Managerial Accounting (2)

8/12/2019 Managerial Accounting (2)

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Such of its technique and procedures bywhich accounting mainly seeks to aid themanagement collectively have come to beknown as management accounting

The inst. Of chartered accountants of India Management accounting is the presentation

of accounting information in such a way as toassist management in the creation of policyand the day-to day operation of anundertaking

Anglo-American Council on productivity


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Providing accounting information Cause and effect analysis

Use of special techniques and concepts

Taking important decisions Achieving of objectives

No fixed norms followed

Increase in efficiency

Supplies information and not decisions

Concerned with forecasting


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Financial accounting Cost accounting

Financial management

Budgeting and forecasting

Inventory control Reporting to management

Interpretation of data

Control procedures and methods

Internal audit Tax accounting

Office services


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Planning and policy formulation Helpful in controlling performance

Helpful in organizing

Helpful in interpreting financial statements Motivating employees

Helpful in making decisions

Reporting to management

Helpful in co-ordination

Tax administration


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Financial policy and accounting Analysis of financial statements Historical cost accounting

Budgetary control Standard costing Marginal costing Decision accounting Revaluation accounting Control accounting Management information system


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Management Accounting vs. FinancialAccountingBases Managerial ccounting Financial accounting

Object to help management informulating policies andplans.

To know the financialposition.

Nature Estimated or projected figuresare used.

Actual fig. are used.

SubjectMatter

Deals separately with diff. unitand department.

Overall performanceis judged.

Compulsion Not compulsory compulsory

precision Approximate fig. are taken Actual fig. are taken

reporting Repots are prepared forinternal use only.

For external as wellas internal use.


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Bases Managerial ccounting Financial accountingQuickness Very quick. According to financial year.

Slow and time consuming.

Accountingprinciples

No set principles are followed Governed by generallyaccepted principles andconventions.

Period No specific period. Prepared for a particularperiod.On a particular date.

Publication

Not published. Published for the benefit ofthe public.

Audit Not possible. Can be got audited.

descriptio

n

Use both monetary and non-

monetary terms.

Use monetary terms only.


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Bases Managerial ccounting Cost ccountingObject to help management in

formulating policies andplans.

To record then cost.

For cost control, matching ofcost with revenue, decisionmaking

scope Very wide. Deals with cost ascertainment.

Nature Estimated or projectedfigures are used.

Use historical and present fig.

Data used Both qualitative andquantitative information areused

Only quantitative aspects arerecorded.

development

Developed only in the lastthirty years.

Related to industrialrevolution.

Principle

followed

No specific rules and

procedures are followed.

Certain principles and

procedures are followed

Managerial accounting Vs. Costaccounting


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Cost accountancy The application of costing and cost accounting principles,

methods and techniques to the science, art and practice ofcost control. It include the presentation of informationderived there from for the purpose of decision making.

Cost accounting Cost accounting is the process of accounting for cost.

Costing The technique and process of ascertaining costs.


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Ascertaining costs Determining selling price

Measuring and increasing efficiency

Cost control and cost reduction Ascertaining profits

Providing basis for managerial decisionmaking


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As an aid to management Advantage to employee

Advantages to the creditors, bankers andinvestors.

Advantage to Govt. and the society


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Not an independent system of accounts Based largely on estimation.

Not take into consideration qualitative data.


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Costing Cost accounting

Cost control

Budgeting Cost audit


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By time :-1) Historical costing2) Predetermined costs

Estimated costs Standard costs

By nature :-1) Material2) Labour3) Overhead

By degree of traceability to the product:-1) Direct2) Indirect


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Association with the period:-1) Product cost

2) Period cost

Change in the activity or volume:-1) Fixed cost

2) Variable cost

3) Semi variable cost

By function:-1) Manufacturing

2) Administrative

3) Selling

4) R & D

5) Pre product


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Relationship with accounting period:- Capital revenue

Controllability Controllable Non-controllable

Cost for analytical and decision making process. Opportunity cost Sunk cost

Differential cost Joint Common Imputed Out of pocket Marginal Uniform Replacement

Others Conversion, traceable, normal, avoidable, unavoidable,

total cost


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Cost centre:- refers to one of the convenientunit into which the whole factory organizationhas been appropriately divided for costingpurposes.

Cost unit:- a unit of product or services inrelation to which costs are ascertained

The chartered institute of management accountants,London.


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Job costing Process costing

Unit or single or output or single outputcosting

Operating costing

Multiple or composite costing

Uniform costing

Departmental costing


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The point to be concerned The objective

Decision making point

Significant operations

Uncontrollable items


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Executive side Accounting side Technical side & othersOther point to be consider Accuracy Equity Simplicity Elasticity Comparability Promptness Observance of instruction Periodical results Reconciliation with financial accounts.


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Lack of support from top management Resistance from the existing staff

Non-cooperation at other levels oforganization.

Shortage of trained staff

Heavy costs.


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The cost of indirect material, indirect labourand such other exp., including services, ascannot be conveniently charged direct tospecific cost centers or cost unit.

CIMA, London- expenditure on labour,materials or services which can not beeconomically identified with a specificsaleable cost unit.


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Function wise classification:- Manufacturing or production overheads

Administration overheads

Selling and distribution overheads

Behavior wise classification:- Fixed overheads

Variable overheads

Semi-overheads

Element wise classification:- Indirect material Indirect labor

Indirect expenses


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Single overhead rate Multiple overhead rate


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Collection of overheads Allocation and apportionment of overheads Apportionment of such overheads which can not

be allocated Re-appointment of service department exp. To

production department. The total overheads cost of production

department. An overhead rate to be computed for each

department. Departmental overheads are charged to the cost

of products Periodical comparision.


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Primary document used: Stores requisitions

Job cards or tickets

Invoices or purchase voucher

Salary or pay bill Cash book

Subsidiary records


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Allocation of overheads: that part of costattribution which charges a specific cost to acost centre or cost unit CIMA

Apportionment of overheads: that part ofcost attribution which shares costs amongtwo or more cost centers or cost units in

proportion to the estimated benefits received,using a proxy -CIMA


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Allocation of overheads:- there are certain

overheads which can be directly estimated fordifferent departments. These exp. Are wagespaid to indirect workers, contribution toprovident funds or any social security

schemes , depreciation, normal ideal timewages etc. Apportionment of overheads:-

According to the department wages

According to capital values of the assets According to floor area occupied According to no. of workers employed According to production hours of labours According to technical estimate


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Apportionment of service departmentoverheads:- Service or use method

Potential benefits

Ability to pay methods Direct of specific methods


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Refers to charging of the factory overheads ofa no of particular production department tovarious products manufactured, or jobcompleted, or orders executed in that

department. The methods for absorption ofthese overheads may be put in to twocategories: Percentage method

Hourly rate methods


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Collection and classification Departmentalization

:-The office and administration overheads are allocatedand/or apportioned directly and/or indirectly , as the

case may be, to various administrative departments/administration cost centers.

Absorption As a percentage to factory cost

As a percentage to factory overheads

As a percentage to sales

As a percentage conversion cost

As a percentage to gross profit


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Two categories of selling and distributionoverheads:-

Direct overheads

Indirect overheads

Collection and classification of overheads Departmentalization of overheads:-1. Allocation2. Apportionment

1. Advertisement and sales promotion

2. Credit and collection3. Financial and general administration

4. Transportation

5. Warehousing and storage costs


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Absorption of over head:- A rate per article

A percentage of sale

A percentage of work cost

A percentage cash collected


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Cost sheet is a document which provides forthe assembly of the detailed cost of a costcentre or cost unit. It is a periodicalstatement of cost designed to show in detail

the various elements of costs of goodsproduced.

Type of cost sheet Historical cost sheet

Estimated cost sheets+


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It gives total cost and cost per unit for aparticular period

It gives information to management for costcontrol

It provides comparative study of actualcurrent costs with the cost of correspondingperiods.

It act as a guide.

Cost sheet for the period ..


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No of unit produced.

Particulars Total costCost per

unit

Direct materialDirect labor

Direct expenses

Prime cost

Work overheads

Work cost

Administrative overheads

Cost of production

Selling and distribution overheads

Total cost or cost of sale

C t h t h ld h l f


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Cost sheet should have columns for

Treatment of stock Stock of raw material

Opening stock of raw materialAdd: purchase of raw material

Less : closing stock of raw material

Value of raw material consumed

Stocks of Work-In-Progress:Prime cost

Add: factory overheads

Work in progress(beginning)

Less: work in progress(closing)

Work cost


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Stock of finished goods:

Cost of production

Add: opening stock of finished goods

Less: closing stock of finished goods

Cost of goods sold


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Managerial Accounting (2)