Chapter48An introduction to management

accounting

Management means decision making.

Accounting means The systematic recording, reporting, and analysis of financial transactions

of a business.

Management accounting is used within a business to provide them with the basis to make informed business decisions that will allow them to be better in their management and control functions.

What is management accounting?

The cost recording component is called cost accounting.Cost accounting is needed for a company management in measuring financial performance.

There are many types of costs!!!! =()=‘’

Management accounting

Historical cost A measure of value used in accounting in

which the price of an asset on the balance sheet is based on its nominal or original cost when acquired by the company.

Management accounting

Product costs combined costs of raw material and labor

incurred in producing goods cost - the total spent for goods or services including money and time and labor

Period costs is an expense; it is charged against sales

revenues in the period in which the revenue is earned.

Management accounting

Cost controlCosts are collected form cost centre for individual cost units (unit of product or

service)

Management accounting

Costing approaches! These are a number of ways costs can be

added and recorded. The two most commonly used are

1. Absorption costing 2. Marginal costing

Management accounting

1. Absorption costing Absorption costing uses the total direct costs and

overhead costs associated with manufacturing a product as the cost base.

2. Marginal costing Where costing is used which takes account of only the variable cost of products rather than the full production cost.

mpletedtofgoodscooductionxproducedTotalunits

sUnsoldunitcosPr

Costing systems There are two main types of costing system

Job costing When production consists of separate jobs

eg. a Rolls-Royce is made to each customer’s specification

Process costing.When the production is continuous flow. In industries such as oil,textiles, food processing etc.

Management accounting

Budgeting and budgetary control A formal statement of the financial

resources set aside for carrying out specific activities in a given period of time.

· It helps to co-ordinate the activities of the organisation.

Management accounting