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Management Accounting
Revision
Learning Objectives:
1. Cost concepts
2. Costing system: Job costing, process costing, ABC
costing
3. Inventory costing
4. Master budget
5. Flexible budgets and variances analysis
6. Decision making

FINANCIAL AND MANAGERIAL ACCOUNTING

Managerial Accounting Financial Accounting

Communicate financial
Purpose Decision making
position to outsiders
Primary Users Internal managers External users

Focus/Emphasis Future-oriented Past-oriented

Do not have to follow GAAP compliant;
Rules
GAAP; cost vs. benefit CPA audited
Ultra current to very
Historical monthly,
Time Span long
quarterly reports
time horizons
Designed to influence Indirect effects on
Behavioral Issues
employee behavior employee behavior

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COST CONCEPTS

COSTING SYSTEM – JOB COSTING

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COSTING SYSTEM – PROCESS COSTING

COSTING SYSTEM – ABC COSTING

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INVENTORY COSTING

MASTER BUDGETING

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FLEXIBLE BUDGET

Actual results Flexible budget Static budget

Actual output Actual output Budgeted output

* * *
Budgeted price Budgeted price
Actual price output
output output

Flexible budget variance Sales volume variance

Static budget variance

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VARIANCES

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VARIANCE ANALYSYS

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DIRECT COSTS VARIANCES

Actual cost
Flexible budget
incurred
Budgeted input
Actual input Actual input
quantity allowed for
quantity quantity
actual output
* * *
Budgeted price
Actual price input Budgeted price input
input

Price variance Efficiency variance

Flexible budget variance

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CVP ANALYSIS

Changes in production/sales volume are the sole cause for cost and
revenue changes.

Total costs consist of fixed costs and variable costs.

Revenue and costs behave and can be graphed as a linear function (a

straight line).

Selling price, variable cost per unit, and fixed costs are all known and
constant.

In many cases only a single product will be analyzed. If multiple products

are studied, their relative sales proportions are known and constant.

The time value of money (interest) is ignored.

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CVP ANALYSIS

BASIC FOMULATION

Unit
( Selling Sales
Price * Quantity)( - Variable *
Costs
Sales
Quantity )- Fixed
Costs
= Operating
Income

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DECISION MAKING –
RELEVANT INFORMATION

One-time-only special orders

Make or buy

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PRICING DECISION

Market-based: price charged is based on what

customers want and how competitors react.

Cost-based: price charged is based on what it costs

to produce, coupled with the ability to recoup the
costs and still achieve a required rate of return.

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