F2 Management Accounting

Core syllabus areas

2
 Part A
The nature, source and purpose of management
information
 Session 1
Accounting for management
 Accounting for management
Distinguishing data and information

• raw material for data processing (raw facts).

• relates to facts, events and transactions (ex.:
Data data is sales volume or amount due from
customers)

• processed data which is meaningful for

Informatio user(sales volume compare with budget or
divided by division then compare or compare
n amount due from customer with credit policy
of company)

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 Accounting for management
Qualities of good information

Accuracy Completeness Confidence

Channel of
communication
Relevance Timing

Cost vs
Volume benefit
Understandable

6
 Accounting for management
Types of information: According to Anthony’s hierarchy
Operation
Strategic information Tactical information
information
• Summarized at a • Generated • Internal sources
high level internally • Highly detailed
• Relevant to the • Summarized at a • Related to the
long term lower level immediate term
• Deals with the • Relevant to the and is prepared
whole organization short and medium constantly or very
• On an “ad hoc” term frequently
basic • Prepared routinely • Task-specific and
• Both quantitative and regularly largely quantitative
and qualitative • Based on
quantitative
measures

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 Accounting for management
Sources of information

• Financial Accounting,
Internal personnel, production, time
records, etc

External • Primary/Secondary

8
 Management functions

Planning

Controlling

Decision making

9
 Management functions
Planning
Establishing objectives and selecting appropriate strategies
• Objectives: aims or goals
• Strategy: possible course of action to achieve objectives
• Sample of objectives:
 Maximize profit
 Maximize shareholder value
 Minimize cost
 Maximize revenue
 Increase market share
• Organization structure

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 Management functions

Planning
Level of planning

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 Management functions
Decision making
Management is decision-taking. Decision making always involves a
choice between alternatives.

Short-term decisions are

• Ordering of stock
those that affect the • Overtime requirement
immediate running of the • Selecting suppliers
organization • Renting additional storage

Medium-term decisions
are those that affect the • Advertising campaign
organization over a period • Offering discounts
of month

Long-term decisions are

those that affect the • Opening new branches
organization over a period • Closing a division
of years
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 Management functions
Control
Two stages in control process:
• The performance of the organization
• The corporate plan
Effective control is therefore not practical without planning
and planning without control is pointless.

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 Different types of centers
• Department or organizational function whose
Responsibility performance is a direct responsibility of a
Centers specific manager.

• A production or service location, function,

Cost centers activity or item of equipment for which costs are
accumulated

Revenue centers • Responsible for revenue earned

• Responsible for both cost incurred and revenue

Profit centers earned

Investment • Profit Center with additional responsibility for

Centers capital investment

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 Management accounting vs financial
accounting

Management accounting Financial accounting

involves providing
the managers of a
focuses totally on
company with
recording the past
information that will
transactions and
enable them to run
performance of an
the company as
enterprise.
efficiently as
possible.

15
 Management Accounting versus
Financial Accounting
Management Accounting Financial Accounting

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

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 Management Accounting and cost
accounting
• Cost accounting: focused on information associated with
the COST of producing a product or providing a service. Its
objective is to provide product or service cost information
to decision makers so that they are better informed about
their operations for their decision making, planning and
controlling.
• The main differences between management accounting
and cost accounting:
• Cost accounting is mainly concerned with costs.
• Management accounting may include involvement in
planning and decision making and controls.

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 Management Accounting and cost
accounting
 
Forecast & Estimates Accounting Transactions

 
Management Accounting

 
 
   
  Financial Accounting
Cost Accounting
 

Integrated System
 

   
Management Reports Financial Statements

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