Managerial

Accounting and
Cost Concepts
 Presented To:
Prof.Abu Bakr
Presented By:
Waseem
S1f18Mcom 0017
 Managerial Accounting
Managerial accounting concerned with future decision making based on financial
and cost accounting data. It is used for internal reporting. Managers use the
provision of accounting information in order to better inform themselves before
they decide matters within their organizations , which aids their management and
performance of control functions .
 Cost Classification

Manufacturing Cost :
Manufacturing cost is the sum of costs of all resources consumed in the process
making a product. The manufacturing cost is classified into three categories; direct
material , direct labour cost and manufacturing overhead.

Non manufacturing Cost :

Non manufacturing cost refers to those incurred outside the factory or production
department .These are costs not needed in transforming materials into finish goods.

These costs include selling expense &general and administrative expenses.

Product Cost :
Product cost refers to the costs used to produced a product. These costs include
direct material, direct labour ,consumable production supplies and factory overhead.

Period cost :
Period cost are all costs not included in product costs. Period costs are not directly
tied to the production process.
Fixed Cost:
Fixed cost is a expense that do not change with the change in activity. Fixed cost
fixed in total but vary unit to unit. Examples salaries, rent etc.

Variable Cost :
Variable cost are those costs that vary depending on a company's production volume
; they rise as production increases and fall as production decreases. Examples
commissions, utility costs.
Discretionary fixed Cost :
Those fixed costs that arise from annual decisions by management to spend on certain fixed
cost items such as advertising& research.

Committed Fixed Cost:

Committed fixed costs refer to the actual and necessary expenses a business needs to
function smoothly.
Mixed cost:
Mixed cost is consist of fixed cost and variable cost component. The annual
expense of operating an automobile is a mixed cost.

High Low Method :

High low method is a way of attempting to separate out fixed cost and variable costs
given a limited amount of data.
Scatter Diagram:
The scatter diagram method is the simplest method to study the correlation between
two variables where in the values for each part of a variable is plotted on a graph.

Least Square Regression :

Least squares regression is a statistical method used to determine a line of best fit by
minimizing the sum of squares created by a mathematical function.
Costs Classification for assigning Cost to Objects:

Direct Cost:
A direct cost is a cost that is easy to trace a cost object. For example a wood used in
table.

Indirect Cost:
An indirect cost is a cost that must be allocated to a cost object because it cannot be

directly traced to the cost object.. For example nail used in chair.
Cost Classification for Decision Making:

Differential Cost :
A differential cost is a cost that differs as a result of changes activities. For example

If the cost of alternative A is Rs 10000 per year and the cost of alternative B is
Rs80000 per year .The difference of Rs 2000 would be differential cost.

Opportunity Cost :
The potential benefit that is given up when one alternative is selected over another
Or the best alternative forgone is called opportunity cost.
Sunk Cost:
A sunk cost is a Cost that has already been incurred and cannot be recovered. For
example a company purchased a machine several years ago . Due to change in
fashion in several years , the products produced by the machine cannot be sold to
customers . Therefore the machine is now useless . The price originally paid to
purchase the machine. cannot be recovered by any action is therefore a sunk cost.