Management Accounting

Management Accounting

 Meaning
 Functions
 Scope
 Uses
 Limitations
 Management Accounting -
Meaning
 Any form of accounting which
enables a business to be conducted
more efficiently
 Concerned with accounting
information useful to management
 Management Accounting -
Meaning
 According to CIMA, “Application of
professional knowledge and skill in
preparation of accounting
information to assist management
in formation of policies and
planning and control”.
 Management Accounting -
Meaning
 According to American Accounting
Association, “Application of appropriate
techniques and concepts in processing
historical and projected economic data
to assist management in establishing
plans and making rational decisions”
 Management Accounting -
Functions
 Providing data
 Modification of data
 Analysis and interpretation of data
 Facilitating Management control
 Use of qualitative information
 Satisfaction of informational needs
 Serving as a means of communicating
 Management Accounting -
Scope
 Financial accounting
 Cost accounting
 Revaluation accounting
 Statistical methods
 Internal reporting
 Management Accounting -
Scope
 Taxation
 Office services
 Internal audit
 Operations research
 Law
 Management Accounting -
Utility
 Planning
 Controlling
 Coordinating
 Organising
 Communicating
 Management Accounting -Tools
 Budgeting
 Ratio analysis
 Inventory control
 Comparative statements
 Funds flow statement
 Cash flow statement
 Responsibility accounting
 Accounting for price level changes
 Management Accounting -
Limitations
 Limitations of basic records
 Persistent effort
 Only a tool
 Wide scope
 Top-heavy structure
 Invites opposition within the organisation
 Evolutionary change
 Cost Accounting

Meaning
Objectives
Importance
Elements
Advantages
Limitations
 Cost and Costing - Meaning

 Cost – amount of expenditure

incurred on, or attributable to
specific thing or activity
 Costing – process of ascertaining
cost of activities, processes,
products or services
 Cost unit and Cost centers-
Meaning
 Cost unit is the quantity upon which
cost can be conveniently allocated
 Cost center is a location, person or
item of equipment for which costs
may be ascertained or used for the
purpose cost control
 Cost Accounting - Meaning

 Process of accounting for costs

from the point at which expenditure
is incurred to establishment of its
ultimate relationship with cost
centers and cost units.
 Cost Accounting - Objectives

Ascertainment of cost
Cost control and cost
reduction
Guide to business policy
Determination of selling price
Cost Accounting – Importance

Aid to management
Aid to creditors
Aid to employees
 Elements of cost

Elements of cost

Material Labour Expense

 Elements of cost

Total cost

Direct Cost Indirect Cost

Prime cost Overhead

 Components of total cost

 Prime cost = Direct material+ Direct

labour+ Direct expenses
 Factory cost= Prime Cost + Factory
overhead
 Cost of production=Factory cost +
Administrative overhead
 Components of total cost

 Cost of sales=Cost of production +

Selling and distribution overhead
 Sales = Cost of sales + Profit
 Cost accounting – Advantages

 Reveals profitable and unprofitable

activities
 Helps in cost control
 Helps in decision-making
 Guides in fixing selling prices
 Helps in inventory control
 Cost accounting – Advantages

 Aidsin formulating policies

 Helps in cost reduction
 Reveals idle capacity
 Checks accuracy of financial
accounts
 Cost accounting – Limitations

 Unnecessary
 Expensive
 Inapplicable
 Failure
 Cost accounting – Financial
accounting
 Purpose and users
 Statutory requirements
 Analysis of cost and profit
 Periodicity of reporting
 Control aspect
 Cost accounting – Financial
accounting
 Historical and predetermined
cost
 Format of presenting
information
 Types of transactions recorded
 Types of statements prepared
 Financial accounting –
Management accounting
 User-internal and external
 Accounting method
 Statutory requirements
 Analysis of cost and profit
 Past and future data
 Financial accounting –
Management accounting
 Periodic and continuous reporting
 Accounting standards
 Types of statement prepared
 Publication and audit
 Monetary and non-monetary
measurement
Cost accounting – Management
accounting
Scope
Emphasis
Techniques employed
Evolution
Cost accounting – Management
accounting
Statutory requirement
Data base
Status in organisation
Installation