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Management Accounting

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11 views13 pages

Management Accounting

Uploaded by

atishayj1027
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Management Accounting

Prepared By
Dr. Rashmi Chawla Dr Varsha Goyal
Associate Professor Professor
DME Management School DME Management School
GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY, DELHI
BACHELOR OF BUSINESS ADMINISTRATION (BBA)
BBA 207: Management Accounting
L-4, T•0 Credits —4
Objective: The objective of the course is to familiarize the learners with the basic management
accounting concepts and their applications in managerial decision making.

Course Outcomes:
1. Understand the nature and scope of Management Accounting.
2. Analyse and interpret the accounting financial statements of a company and its limitations.
3. Executing skills to prepare various Budgets.
4. Examining the impact of different ratios on the financial performance of a company.
5. Compute cash flow analysis and its likely impact on the company

Course Contents
Unit 1: (14 Hours)
Introduction: Meaning, Objectives, and Scope of management accounting; Difference between financial
accounting, cost accounting and management accounting; Comparative financial statements, common size
financial statements, trend analysis, Ratio analysis, cash flow statement.

Unit 2: (14 Hours)


Budgetary Control and Variances: Concept and types of budgeting and budgetary control; meaning,
objectives, merits, and limitations of budgetary control; budget administration; Functional budgets including
cash budget; Fixed and flexible budgets: meaning and preparation; Zero-based budgeting; Performance
budgeting, difference between performance & traditional budgeting. Meaning of Variance and Variance
Analysis – Material, Labour, Overheads and Sales Variances, Disposition of Variances, Control Ratios.

Unit 3: (14 Hours)


Costing and Profit Planning: Meaning of Variable Costing, Absorption Costing and Marginal Costing;
uses of Marginal costing; Cost-Volume-Profit Analysis, Profit/Volume ratio, Break-Even Analysis -
Algebraic And Graphic Methods, Angle of Incidence and Margin of Safety.

Unit 4: (14 Hours)


Managerial Decision Making:Decision making based on Marginal Cost Analysis - profitable product mix,
Make or Buy, Addition or Elimination of a product line, sell or process further, operate or shut down
Managerial Decision-making using spreadsheets.
Course Objectives
• The objective of the course is to familiarize the students/learners with the basic
concepts of the management accounting and their applications in managerial
decision making.

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Course Outcomes
CO 1: Understand the nature and scope of management accounting
CO 2: Analyse and interpret the accounting financial statements of the company
C0 3: Executing skills to prepare various budgets
CO 4: Examining the impact of various financial ratios on the financial performance of
the company
CO 5: Compute cash flow analysis and its likely impact on the business/company.

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Table of Contents…….
Sno. Topic
4.1 Managerial Decision Making- Meaning
4.2 Decision Making based on Marginal Cost Analysis
4.3 Profitable Product Mix
4.4 Make or Buy
4.5 Addition of Product Line
4.6 Elimination of Product Line
4.7 Sell the product outright or Process further
4.8 Operate or shutdown the operations
4.9 Managerial Decision Making using spreadsheets
4.10 Some numericals

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4.5 Addition of a new product line

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Suggested Readings

1. Author: MN Arora
Book: Management Accounting
Chapter: Decision Making and Marginal Costing

2. Author: SN Maheshwari
Book: Management Accounting
Chapter: Decisions Involving Alternative Choice
Introduction
• A firm may be manufacturing a product by itself.
• It may receive an offer from outside supplier to supply that product.
• This situation is called choosing between Make the product yourself or buy it from
the outside supplier.

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• Another situation may be that firm can have an option to
either continue with the existing product or make and sell a
new product or add on to the existing product.
• This is called as addition of product line.

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Question

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Solution

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Solution

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Conclusion
When deciding to add a new product line in managerial accounting, management should
consider the relevant costs and benefits of the new product line. Here are some things to
keep in mind:
Consider traceable costs and revenues
Evaluate the product line based on costs and revenues that can be traced to it.
Exclude allocated fixed costs
Don't include allocated fixed costs in the analysis because the company will incur them
regardless of whether the product line is added.
Use differential analysis
Compare the sales revenue and costs of each option (adding or dropping the product
line). Choose the option with the highest profit.
Eliminate direct fixed costs

If a product line is dropped, direct fixed costs are typically eliminated.

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