Management Accounting - II

Dr. Rachappa Shette

Faculty Block 3/2
 Management Accounting - II
Course Objective

1.To impart the skills of cost ascertaiment

2.To impart the skills of identification of
relevant cost and managerial decision
making
3.To provide the students an exposure with
cost control
 Teaching pedagogy
• Lectures
• Simple problems
• Case analysis and Discussion
 Mode of Assessment
• Assignments & Class Participation - 20%
• Surprize quizzes - 20%
• Mid-term Test - 25%
• Term End Test - 35%
 Course Book
Cost accounting: A Managerial Emphasis
by
Charles T Horngren,
George Foester and
Srikant M Datar

Published by Prentice Hall of India Pvt. Ltd.

 Additional reading
• Management and Cost Accounting by
Colin Drury.
• Managerial Accounting (13th Edition) by
Garrison
• Readings in Management Accounting by
S.Mark Young.
• http://icmai.in/icmai/
• http://www.cimaglobal.com/
 Flow of the Topics

Break-Even and
Cost concepts Methods of cost
Cost-Volume-
and cost Sheet ascertainment
Profit analysis

Relevant Cost control

Costing and and
decision performance
making evaluation
 Objective of today’s session
1. To understand the Management
Accounting – II course structure
2. To shift the orientation of learning from
Financial Accounting to Management
Accounting
3. To understand the importance of
Management Accounting in business
management
 Accounting and its branches
Meaning of Accounting:
Accounting is the process of identifying, measuring and
communicating economic information to permit informed
judgments and decisions by users of the information.

Braches:
I. Financial Accounting
II. Cost Accounting
III. Management Accounting
 Financial Accounting
“Financial Accounting involves recording
and classifying business transactions and
preparing summaries of the same for
determining year end profit or loss and the
financial position of the concern”.
 Users of financial accounting
• Shareholders
• Managers
• Employees
• Creditors
• Debenture holders
• Bankers
• Government, etc.
 Practical Problems of FA
• Recording transactions at historical cost
• Not timely (Prepared once in a year)
• No information of Brand, Product, Branch, Department,
etc.
• Comprehensive and Difficulty in understanding
• Historical information
• No information about the value of human resources
• Personal bias
• Chance of manipulation
• Records only quantitative information
 Cost Accounting
“Cost Accounting is the process of
identification and measurement of cost”.
Objective of CA:
- Accumulation of cost data
- Ascertainment of cost
- Cost control and cost reduction
 Management Accounting
“ Management Accounting is the process
within an organization that provides
information used by an organization’s
managers in planning, implementing, and
controlling the organization’s activities”
 FA Vs MA
• Main objective
• Primary Users
• Rules of Measurement and reporting
• Report frequency
 Role of Management Accountant
• Scorekeeping role:
– How are we doing?
• Attention directing role:
– What opportunities and problems should
managers focus on?
• Problem solving role:
– Of the several alternatives available, which is
the best?
 Managerial Decisions
Manufacturing related decisions:
– Make or not make a component
– Best product mix
– Best allocation of limited machine hours
– Best allocation of limited labor hours
– Best allocation of limited quantity of raw
material
– Continue or discontinue a product
– Outsourcing or insourcing decisions
 Managerial Decisions
Sales related decisions:
– Own sales men Vs Outside sales agents
(Banks)
– Fixed salary Vs Commission Vs Combined
– Advertisement Budget
– Pricing Decision (cost Vs competitors)
– Pricing special orders
– Pricing for internal customers
– Accept or reject a special order
 Managerial Decisions
Finance related decisions:
– Evaluation of projects related to expansion,
diversification,
– Modernization, etc.
– Break-even analysis
– Profit analysis
 Managerial Decisions
• HR related decision
– Structure of the salary etc.
– Performance evaluation
 Be data literate – Peter F. Drucker
(The Wall Street Journal, Dec 3, 1992)

• What information do I need to make

decisions.
• How do I obtain the information
• How do I combine the information with
existing information to make a good
decision.
• How do I bring existing data bases and
accounting systems together
 Be data literate – Peter F. Drucker
(The Wall Street Journal, Dec 3, 1992)

What information do I owe? To whom?

When? In what form?
 Summary

Measure costs right

and
make right decisions
 Reading
• Chapter 1 of prescribed text book.