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Advanced Cost and

Management Accounting
 COST 2

 The amount of (i) actual expenditure incurred on a

given thing and (ii) notional expenditure attributable to
a given thing.
 According to this definition, the term ‘cost’ represents
the total of all expenses incurred, whether paid or due,
in the production and sale of a product or expended in
rendering a service.
 COST ACCOUNTING 3

 Cost Accounting is the process of classifying, recording,

allocating and reporting the various costs incurred in the
operation of an enterprise. The process of recording &
accounting for all the elements of cost is called cost
accounting.
The I.C.M.A has defined cost accounting as follows:-
 The process of accounting for cost from the point at which
expenditure is incurred or committed to the establishment of
its ultimate relationship with cost centres & cost units. In its
widest usage it embraces the preparation of statistical data,
the application of cost control methods & the ascertainment
of the profitability of activities carried out or planned.
 SCOPE OF COST ACCOUNTING 4

 Cost Ascertainment
 Cost Control
 Cost Reduction
 Cost ascertainment 5

 It deals with the collection and analysis of expenses, the

measurement of production of the different products at the
different stages of manufacture and the linking up of
production with the expenses.
 The varying procedures for the collection of expenses gives
rise to different system of costing as historical cost, estimated
cost and standard cost etc.
 The varying procedures for the measurement of production
have resulted in the different methods of costing like job
costing, process costing, unit costing, batch costing etc.
 Cost control 6

 Cost control is the guidance and regulation by executive

action of the costs of operating and understanding.
 It aims at guiding the actual towards the line of targets.
Regulate the actual if they deviate from targets.
 The cost can be controlled either by standard costing,
budgetary controls.
 Cost Reduction 7

 Cost accounting is helpful to management in cost

reduction through the techniques of budgetary control,
standard costing, material control, labour control and
overheads control.
OBJECTIVES OF COST ACCOUNTING
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 Cost finding or cost ascertainment
 Control of cost
 Cost reduction
 Fixation of selling price
 Framing business policy (Break even analysis, cost, volume,
profit relationships, differential costing)
Production or discontinuance of a product.

Utilization of idle capacity.

The most profitable sales mix.

Alternatives based on key factors.

Export decision.

Make or buy decisions etc.

Evolution of Management Accounting
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 The term ‘Management Accounting’ is of a recent origin.

 The complexities of business environment have necessitated
the use of Management accounting for planning, coordinating
& controlling function of management.
 The introduction of professionalism in management has
brought in the division of organization into functional areas
and delegation of authority & decentralization of decision
making.
 The decision-making no more remains a matter of intuition.
Evolution of Management Accounting
10

 It requires the evolution of information system for helping

management in planning & assessing the results. The
accounting information is required as a guide for future.
 The emphasis of management accounting is to redesign
accounting in such a way that it is helpful to the
management in forming of policy, control of execution &
appreciation of effectiveness.
 MEANING OF MANAGEMENT 11
ACCOUNTING
 Management accounting is the presentation of
accounting information in such a way as to assist
management in the creation of policy and the day-to-day
operation of an undertaking.
 It relates to the era of accounting data collected with the
help of financial accounting and cost accounting for all-
purpose of policy formulation, planning, control and
decision-making by the management.
 MEANING OF MANAGEMENT 12
ACCOUNTING

 “Management accounting is the presentation of accounting

information in such a way as to assist management in the
creation of policy & in the day-to-day operations of an
undertaking” – I.C.M.A.
 OBJECTIVES OF MANAGEMENT 13
ACCOUNTING

 To help the management in promoting efficiency. Efficiency

includes best possible service to the customers, investors and
employees.
 To finalize budgets covering all functions of a business (i.e.,
production, sale, research and finance)
 To examine monetary and non-monetary transactions.
 To study the actual performance with plan for identifying
deviations and their causes.
 To analyze financial statements to enable the management to
formulate future policies.
 OBJECTIVES OF MANAGEMENT 14
ACCOUNTING

 To help the management at frequent intervals by providing

operating statement and short-term financial statements.
 To arrange for the systematic allocation of responsibilities for
the implementation of plans and budgets.
SCOPE OF MANAGEMENT ACCOUNTING 15

 Management accounting does not restrict itself to financial

data for helping the management in decision making but
also uses such information which may not be capable of
being measured in monetary terms.
 Management accounting is concerned with presentation of
accounting information in the most useful way for the
management.
 Its scope is therefore, quite vast. It includes within its fold
almost all aspects of business operation.
Functions of Management Accounting 16

 Modification of data
 Forecasting & planning (uses techniques of statistics, like
probability, trend study of correlation & regression, budgeting
& standard costing; capital budgeting, marginal costing etc.)
 Organizing
 Coordination
 Controlling performance (standard costing, budgetary
control, accounting ratios, cash flow statements, cost
reduction programmes & evaluating the capital expenditure
proposals & return in investments. )
 Financial analysis & interpretations
Functions of Management Accounting 17

 Communication
 Special Studies (appropriate capitalization for the enterprise,
evaluation of alternative capital expenditure proposals & their
impact on the return & profits )
 Miscellaneous function (advice for price determination & pricing
decisions & helps to make strategic decisions, make or buy
decisions, replacement decisions & expansion or closure of
particular division or department etc.)
 Use of qualitative information
 Helpful in taking Strategic decisions (Eg.Replacement decision,
Expansion or Diversification of work. )
 Supplying information to various levels of management
DIFFERENCE BETWEEN FINANCIAL ACCOUNTING AND
MANAGEMENT ACCOUNTING 18
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20
DIFFERENCE BETWEEN COST ACCOUNTING
AND MANAGEMENT ACCOUNTING 21
DIFFERENCE BETWEEN COST ACCOUNTING
AND MANAGEMENT ACCOUNTING 22
DIFFERENCE BETWEEN COST ACCOUNTING
AND MANAGEMENT ACCOUNTING 23