information faithfully represents the economic

3
phenomena it purports to represent. Variability means that different knowledgeable and
independent observers could reach con-census, although not necessarily complete
agreement that a particular depiction is a faithful representation. Quantified information
need not be a single point estimate to be verified. Verification can be direct or indirect.
Direct verification means verifying an amount or other representation through direct
observation, for example, by counting cash. Indirect verification means checking the
inputs to a model, formula or other technique and recalculating the outputs using the
same methodology. An example of variability is that of two accountants looking at the
same information as inventory valuation and coming to similar conclusion. Objectivity is
also one of the characteristics that useful in planning and making decision. Accountant
reliance on verifiable evidence such as invoice, orders, physical counts or paper in the
measurement of financial result. Objectivity makes it is possible to compare financial
statements of different firms with an assurance of reliability and uniformity. For instance,
management accountant should not alter or change when provide the information to top-
level managers, so the manager can make the accurate decision without being influenced.
Timeliness means having information available to decision makers in time to be capable
of influencing their decisions. Generally, the older the information is the less useful it is.
However, some information may continue to be timely long after the end of a reporting
period because, for example, some users may need to identify and assess the trends of the
particular period. Comparability refers to the quality of the information that enables users
to make comparison in evaluating similarities or differences between companies and
industries over time. Information about a reporting entity is more useful if it can be
compared with similar information about other entities and with similar information
about the same entity for another period or another date. Consistency is a key Enhance
learner’s understanding on the importance of the cost concepts and characteristics of
management accounting information. 4 criteria if financial reports are to be comparable.
Consistency refers to the requirement that companies maintain consistency in the
treatment of various items for all accounting periods. Company should not change the
accounting procedures or methods used each year. For example, is the methods for
depreciating non-current assets. There are several acceptable methods to recognize
depreciation expenses, among them is the straight line method and reducing balance

4
method. If a company had used the straight line method in one, period, the company
should use the same method in the next accounting period. Understandability has got to
do with the relative ease with which financial information can be read and understood by
users. Classifying, characterizing and presenting information clearly and concisely makes
it understandable. Some phenomena are inherently complex and cannot be made easy to
understand. Excluding information about those phenomena from financial reports might
make the information in those financial reports easier to understand. However, those
reports would be incomplete, and therefore possibly misleading. Financial reports are
prepared for users who have reasonable knowledge of business and economic activities,
and who review and analyses the information diligently. At times, even well-informed
and diligent users may need to seek the aid of an adviser to understand the information
about a complex economic phenomenon. Relevant financial information is capable of
making a difference in the decision made by users. Information is relevant when it
influences the economic decision of users by helping them to evaluate the past, present,
and future events. Relevant information is also necessary to identify whether there is a
need to conform or correct an action based on past evaluations. Financial information is
capable of making a difference in decisions if it has predictive value and confirmatory.
For example, the predictive value of the income statement is enhanced if unusual,
abnormal, and infrequent items of income and expenses are separately disclosed. Lastly,
example of confirmation value is revenue information for the current year which can be
used as the basis for predicting revenues in future years, can also be compared with
revenue predictions for the current year that were made in past years. The results of those
comparisons can help a user to correct and improve the processes that were used to make
those previous prediction.

3.0 The cost concepts useful in to the management accountants by provide necessary
cost information to the management for planning, implements and controlling. Cost
concepts help in controlling cost by applying some techniques such as standard costing
and budgetary control. It also useful to ascertains the total and per unit costs of a
production of goods and services that help to fix the selling prices as well. Some

5
examples of cost are material, labor, and other direct and indirect expenses, useful to
finding out the total as well as per unit cost of goods, services, process contract. Besides,
provides reliable data and information which enable comparison of cost between periods,
volume of output, determent and process. It discloses the profitable and non-profitable
activities that enable management to decide to eliminate or control unprofitable activities
and expand or develop the profitable activities. Furthermore, it also helps to investment
and financial institution since it discloses the profitability and financial position in which
they intent to invest. It helps to introduce and implement different cost reduction
programs. Another important objective of cost concepts are to help in fixation of selling
prices. The costs are accumulated, classified and analyzed to ascertain the cost per unit.
The selling price per unit is calculated by adding a certain profit on the cost per units
such as job costing, batch costing, output costing services costing are used to determine
the selling price. Finally, cost concepts help to accountants to check the accuracy of
financial accounts, and this is done by preparing cost reconciliation statement.

4.0 Making decisions is a difficult task to accountants and cost concepts are a
fundamental factor of the decision. The main four implications of the usefulness of cost
concepts and their feature to management accountants in making decision is in company
performance, financial reporting, sell process and pricing decisions. Cost concept useful
to company performance to evaluate performance across companies. By examining the
company’s filings, can determine how many units of product the company sold and at
what cost, and then determine the cost per unit, and compare this to own company’s cost
per unit. While a larger company could be expected to have a lower cost per unit than a
smaller company, figuring out if the two companies are worthwhile. Besides, cost
concept are required under generally accepted accounting principles called GAAP, for
external financial reporting purpose. GAAP required that all manufacturing costs are
assigned to product, and that non-manufacturing assigned to products. Variable costing
system seek to stabilize net income with regard to changes in production levels, they do
not assign all manufacturing costs to products. The method of costing useful for internal
decision-making. Furthermore, cost concept are important when companies are deciding
whether to sell an intermediate product or to process the product further. The Dutch Lady

6
could sell coffee and beverages, culinary aids/prepared foods, milks, liquid drinks, and
chocolate. By using a costing technique called relevant cost analysis, they can determine
what amount of processing is the most profitable for the Dutch Lady. Lastly, how much
the company spends to produce a unit of product is invaluable when figuring out the sales
price. If the company plan on competing on price, they will want to ensure that the
product is priced lower than competitors, if the company sell the product for less than its
cost, the organization will not achieve their goals. While cost concept is useful for
determining whether to take special orders at lower prices. Some fixed costs of
production, such as rent and salaries are already covered by normal production. In
situation can accept a lower price than normal to win a special order. Cost concept useful
to accountant to how to come out with a profit.

5.0 Costs are critically important to many business decision, production pricing and
hiring. Management accounting information plays important role in effectiveness of the
company. Various cost concepts help in understanding the business operations and cost
involved in business operation firms better. The company is making decision based on
the management accounting information. In business, the manager must have a clear
understanding of the cost output relations as it helps in a controlled control, marketing,
pricing, profit and production. A business must have a clear understanding of the
different cost concepts for clear business thinking and proper application, output is an
important factor which influences the cost. Furthermore, management accountants
understandable of cost concepts are vital in many areas of planning, control and decision-
making. The cost analysis is pivotal in business decision-making as the cost incurred in
the input, and output is to be carefully understood before planning the production the
capacity of the firm. Cost concept is the art and science of recording, classifying,
summarizing and analyzing costs to help management make prudent business decisions.

7
REFERENCES

Artto K.A.”Life cycle cost concepts and

methodologies”, Journal of Cost Management

Boy’d L.H. “the use of Cost Information for Making

Operating Decisions”, Journal of Cost Management,

May/June 2013

Gheorghe Lepădatu, 2011. "The Importance Of The Cost Information In Making

Decisions," Romanian Economic

Business Review

https://wikieducator.org/Introduction_to_Cost_Concepts