Management Accounting

A. F. M. Rubayat-Ul-Jannat ID: BBA080160714

Chapter 1

Work of Management

Directing and

Motivating

Planning

Controlling

Comparison of Financial & Managerial Accounting

Financial Accounting Managerial Accounting

Definition

Accounting is an information system

that identifies records and

communicates the economic events

of an organization to interested user

Accounting system by which

information are presented and supplied

to management in appropriate manner

to operate business smoothly and

efficiently

User External persons who makes financial

decision

Managers who plan for and control an

organization

Time focus Historical perspective Future emphasis

Verifiability versus relevance

Emphasis on verifiability Emphasis on relevance for planning

and control

Precision Vs. timeliness

Emphasis on precision Emphasis on timeliness

Subject Primary focus is on the whole

organization

Focuses on segments of an

organization

GAAP Must follow GAAP and prescribed

formats

Need not follow GAAP and prescribed

formats

Requirement Mandatory for external reports Not Mandatory

Line positions are directly related to achievement of the basic objectives of an organization.

• Example: Production supervisors in a manufacturing plant.

Staff positions support and assist line positions.

• Example: Cost accountants in the manufacturing plant.

Line and Staff Relationships

• Just-in-time production

• Total quality management

• Process reengineering

• Theory of constraints

The Changing Business Environment

Just-in-Time (JIT) Systems

Complete products

just in time to

ship customers.

Complete parts

just in time for

assembly into products.

Schedule

production.

Receive materials

just in time for

production.

Receive

customer

orders.

JIT Consequences

JIT purchasing

Fewer, but more ultra reliable suppliers.

Frequent JIT deliveries in small lots.

Defect-free supplier deliveries.

Benefits of a JIT System

TQM improves productivity by encouraging

the use of fact and analysis for decision

making and if properly implemented, avoids

counter-productive organizational infighting.

Total Quality Management (TQM)

Process Reengineering

Anticipated results:

1. Process is simplified.

2. Process is completed in less time.

3. Costs are reduced.

4. Opportunities for errors are reduced.

Process Reengineering versus TQM

Total Quality

Management

1.Tweaks existing processes to realize gradual improvements.

2.Uses a team approach involving people who work directly in the process.

Process Reengineering

1. Radically overhauls existing processes.

2. Likely to be imposed from above and to use outside consultants.

Theory of Constraints

A constraint (also called a bottleneck) is

anything that prevents you from getting more of

what you want.

Chapter 2

Manufacturing Cost

Manufacturing cost are those cost that

are used to manufacture goods directly.

There are three types of manufacturing

cost; which are:

1. Direct Material

2. Direct Labor

3. Manufacturing overhead

Direct Materials

Raw materials that become an integral part of the product and that can be

conveniently traced directly to it.

Example: A radio installed in an automobile

Direct Labor

Those labor costs that can be easily traced to individual units of product.

Example: Wages paid to automobile assembly workers

Manufacturing Overhead

Manufacturing costs that cannot be traced directly to specific units produced.

Examples: Indirect materials and indirect labor

2-18

Nonmanufacturing Costs

Marketing/

Selling

Costs

Costs necessary to

secure the order and

deliver the product.

Administrative

Costs

All executive,

organizational, and

clerical costs.

2-19

Product Costs Versus Period Costs

Product costs include

direct materials, direct

labor, and

manufacturing overhead.

Period costs include all selling costs and

administrative costs.

Inventory Cost of Good Sold

Balance

Sheet

Income

Statement

Sale

Expense

Income

Statement

2-20

Cost Classifications for Predicting Cost Behavior

How a cost will react to changes in the level of

activity within the relevant range.

• Total variable costs change when activity changes.

• Total fixed costs remain unchanged when activity changes.

• A mixed cost is One that contains both variable and fixed cost elements.

Variable Cost

Your total texting bill is based on how

many texts you send.

Number of Texts Sent

Tota

l Te

xtin

g B

ill

Fixed Cost

Your monthly contract fee for your cell phone is fixed for the number of monthly minutes in your

contract. The monthly contract fee does not change based on the number of calls you make.

Number of Minutes Used

Within Monthly Plan

Mo

nth

ly C

ell P

ho

ne

Co

ntr

ac

t Fe

e

Mixed Cost

In case of a Telephone bill Line Rent is

fixed cost and Call Charge is variable

cost.