Mngt Accounting-Theory Notes

7/30/2019 Mngt Accounting-Theory Notes

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Idle Time:

1. Idle time means that time in which laborers do not engage in production activity. So, if there is any abnormal idle

time, it will increase the cost of production. So, it is very necessary to calculate idle time variance and if there is

unfavorable idle time variance, we take the steps to reduce abnormal idle time.

Definition of Idle Time Variance

Idle time variance is the part of labor variance which happens due to abnormal idle time. We can calculate idle tim

variance by multiplying standard wage rate with abnormal idle time.

Suppose, abnormal idle time is 50 hours and standard rate of wages per hour is $ 1.50.

Idle Time Variance = 50 hrs X $ 1.50 per hr = $ 75 ( Unfavorable)

2. Break Even Point:

Ineconomics, the break-even point is the point at which revenues equal expenses. In investing, the break-even

point is the point at which gains equal losses.

How It Works/Example:

The basic idea behind break-even pointis to calculate the point at which revenues begin to exceed costs.

Break even point----- Total Cost = Selling Price

I.e. No Profit or No Loss Situation.

The first step is to separate a company's costs in to those that are variable and those that are fixed.Fixed costsa

costs that do not change with the quantity of output. Examples ofFixed costinclude rent, insurance premiums, o

loan payments.Variable costsare costs that change with the quantity of output. They are zero when production is
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zero. Examples of common variable costs include labor directly involved in a company's manufacturing process an

raw materials.

Importance of BEP:

The break-even point helps business owners determine when they'll begin to turn aprofitand assists them with the

pricing of their products. Typical variable andfixed costsdiffer widely among industries. This is why comparison of break

even points is generally most meaningful among companies within the same industry, and the definition of a "high" or

"low" break-even point should be made within this context.

Difference between Cost Accounting & Management Accounting:
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Though Management accounting uses the tools of cost accounting like standard costing, marginal costing etcand many

people think that both cost and management accounting are same which is not the case because there are many

differences between the two, here are some of them

1. Cost accounting is concerned with historical cost that is the costs which have been already incurred while managemen

accounting is concerned with forecasting of the costs and hence it looks into future unlike cost accounting.

2. The objective of cost accounting is to ascertain the costs and control it while the objective of management accounting

to provide management all information as and when required by them so that they can take right decisions at right time

3. Cost accounting is done for internal parties like top management, owners as well as external parties like creditors,

employees, government, While management accounting is done for top management only.

4. Cost accounting was evolved many years back and it is limited in its scope while management accounting is still

evolving but its scope is much wider than that of cost accounting because it uses along with cost accounting other

principals of subjects like statistics, economics etc

4. What is budgetary control. explain its advantages & disadvantages

"The establishment of budgets relating the responsibilities of executives to the requirements of a policy, and the

continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy,

to provide a basis for its revision".
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Advantages of budgeting and budgetary control

There are a number of advantages to budgeting and budgetary control:

Compels management to think about the future, which is probably the most important feature of a budgetary planning andcontrol system. Forces management to look ahead, to set out detailed plans for achieving the targets for each department,operation and (ideally) each manager, to anticipate and give the organisation purpose and direction.

Promotes coordination and communication.

Clearly defines areas of responsibility. Requires managers of budget centres to be made responsible for the achievement ofbudget targets for the operations under their personal control.

Provides a basis for performance appraisal (variance analysis). A budget is basically a yardstick against which actualperformance is measured and assessed. Control is provided by comparisons of actual results against budget plan. Departuresfrom budget can then be investigated and the reasons for the differences can be divided into controllable and non-controllablefactors.

Enables remedial action to be taken as variances emerge.

Motivates employees by participating in the setting of budgets.

Improves the allocation of scarce resources.

Economises management time by using the management by exception principle.

Problems in budgeting/Disadvantages/Limitations:


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While budgets may be an essential part of any marketing activity they do have a number of disadvantages, particularly inperception terms.

Budgets can be seen as pressure devices imposed by management, thus resulting in:a) bad labour relationsb) inaccurate record-keeping.

Departmental conflict arises due to:

a) disputes over resource allocationb) departments blaming each other if targets are not attained.

It is difficult to reconcile personal/individual and corporate goals.

Waste may arise as managers adopt the view, "we had better spend it or we will lose it". This is often coupled with "empirebuilding" in order to enhance the prestige of a department.

Responsibility versus controlling, i.e. some costs are under the influence of more than one person, e.g. power costs.

Managers may overestimate costs so that they will not be blamed in the future should they overspend.

Importance of Budgetary Control:

Simple Introduction of Budgetary Control

Budgetary control is the one of best technique of controlling, management and finance in which every department's

budget is made with estimated data. After this, manager compares the estimated data with original data and fix the

responsibility of employee if variance will not be favourable.
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In other words, to make budget and control the business is key tool in budgetary control.

1. To Use the Forecasting Techniques

It is the importance of budgetary control that with this, we can use the forecasting techniques. Three departments work

hard for calculating best estimation of future. Accounting department provides old data. Statistical department provides

the tools and techniques of forecasting like probability, time series other sampling methods. Management department

uses both department services to estimate the expenditures and revenue of business under the normal conditions of

business. So, no department say anything wrong in making of budget. So, it is necessary for business to use budgetary

control techniques.

2. Fix the Responsibility of Departments

Department's scientific name is cost center. Manager makes budget and show the target of company and employees are

given the powers to perform these targets. After checking the variance in budget through budgetary control process,

manager can fix the responsibility of each department and its employees in a particular cost center.

3. Effective Utilization of Company's resources

Company can only effective use its resources, if someone stops misuse of money and fund of company. If budgetary

control is used in company, at that time, no action will be taken before making budget. Responsible personal of compan

will be accountable for his action. Suppose, company has fixed the target of company's annual Sale is $ 40,00,000 after

participating sales manager in the setting of this sale budget. Now, after one year, if sale is just $ 1,00,000. This sale

manager must say what is the reason for not selling the product up to standard level of sale.

4. Excel yourself


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After using budgetary control techniques in your business, you will definitely learn the skills ofexcel yourselfbecause we

all know that a budget is based on estimates, it may or may not be true. But continually practise of making good budget

and apply in organisation, manager can learn skills and experience for increasing the efficiency in every work of compan

Meaning of this, manager will get positive approach through budgetary control.

Standard Costing- Introduction

Standard costing system is not a distinct system of accounting but it is a technique which is applicable in all typof costing such as process costing or job costing. The standard costing technique consists in- (a) element wise standacosts are predetermined; (b) standard costs are compared with actual costs; & (c) with reference to causes & points incidence, variances are measured & analyzed.

Thus, standard cost is a pre-determined cost, the calculation of which is done after taking into consideration, on tbasis managements standards of efficient operation, the relevant necessary expenditure.

The standard costing technique was evolved for the purpose of eliminating the short comings of historical costing.

Advantages of standard costing:

The main advantages of standard costing are:

a. Comparison is made between actual performance & pre-determined standard, thereby exposing favorable adverse variances. Establishment of variances which arises due to external influences, for instance, increase price over which management has little control; & which arises due to internal influences, becomes possibHence, indication can be made of places where remedial action has become necessary & how the same can done.
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b. Standard costing is an example of management by exception, in that managements attention can be directed studying variances towards the items those are not performing according to plan. Management, by confining attention to the deviations from the plans, can use its energies in the directions which is most profitable.

c. As under standard costing system variances can be reported, cost control is more effective under this systeReappraisal of working methods, materials used, etc. gets encouraged by the whole procedure of setting, revisi& monitoring standards; thereby leading to cost reduction.

d. As opposed to average of past performances, what cost should be assigned to the parts & products is representeby standard costing, & as such, compared to historical costs, standard costing are a better guide to pricing.

e. A simple basis of valuation of stock is provided by standard costing.

f. Identification of responsibilities for performances is enabled by standard costing.

g. Being a pre-determined costs, standard costing are particularly useful in planning & budgeting. Since informatioregarding deviations of actual costs from standard costs is provided continuously, for the coming years preparatiof a more accurate & effective budget becomes possible.

h. A positive, cost-effective attitude can be created among all levels of management through properly developstandard costing system with full participation & involvement.

Limitations of standard costing:

The limitations of standard costing are:

a. Installation & maintenance of standard costing system may be expensive & time-consuming. A high level of skillexpertise is required for standard costing system. Hence, small concerns may find establishing this system difficu

b. For fixing responsibilities, segregation of variances into two categories controllable, which are caused by internfactors & uncontrollable, which are caused by external factors, becomes essential. Such segregation is not alwaan easy task.


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c. Standards rapidly becomes out of date in situations where rates, prices & methods change quickly, thereby thelose their control & motivational effects.

d. For all kind of industries standard costing system is not suitable. Industries producing non-standardized productsjobs which are made according to specifications of the customers, may find the system costly & unsuitable.

e. Standards set at too high a level will be unattainable. In such a situation, morale & motivation of the employeare adversely affected & thereby lead to resistance by standard costing.

Distinction between Standard Costing & Budgetary control:

Controlling of business operations is the common objectives of both the systems of standard costing & budgetacontrol. Accounting of variances between actual results & a pre-determined plan is involved in both the techniqueInvestigation of variances & taking of corrective action is done in both the cases.

There are inter-relations between the two systems & both are complementary to each other but they are not intedependent. Operation of one without the other is possible. However, if the two systems are operated together, the contsystem of an organization will be most effective.

Although, in principle, the two systems are similar; but in scope & technique of operation, they are different. Timportant points of difference are:

a. Estimation of costs of products & services is involved in standard costing process. Only to cost the scope standard costing is limited. Whereas, budgetary control is concerned with all the functional areas of business

estimation of revenues as well as expenditure is involved by it. Thus for activities like production, purchases, sal& distribution, cash flows, capital expansion etc. the budgets are prepared. Thereby, the scope of the budgetacontrol is much wider.

b. In standard costing, comparison of actual cost with standard costs is made for the purpose of exercising contrwhereas in budgetary control by comparing actual figures with those budgeted, control is exercised.

c. By nature wise, standard costing is more intensive in nature while budgetary control is more extensive in nature.


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d. Operation in parts or elements is not possible under standard costing. All expenditure items which are included cost units are needed to be accounted for. Whereas, depending upon the attitude of the management, operationparts, sections or even departments is possible under budgetary control. Preparation of budgets only for certakey areas of the business is also possible.

e. Concept wise, standard costing is a unit concept while budgeted cost is a total concept.

f. Under the standard costing system, usually through double entry accounts, standards & the resulting variances ausually revealed. However, budgets are memorandum figures & in double entry accounting system they do nform part.

g. Standard costing is a projection of cost accounts while budgetary control is a projection of financial accounts.

h. Standardization of products is required by standard costing whereas; standardization of products does nnecessarily involve under budgetary control.

i. Standard costing is a far more technically improved system by which analysis in minute details can be done of tcauses of the variances & in a more specific & effective manner, exercise of control is possible. However, budgeti& control of expenses are by nature more broad & elementary.

j. Only when standard costing becomes inappropriate for current operating conditions, they are revised. Such kind revision may take place more or less frequently than budget revisions. However, revision of budgets is doperiodically normally on annual basis.

Inventory/ Stock Valuation Methods in Accounting:

Inventory can make up a large amount of the assets on the balance sheet and so knowing how to analyze the inventory

and the method used by management is crucial.

A large part ofstock valuationcomes from being able to understand how inventory is valued and built.
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To put it in the most basic form, inventory is what you have in stock. If you expand on this definition to look at what is

involved on the other side of the scale to get the ending inventory amount, the equation for inventory is

Beginning Inventory + Net Purchases Cost of Goods Sold = Ending Inventory

In words, your beginning inventory along with your purchases and then subtracting what you have sold, results in endin

inventory.

But this is where it gets tricky with GAAP rules. Depending on the inventory valuation method used by the company, th

COGS can vary considerably which ultimately affects the ending inventory.

Sadly, it is not as easy as counting what is left on the shelf at the end of the day to get the ending inventory value.

Three inventory valuation methods are used in the US.

1. Average cost method

2. First In First Out (FIFO) method

3. Last in First Out (LIFO) method

Average Cost Method:

To put it real bluntly, the average cost method is rarely used. This method does not offer any real convenience or added

accuracy.

The equation for average cost method is as follows.

Average Cost = (Total Quantity of Inventory Units) / (Total Quantity of Units)


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where

Cost of Goods Sold = (Average Unit Cost) x (Number of Units Sold)

For example if 1,000 toys are produced on Monday at a cost of $1 and then on Tuesday another 1,000 toys are

manufactured at a price of $1.05, the average cost method would value the inventory at $1.025 a piece.

FIFO Method:

As mentioned previously on aggressive and conservative accounting policies, the FIFO method of valuing inventory is

considered to be the aggressive method.

FIFO works like how you maintain your fridge at home. After you have bought some groceries, you tend to place what yo

just bought at the back of the fridge in order to finish off the older food before it spoils.

In other words, under FIFO, the oldest goods are sold first and the newest goods are sold last.

As a formula it would look like this

Unit Cost per batch = (Cost/Quantity) for each batch

where

Cost of Goods Sold = (Unit Cost x Quantity) for each batch

Using the toy example above, if 1,000 toys were then sold on Wednesday, the COGS would be $1 per unit. The remainin

inventory on the balance sheet would then be worth $1.05 each.
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LIFO Method:

LIFO is the opposite of FIFO. Instead of the oldest inventory being considered as sold first, the newest product is sold

first. While the factory analogy works for the FIFO, consider a bakery. By lunch or evening, the bread baked from the

morning will not sell as well as the fresh ones from the afternoon batch.

This means that cost of the latest inventory now becomes the COGS with the cost of the oldest inventory being assigned

to the inventory value on the balance sheet.

The equation is essentially the same as FIFO since both are calculated based on batches of unit sold.

Unit Cost per batch = (Cost/Quantity) for each batch

where

Cost of Goods Sold = (Unit Cost x Quantity) for each batch

Using the toy example, the 1,000 units sold on Wednesday would have a COGS of $1.05 per unit, with the remaining

1,000 toys being valued at $1 each.

Absorption costing:

It means that all of the manufacturing costs are absorbed by the units produced. In other words, the cost of a finishedunit in inventory will include direct materials, direct labor, and both variable andfixed manufacturing overhead. As aresult, absorption costing is also referred to as full costing or the full absorption method.

Absorption costing is often contrasted with variable costing or direct costing. Under variable or direct costing, the fixedmanufacturing overhead costs are not allocated or assigned to (not absorbed by) the products manufactured. Variable


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costing is often useful for managements decision-making. However, absorption costing is required for external financialreporting and for income tax reporting.

Marginal Costing

Marginal costmeans the cost of the marginal or last unitproduced. It is also defined as the cost of one more or oneless unit produced besides existing level of production.

For example, if a manufacturing firm produces X unit at a cost of Rs.300 and X+1 units at a cost of Rs.320, the co

of an additional unit will be Rs.20 which is marginal cost.

Similarly if the production of X-1 units comes down to Rs. 280, the cost of marginal unit will be Rs.20 (300280).

The marginal cost varies directly with the volume of production/ Sales.

It consists of prime cost, i.e. cost of direct materials, direct labor and all variable overheads. It does not containany element of fixed cost which is kept separate under marginal cost technique.

Costs can be broadly classified as:

1. Fixed Cost - Cost which remains constant at all levels ofproduction/ output/sales & cost which doesnt vary witthe variation in sales/output.

E.g. Rent, Depreciation, Insurance premium.

2. Variable Cost: Cost which varies with the changes in sales/output/ level of production. i.e. if production willincrease, VC will also increase & vice versa.

E.g. Raw Material, Labour, Power, fuel,etc.

3. Semi variable cost: That cost which remains constantupto specific level of output & it shows increase /decrease beyond this level along with the Sales/ output.


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E.g. Telephone bill, repairs & maintenance.

Marginal costing distinguishes between fixed costs and variable costs as conventionally classified.

The marginal cost o f a product is its variablecost. This is normally taken to be; direct labour,direct material, direct expenses and the variable part of overheads.

Marginal costing is form ally defined as:

the accounting system in which variable costs are charged to cost units and the fixed costs of theperiod are written-off in full against the aggregate contribution. Its special value is in decision making.

The term contribution mentioned in the formal definition is the term given to the differencebetween Sales and Marginal cost.

Marginal Costing is concerned basically with the determination of Product Cost which consist of

Total Cost, excluding Fixed Cost.

Marginal costing is the ascertainment of Variable cost & the effect of changes in Volume ofSales/Output on Profit.

MARGINAL COST = VARIABLE COST=

DIRECT LABOUR+DIRECT MATERIAL+DIRECT EXPENSE+VARIABLE OVERHEADS.

Marginal costing technique has given birth to a very useful concept of contribution where contribution is givenby: Sales revenue less variable cost (marginal cost)

CONTRIBUTION= SALES - MARGINAL / VARIBALE COST. Contribution may be defined as the profit before the recovery of fixed costs. Thus, contribution goes toward

the recovery of fixed cost and profit, and is equal to fixed cost plus profit (C = F + P).


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In case a firm neither makes profit nor suffers loss, contribution will be just equal to fixed cost (C = F). this isknown as break even point.

Marginal costing is a technique in which all costs are classified into two parts as Fixed & Variablecosts.

In Marginal Costing, only VC is charged (allocated) to the Product where as on the other hand FC whichhas incurred cant be waived but it has to be adjusted/absorbed through Total profit of the Company.

FC are not charged / allocated to the Product i.e. it is not considered while calculating the Total Cost ofProduct.

The concept of contribution is very useful in marginal costing. It has a fixed relation with sales. Theproportion of contribution to sales is known as P/V ratio which remains the same under given conditions ofproduction and sales.

Advantages of marginal costing technique

1. It is simple to understand and easy to calculate and hence anybody can understand it easily.

2. It helps in decision making like for calculation

of profitability, for determining selling price of the product, to decide whether to buy or make aproduct, whether to utilize the idle capacity available with the company.

3.It helps in cost control by showing variable and fixed cost separately.

Disadvantages of marginal costing

1. Under marginal costing all costs are classified as either fixed or variable and it ignores the semi variablecosts.

2. It is not suitable for companies which have high fixed cost per unit because it takes into account only variablecost per unit.


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3. It is suitable only where production is of uniform size and shape and hence it is of limited use for

companies which produce goods of different shapes and sizes.

1. Hence companies should take into account above factors before deciding whether they want to adoptmarginal costing or not.

2. Contribution: Contribution is the difference betweensales and Variable Costs. Since sales & Variable Costcan be both be expressed in P.U. terms, contribution is usually expressed in P.U. terms also.

a. Contribution = SalesVariable Cost;

b. Contribution P.U.= Selling Price P.U. Variable Cost P.U.

2. P/v Ratio: P/v Ratio stands for Profit /Volume Ratio. However, it is ratio of contribution to sales. (The termProfit is used as fixed costs are not considered in Marginal Costing technique & profit is same asContribution).

P/v Ratio = Contribution / Sales*100

P/V Ratio= Change in Profit(Contribution)/Change in Sales*100

3. BEP ( Break Even Point ):

BEP(Sales Amount/Value)= Fixed Cost / P/V Ratio;

BEP(Sales Units) : Fixed Cost / Contribution P.U;

4. Margin of Safety (MOS) = Total SalesBreak EvenSales;

MOS= Profit / PV Ratio.

5. Sales for Desired Profit = Fixed Cost + Desired Profit /P/v Ratio.


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6. Profit for Desired Sales= (Sales*P/V Ratio)-Fixed Cost.

1. Break Even Point:

A business is said to break even when its total sales are

equal to its total costs.

It is a point where There is no profit or no loss.

Contribution is equal to Fixed Expenses.

2. Margin of Safety (M/S)

It is the difference between the actual sales and the sales at break even point.

Sales or Output beyond break even point is known as margin of safety.

It states the amount by which sales can drop before losses begin to be incurred. The higher themargin of safety, the lower the risk of not breaking even.

Management Accounting

Major Types of Accounting:

Financial Accounting: Accounting is known asLanguage of The Business. FA covers the preparation & interpretation of Financial Statements &communication to the users of A/cs.

2. FA is historical in nature as it records transactions which had already been occurred. The final step ofFA is the preparation of P&L A/c & the Balance-Sheet.

3. P&L A/c primarily helps in determination of the Net Results ( Profit/ Loss) for an A/cing period. Thus, Itis called as a Period / Income statement. It is also called as Motion Picture of the business since it


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reflects Operations of the business which is a Continuously changing activity.

4. B/S shows the Financial Position on a given date. It shows the business position in the form of variousAssets & Liabilities. It is also called Position Statement / StaticPicture / Snapshot of the business as on a specified date.

4. Cost Accounting: It aims at ascertaining the Cost ofgoods & services. It lays emphasis on thestage by stage computation of costs.

It is the provisions of such analysis & classification of expenditure as will enable the Total Cost ofany particular unit of production to be ascertained with reasonable degree of accuracy & at thesame time to disclose how such total cost is constituted.

2. It generally prepares A/cs & Reports on the basis of past. i.e. it prepares reports on the Incurred Costs. Even itcan prepare Reports for Budgeted Cost & Standard Cost.

Costing is meant for Internal Management for Internal reporting purpose. However, they are usefuleven to the

External Parties.

It is designed to determine the cost of manufactured products & to report cost information to Mngt.

Management Accounting: It is concerned with InternalReporting to the managers of a businessunit.

The different ways of grouping information & preparing reports as desired by managers fordischarging their functions are referred to as Management A/cing.

It is segment of A/cing that deals specifically with the A/cing & reporting of information to mngtregarding the detailed operations of the Co. in order for decisions to be taken in various areas ofbusiness.

Managers in all types of organizations need frequent information about business activities to plan


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accurately for the future, to control business results, to direct an enterprise towards achieving its goals &to make decisions that affect the operations of the business.

It identifies, collects, measures, classifies & reports information that is useful to managers in fulfilling themngt process.

Definitions:

4. The presentation of A/cing information in such a way as to assist management in the creation of policy& day to day operations of an Undertaking.

5. The methods & concepts necessary for effective planning, for choosing among alternativebusiness actions & for control through the evaluation & interpretation of performances.

6. Mngt A/cing covers all those services by which the

A/cing department can assist the top mngt & other departments in the formulation of policy,execution, control & appreciation of effectiveness.

4. It deals with A/cing & Reporting of information to mngt regarding the detailed operations of the Co. inorder for decisions to be taken in various areas of business.

Need Of Management Accounting: We will explain theneed of Mngt A/cing with the help of following

example:

It is well known that the price of a Cos product is to be revised once or twice in an year dependingupon the policy of the Co. & influencing factors.

On the basis of financial report, (P&L A/c, B/S), it is not possible to determine the extent to which the priceof the product is to be increased because financial reports cant give an idea about the extent of increasein cost of the product. Hence, FA is not useful to the Mngt to decide about price revision.

But, costing can be of much use as they provide some insight of the impact of rise in the prices of inputfactors & their effect on the cost of sales, margin, etc.


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Inspite of this, even the costing is not much useful to mngt in this regard. The Mngt cant increasethe price equivalent to, or more than the cost of sales.

Mngt needs info about a no. of aspects such as:

3. Whether the competitors are revising their prices;

4. What would be the reaction of the customers to the proposed price rise, etc.

c. Hence, there is need for Mngt A/cing which furnishes all the relevant & required information ( collected fromdifferent sources) in the manner which is most suitable to Mngt & which uses the sophisticated tools &techniques to present the reports to the Mngt in the most useful & suitable manner.

d. Since the Mngt is accountable to the owners of the Co. & their continuation in the co. depends upon theresults produced which depends on the quality of decisions & implementation mngt made. So, mngt needa system which furnishes the relevant info to them to take the decisions. Hence, Mngt A/cing is highlyrequired.

The need of Mngt A/cing can be summarized as below:

Financial & Cost A/cing lay emphasis on other objectives;

Mngt need relevant information to take no. of present & future decisions;

Increasing complexity of managerial decisions due to increase in size & complexities of corporateentities;

Information required to different levels of mngt for decision making. Scope Of Management Accounting: The scope ofmngt A/cing is much wide as it covers virtually every

area & every aspect of business operations. The scope can be precisely explained with the help offollowing points:


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5. Financial Accounting: It primarily prepares the

Financial Statements of an organization. FS are prepared mainly for outsiders dealing with the business.

6. Cost Accounting: It deals with recording of income &expenditure, ascertainment of cost & profitabilityand the presentation of the information derived their from for the purpose of managerial decision making.Thus, costing is meant for mngt to enable it to take decisions.

7. Cost Control Procedures: It deals with various stepsinvolved in the process of controlling the cost.Hence, it deals with: a. Establishments of Plans or Budgets for the future; b . Comparisons of Actual

performance with P/B.7. Reporting: It deals with presentation of the cost data,statistical data or any other information to thevarious levels of mngt. It may be required for the purpose of decision making or for the purpose offulfillment of various legal obligations.

8. Taxation: It deals with computation of Income as per law

filing the tax returns & making the tax payments.

9. Audit: it deals with devising the internal control systems

internal audit system to cover the various operational areas of business. It also deals withManagement Audit which is the evaluation of managerial performance.

10. Methods & Services: it deals with providing the mngtservices & the Management Information Services(MIS). It deals with various methods of reducing the costs & improve efficiency.

Functions Of Management Accounting:

The primary function of mngt A/cing is to serve the mngt by furnishing them the relevant & complete

information whenever they are called for.

By doing so, mngt A/cing aims at assisting to take appropriate decisions & discharging their responsibilitiessatisfactorily.


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Hence, Mngt A/cing is called mngt oriented A/cing. in order to accomplish this function/ objectivee, MngtA/cing has to perform a no. of functions. These functions may also be called as Objectives of Mngt A/cing.Major functions of Mngt A/cing are as below:

1. Provides Relevant Data;

2. Modification of Data; [ FA-Net Profit(profitability of aproduct)-Marginal Costing- recovery of cos fixedcost & profit, CA-Total cost of sales(Additional business offer)-Incremental cost & price offered

3. Analysis & Interpretation of Data; (Profitability,solvency & Liquidity)

4. Facilitates overall control: (Standard costing,Budgetary control, etc.)

5. Provides qualitative information: ( Reputation, loss of market to competitors, loss of experiencedemployees)

Difference Between:

A. Financial & Management A/cing:

1. Objective;

2. Nature of Data- Present, Past & Future;

3. Non- Financial data / Qualitative data;

4. Compulsory & Format;(Co.Act,1956);

5. Org. as a whole / Department wise;(Macro/Micro);

6. Accurate Reports/ Approximations Allowed;


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7. Parties concerned (External / Internal);

8. Publishing Results/Reports;

9. Objectivity & Subjectivity;

10. GAAPs/ Recognized A/cing principles & Conventions.


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Mngt Accounting-Theory Notes

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