MANAGEMENT ACCOUNTING  Staffing involves the process of recruiting,

01 Objectives, role and scope of management accounting training, developing, compensating and evaluating
employees and maintaining this workforce with
Objectives: proper incentives and motivations.
1. Planning the activities of the business.  Directing involves articulating a vision,
2. Controlling the performance of the business. energizing employees, inspiring and motivating
3. Useful in organizing. people using vision, influence, persuasion, and
4. Motivating employees. effective communication skills.
5. Useful in decision-making.  Controlling is the process of keeping the activities
6. Useful in coordination. on track. It means comparing the actual results to
7. Reporting to management. the budget and making corrective actions to the
8. Facilitates interpretation of financial information. when goals are not met.

Three Pillars: Distinction among management accounting, cost

 Planning involves establishing goals and accounting and financial accounting
specifying to achieve them
Budget is a detailed plan for the future that is usually Financial Management
expressed in formal quantitative terms. Accounting Accounting
 Controlling involves gathering feedback to ensure Primary Users External (Investors, Internal (Managers
that the plan is being properly executed or gov’t authorities, of business,
modified as circumstances change. creditors) employees)
Performance report compares budgeted data to identify and Purpose of Help investors, Help managers plan
eliminate sources of unsatisfactory performance. information creditors, and others and control
make investment, business operations
 Decision-making includes selecting a course of credit and other
action from competing alternative. decisions
Timeliness Delayed or Current and future
Scope: historical oriented
 Financial Accounting: provides historical Restrictions GAAP, FASB and GAAP does not
information useful for future planning financial SEC apply, but
forecasting information should
 Cost Accounting: provides various techniques of be restricted to
strategic and
costing which are used in the process of planning
operational needs
and decision-making. Objective, More subjective
Nature of
 Forecasting and budgeting: exercises the tool of information auditable, reliable, and judgmental,
forecasting and budgeting in the process of consistent and valid, relevant and
planning, controlling and decision-making. precise accurate
 Tax accounting and tax planning: the analysis of Scope Highly aggregated Disaggregated
implication of tax provisions on future projects information about information to
comes under management accounting. the overall support local
organization decisions
 Internal Control & Audit: Management
Behavioral Concern about Concern about how
Accounting highly depends on internal control adequacy of reports will affect
Implications
system existing in the organization to identify the disclosure employees behavior
weaker sections of the organization. Features Must be accurate Usually
 Cost Control Procedures: include inventory and timely. approximate but
control, cost control, budgetary control, variance Compulsory under relevant and
analysis etc. company law is an flexible. Except for
 Financial Analysis and Interpretation: various end in itself few companies, it is
not mandatory is a
financial analysis techniques such as Ration
mean to the end
Analysis, Fund flow Analysis, Trend Analysis are It is primarily Segment reporting
Segments of
used to analyze and interpret financial data. concerned with is the primary
organization
reporting for the emphasis
Basic Management Function: company as a
 Planning requires management to look ahead and whole.
to establish objectives and strategies to meet the
mission vision of the company. Financial Cost Accounting
 Organizing involves the determination of activities Accounting
that meet to be done in order to reach the company Objective It provides It provides
goals, assigning these activities to the proper information about information of
personnel, and delegating the necessary authority financial ascertainments if
performance and costs to control
to carry out these activities in a coordinated and
financial position of costs and for
cohesive manner. the business. decision making
about the costs.
Nature It classifies records, It classifies,  The basic function:
presents and records, presents o Cash flow management:
interprets and interprets in a  Operating- credit and collection
transactions in significant manner
terms of money. materials, labor and
 Investing- investments
overhead costs.  Financing- capital provision,
Recording of It records historical It records and investor relations, short-term
data data. presents estimated, financing, banking and custody
budgeted data. It o Risk management- insurance
makes use of both
historical costs and International Certifications in Management Accounting
predetermined
 Certified Public Accounting (CPA)
costs.
 Certified Management Accountant (CMA)
Users of External users like Used by Internal
information shareholders, management at  Certified Financial Manager (CFM)
creditors, financial different levels
analysts, These are not licenses, per se but do represent significant
government and its competency in management accounting and financial
agencies, etc. management skills. These certifications are sponsored by
Analysis of costs It shoes profit/loss It provides details the Institute of Management Accountants.
and profits of the organization. of costs and profit
of each product,
process, job, etc.
02 Management Accounting Concepts and Techniques for
Planning & Control
Time period They are prepared They are prepared
for a definite as and when
period, usually a required. Cost Terms
year.  Cost commonly defined as a measurement, in
Presentation of A set format is used There are no set monetary terms, of the amount of resources used
information for presenting formats for for some purposes.
financial presenting cost  Cost object is often a product or department for
information. information.
which costs are accumulated or measured.
Example: Product (cost object) for direct
Roles and Activities of Controller and Treasurer materials, direct labor and manufacturing
overhead.
Controller
 Cost pool is a grouping of individual costs
 A financial officer responsible for accounting and typically by department or service center. Cost
control and deals with records, systems, and allocations are then made from cost pool.
processes to attain the objectives of internal Example: The cost of the maintenance department
controls and good managing. is accumulated in a cost pool and then allocated to
 A financial control is the head accountant of the those departments using its services.
company. He supervises other accountants and  Cost driver is a unit of an activity that causes the
oversees the preparation of financial statements change in activity’s cost. Cost driver is any factor
such as the statement of financial position, which causes a change in the cost of an activity.
statement of comprehensive income, cash flow
statements, and statement of shareholders equity. Classification of Cost:
 The basic functions of a controller: 1) Nature of Expense
o Planning and controlling a. Material cost
o Reporting b. Labor cost
o Evaluating and consulting c. Expenses
o Government relations, compliance and
reporting 2) Relation to object (traceability)
o Economic appraisal a. Direct material
o Tax planning and administration b. Direct labor
c. Direct expenses
Treasurer d. Overhead
 He serves as the protector of a company’s value 3) Functions/activities
and finances from financial risks that arise form a. Production/Manufacturing
business activities. Traditionally, he is under the b. Administration
accounting department, but has now branched out c. Selling and distribution costs
into a new segment which is known as the d. Research and development costs
corporate treasury management. 4) Behavior
 He deals with money, cash, or wealth of an a. Fixed costs
organization. He knows the sources of money and b. Variable costs
exercise prudence in using the money of an c. Mixed/ Semi-variable costs
organization. d. Step cost
 5) Management decision-making VC= bx
a. Marginal cost- aggregate of variable cost b = variable cost per unit
b. Differential cost- change in cost due to x = cost driver
change in activity from one level to TC = FC + bx
another  Step-cost shifts upward or downward by a certain
c. Opportunity cost- value of alternatives interval or step
foregone Step variable cost have small steps
d. Replacement cost- cost of asset in the Step fixed costs have large steps
current market for purpose of
replacement Splitting Mixed Cost
e. Relevant cost- costs that are relevant or 1. High-low
essential for a specific purpose Variable cost
f. Imputed cist- hypothetical cost computed rate = Cost at highest activity - Cost at lowest activity
only for decision-making purpose or per unit Highest activity - Lowest activity
g. Sunk cost- historical cost
h. Normal cost-normally incurred Fixed
Cost = Total Cost Variable Highest/lowest
Abnormal cost- unusual whose
occurrence is irregular and unexpected highest/lowest - cost x activity stated
i. Avoidable cost- should not have been activity per unit in units
incurred
Unavoidable cost- inescapable
j. Out-of-pocket cost- involves cash 2. Scatter Graph
payment or outlay 3. Least squares regressions
k. Common cost- incurred collectively N (ΣXY) - (ΣX)
l. Controllable & non-controllable cost- b = (ΣY)
either subject or not subject to direct N (ΣX2) - (ΣX)2
control at some level of managerial a = ΣXa + XΣb
supervision.
6) Production process Method Strengths Weaknesses
a. Batch- aggregate/group cost
b. Process- sequence or repetitive operations
c. Operation- cost on production
d. Contract- cost of contract
e. Joint- cost of two or more simultaneous
Cost-Volume-Profit (CVP) Analysis
production
f. By-product- cost unit split-off point
Standard Costing and Variance Analysis
7) Time period
a. Historical- costs of acquiring assets
Variable Costing and Absorption Costing
b. Predetermined- computed in advance
c. Standard- predetermined norm
Financial Planning and Budgets
d. Estimated- prepared in advance
Activity-based costing (ABC) and Activity-based
Cost behavior- How cost will react as changes takes place
management
in the level of business activity

Variable Cost
https://www.studocu.com/ph/document/new-era-
Analysis of cost behavior
university/cost-accounting/lecture-notes/module-2-relevant-
 Variable: the total amount varies directly with cost
costing/10604946/view
driver, and per unit driver remains constant.
 Fixed: the total amount remains constant, and per https://www.studocu.com/ph/course/new-era-
unit driver varies inversely with cost driver. Fixed university/cost-accounting/3618744
cost decrease per unit as the activity level arises
and increase per units as the activity level fall. https://www.studocu.com/sg/document/vrije-universiteit-
Sometimes referred to as capacity costs. amsterdam/pm-public-management/lecture-notes/mas-
1/1282380/view
Types of Fixed Cost:
 Committed fixed cost
 Discretionary cost
 Semi-variable/mixed (Total costs): varies directly
with the activity level or cost driver
TC = FC + VC