MANAGEMENT INFORMATION

Lecturer: Huong Lien

Faculty of Accounting & Auditing
VNU - UEB
 Main Contents

Costing and pricing

Budgeting and forecasting

Performance management

Management decision making

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 Assessment format
• 1.5 hour computer-based assessment
• 20% of the marks are allocated in one scenario-based
question
• 80% are from 32 multiple choice questions
• 55% pass mark

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 Assessment format
Specifications grid
Weighting
Syllabus area
(%)
Costing and pricing; Ethics 25
Budgeting and forecasting 25
Performance management 25
Management decision making 25
100

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 Chapter 1
The fundamentals of costing

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 Chapter 1. The fundamentals of costing

• What is cost accounting?

• Basic cost accounting concepts
• Cost classification for various purposes
• Ethics

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 What is cost accounting?
• Cost accountant should be able to provide answers to
questions about cost and revenue, enable management:
– Assess the profitability
– Determine appropriate selling prices
– Put a value on inventory
• The cost accountant also needs to provide information to
help provide forecasts or estimates for the future.

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 What is cost accounting?
• Costing system provides the foundations for an organisation’s
internal financial information system for managers.
• Cost accounting is concerned with providing information to
assist the following:
– Establishing inventory valuations, profits or losses and
balance sheet items
– Planning
– Control
– Decision-making

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 What is cost accounting
Management Accounting vs. Financial Accounting
Management Accounting Financial Accounting
Information mainly Internal users, e.g. External users e.g.
produced for Managers and employees Shareholders, creditors,
lenders, banks, government
Purpose of To aid planning, control and To record financial
information decision making performance and position in a
period
Legal requirements No Yes (limited companies)
Formats No set format – managers Limited companies must
decide on content & produce financial accounts
presentation
Nature of Financial & non-financial Mostly financial
information
Time period Historical & forward-looking Mainly an historical record

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 Basic cost accounting concepts

Functions and departments

Example of Chocolate cakes production:

Board of directors

Production Administration Marketing

Mixing Baking Stores

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 Basic cost accounting concepts
Definition
• Cost object: A cost object is anything for which we are
trying to ascertain the cost
• Cost unit: is the basic measure of product or service
for which costs are determined
• Composite cost units if more than one cost units are
used. Normally, they are used in service organisations.
• E.g: page 7 (Study Manual 2020).

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 Cost classification

The classification
of cost

Types of Direct or
Indirect Behavior Control
Function expense

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 Cost classification
According to function Production costs

Finance costs

Administration costs

Function
Selling costs

Distribution costs

Research costs

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 Cost classification

According to function

Production costs are

those incurred when raw
materials are converted Non-Production costs
into finished and part- (Period costs) are costs not
finished goods. directly associated with the
production processes in a
manufacturing organisation.

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 Cost classification
Direct/Indirect

Total cost

Direct (Prime) Indirect

Cost (Overhead) Cost

Direct Direct Direct Indirect Indirect Indirect

Material Labour Expense Material Labour Expense

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 Cost classification

Direct/Indirect
• Direct cost: A direct cost is a cost that can be traced in
full to the cost unit.

• Indirect cost: A cost that is incurred which cannot be

traced directly and in full to the cost unit.

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 Cost classification
Direct RM
Those materials that become an integral part of the product
and that can be conveniently traced directly to it.

Example: Rubber/Metal for car production

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 Cost classification
Direct labour
Those labor costs that can be easily traced to individual
units of product.

Example: Wages paid to automobile assembly workers

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 Cost classification
Direct expenses
• Expenses are incurred on a specific product other than
direct material cost and direct wages
• Example:
– The cost of special designs, drawings or layouts
– The hire of tools or equipments or a particular job
– Maintenance cost of tools fixtures …

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 Cost classification
Indirect cost
• Production overhead: incur in the factory from receipt of
the order until its completion
- Indirect material
- Indirect wages
- Indirect expenses
• Administration overhead
• Selling overhead
• Distribution overhead

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 Cost classification
Summary Direct/indirect cost
Materials = Direct materials cost
cost
+ +
Labour cost = Direct labour cost
+ +
Expenses = Direct expenses
Total cost = Direct cost/prime cost
+ Indirect materials cost
+
+ Indirect labour cost
+
+ Indirect expenses
+ Indirect cost/overhead

Total expenditure may therefore be analysed as follows.

 Product cost are costs identified with goods produced or purchased for
resales.
 Period cost are costs deducted as expenses during a particular period

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Cost classification

A Cost behaviour is
Fixed cost the way in which
costs are affected
by changes in
B volume of output
Variable cost
C
Semi- Variable cost

D
Stepped- fixed cost

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 Cost classification
Variable cost: cost are changed in direct proportion to the
level of activity such as direct material, direct labour
• Variable cost in total: changes at the same rate as the
level of activity

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 Cost classification
Fixed Costs: Costs are not affected in total by the level of
activity

• Fixed cost in total • Fixed cost per unit

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 Cost classification

• Semi-variable cost • Stepped cost

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 Cost classification
Relevant range
• The relevant range is the range of activity levels within
which assumed cost behaviour patterns occur.
• The relevant range also broadly represents the activity
levels at which an organisation has had experience of
operating in the past and for which cost information is
available.
• It can therefore be dangerous to attempt to predict costs
at activity levels that are outside the relevant range.

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 Cost classification
For control purpose
• For control purposes the most effective classification of
costs is by responsibility.
• Responsibility accounting: Responsibility accounting is a
system of accounting that segregates revenue and costs
into areas of personal responsibility in order to monitor
and assess the performance of each part of an
organisation.
• A responsibility centre: A responsibility centre is a
department or function whose performance is the direct
responsibility of a specific manager.

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 Cost classification
For control purpose

• Controllable cost: A controllable cost is a cost that can

be influenced by management decisions and actions.

• Uncontrollable cost: An uncontrollable cost is a cost

that cannot be affected by management within a given
time span.

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 Cost classification
For control purpose

• A cost that is not controllable by a manager in one

department may be controllable by a manager in another
department.

• Costs are controllable, but in the long term rather than the
short term

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 Ethics
ICAEW ethical guidance for accountants
• Fundamental Principle 1 – 'Integrity'
– A member should behave with integrity in all professional
and business relationships.
– Integrity implies not only honesty but fair dealing,
truthfulness and being straightforward. A member’s advice
and work must be uncorrupted by self-interest and not be
influenced by the interests of other parties. A member
should not be associated with information that is false or
misleading or supplied recklessly.

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 Ethics
ICAEW ethical guidance for accountants
• Fundamental Principle 2 – 'Objectivity'
– A member should strive for objectivity in all professional
and business judgements.
– Objectivity is the state of mind which has regard to all
considerations relevant to the task in hand but no other.
There should be no bias, conflict of interest or undue
influence of others.

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 Ethics
ICAEW ethical guidance for accountants
Fundamental Principle 3 – 'Professional competence and due care’
When providing professional services 'professional competence and due care'
therefore mean:
• Having appropriate professional knowledge and skill
• Having a continuing awareness and an understanding of relevant technical,
professional and business developments
• Exercising sound and independent judgement
• Acting diligently, that is:
o Carefully
o Thoroughly
o On a timely basis and
o In accordance with the requirements of an assignment
• Acting in accordance with applicable technical and professional standards
• Distinguishing clearly between an expression of opinion and an assertion of
fact
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 Ethics

ICAEW ethical guidance for accountants

• Fundamental Principle 4 – 'Confidentiality'
– The professional accountant should assume that all unpublished
information about a prospective, current or previous client's or
employer's affairs, however gained, is confidential. Information
should then:
• Be kept confidential
• Not be disclosed, even inadvertently such as in a social
environment
• Not be used to obtain personal advantage

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 Ethics
ICAEW ethical guidance for accountants
• Fundamental Principle 5 – 'Professional behaviour'
Behaving professionally means:
• Complying with relevant laws and regulations
• Avoiding any action that discredits the profession
• Conducting oneself with:
– Courtesy and
– Consideration
When marketing themselves and their work, professional accountants
should:
• Be honest and truthful
• Avoid making exaggerated claims about:
– What they can do
– What qualifications and experience they possess
• Avoid making disparaging references to the work of others
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 Ethics
Threats and safeguard
• Threats created where a professional accountant in
business is pressured to become associated with
misleading information or to become associated with
misleading information through the actions of others.
• The significance of such threats depends on factors such
as the source of the pressure and the degree to which
the information is, or may be, misleading.

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 End of Chapter 1

Self test: Q1-10 (p.21-23)

Question bank_Chap01: Q1-28 (p.3-11)

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