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FINANCIAL AND MANAGERIAL

Management Accounting ACCOUNTING
Revision
Managerial Accounting Financial Accounting
Communicate financial
Learning Objectives: Purpose Decision making
position to outsiders
1. Cost concepts Primary Users Internal managers External users
2. Costing system: Job costing, process costing, ABC
Focus/Emphasis Future-oriented Past-oriented
costing
Do not have to follow GAAP compliant;
Rules
3. Inventory costing GAAP; cost vs. benefit CPA audited
4. Master budget Ultra current to very
Historical monthly,
Time Span long
quarterly reports
5. Flexible budgets and variances analysis time horizons
Designed to influence Indirect effects on
6. Decision making Behavioral Issues
employee behavior employee behavior

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 COST CONCEPTS Cost objects

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Cost behavior Flows of costs – Manufacturing

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 Flows of costs - Merchandising COSTING SYSTEM – JOB COSTING

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COSTING SYSTEM – PROCESS COSTING COSTING SYSTEM – ABC COSTING

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 INVENTORY COSTING MASTER BUDGETING

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FLEXIBLE BUDGET VARIANCES

Actual results Flexible budget Static budget

Actual output Actual output Budgeted output

* * *
Budgeted price Budgeted price
Actual price output
output output

Flexible budget variance Sales volume variance

Static budget variance

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 VARIANCE ANALYSYS DIRECT COSTS VARIANCES

Actual cost
Flexible budget
incurred
Budgeted input
Actual input Actual input
quantity allowed for
quantity quantity
actual output
* * *
Budgeted price
Actual price input Budgeted price input
input

Price variance Efficiency variance

Flexible budget variance

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CVP ANALYSIS CVP ANALYSIS

Changes in production/sales volume are the sole cause for cost and
revenue changes. BASIC FORMULATION

Total costs consist of fixed costs and variable costs. Unit

Revenue and costs behave and can be graphed as a linear function (a ( Selling Sales
Price * Quantity )-( Variable *
Costs
Sales
Quantity )- Fixed
Costs
= Operating
Income
straight line).

Selling price, variable cost per unit, and fixed costs are all known and
constant.

In many cases only a single product will be analyzed. If multiple products

are studied, their relative sales proportions are known and constant.

The time value of money (interest) is ignored.

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 DECISION MAKING –
PRICING DECISION
RELEVANT INFORMATION

Market-based: price charged is based on what

One-time-only special orders customers want and how competitors react.

Make or buy Cost-based: price charged is based on what it costs

to produce, coupled with the ability to recoup the
costs and still achieve a required rate of return.

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Exercise

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