Management Accounting

A. F. M. Rubayat-Ul-Jannat
ID: BBA080160714
Chapter 1
Work of Management

Planning
Directing and
Motivating

Controlling
 Comparison of Financial & Managerial
Accounting
  Financial Accounting
Definition Accounting is an information
system that identifies records
and communicates the economic
events of an organization to
interested user
User External persons who makes
financial decision
Time focus Historical perspective
VerifiabilityEmphasis on verifiability
versus
relevance
Precision Vs. Emphasis on precision
timeliness
Subject Primary focus is on the whole
organization
GAAP Must follow GAAP and prescribed
formats
Requirement Mandatory for external reports
Managerial Accounting
Accounting system by which
information are presented and
supplied to management in
appropriate manner to operate
business smoothly and efficiently
Managers who plan for and control
an organization
Future emphasis
Emphasis on relevance for
planning and control
Emphasis on timeliness
Focuses on segments of an
organization
Need not follow GAAP and
prescribed formats
Not Mandatory
 Line and Staff
Relationships
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.
The Changing Business
Environment

• Just-in-time production
• Total quality
management
• Process reengineering

• Theory of constraints
 Just-in-Time (JIT) Systems
Receive
customer Complete products
orders. just in time to
ship customers.

Schedule
production.

Receive materials Complete parts

just in time for just in time for
production. assembly into products.
 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
 Total Quality Management
(TQM)
TQM improves productivity by encouraging the
use of fact and analysis for decision making and
if properly implemented, avoids counter-
productive organizational infighting.
 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

Process Total Quality

Reengineering Management
1.Tweaks existing
1.Radically processes to realize
overhauls existing gradual
processes. improvements.
2.Likely to be 2.Uses a team
imposed from above approach involving
and to use outside people who work
consultants. directly in the
process.
 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

Administrati
ve Costs

All executive,
organizational,
and clerical costs.

2-19
 Product Costs Versus Period Costs

Product costs Period costs include

include direct all selling costs and
materials, direct administrative
labor, and costs.
manufacturing
Inventory overhead.
Cost of Good Sold Expense

Sale

Balance Income Income

Sheet Statement 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.
Total Texting Bill

Number of Texts Sent

 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.
Monthly Cell Phone
Contract Fee

Number of Minutes Used

Within Monthly Plan
 Mixed Cost

In case of a Telephone bill Line Rent

is fixed cost and Call Charge is
variable cost.