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Management Accounting
A. F. M. Rubayat-Ul-Jannat ID: BBA080160714
Chapter 1
Work of Management
Directing and
Motivating
Planning
Controlling
Comparison of Financial & Managerial Accounting
Financial Accounting Managerial Accounting
Definition
Accounting is an information system
that identifies records and
communicates the economic events
of an organization to interested user
Accounting system by which
information are presented and supplied
to management in appropriate manner
to operate business smoothly and
efficiently
User External persons who makes financial
decision
Managers who plan for and control an
organization
Time focus Historical perspective Future emphasis
Verifiability versus relevance
Emphasis on verifiability Emphasis on relevance for planning
and control
Precision Vs. timeliness
Emphasis on precision Emphasis on timeliness
Subject Primary focus is on the whole
organization
Focuses on segments of an
organization
GAAP Must follow GAAP and prescribed
formats
Need not follow GAAP and prescribed
formats
Requirement Mandatory for external reports Not Mandatory
Line positions are directly related to achievement of the basic objectives of an organization.
• Example: Production supervisors in a manufacturing plant.
Staff positions support and assist line positions.
• Example: Cost accountants in the manufacturing plant.
Line and Staff Relationships
• Just-in-time production
• Total quality management
• Process reengineering
• Theory of constraints
The Changing Business Environment
Just-in-Time (JIT) Systems
Complete products
just in time to
ship customers.
Complete parts
just in time for
assembly into products.
Schedule
production.
Receive materials
just in time for
production.
Receive
customer
orders.
JIT Consequences
JIT purchasing
Fewer, but more ultra reliable suppliers.
Frequent JIT deliveries in small lots.
Defect-free supplier deliveries.
Benefits of a JIT System
TQM improves productivity by encouraging
the use of fact and analysis for decision
making and if properly implemented, avoids
counter-productive organizational infighting.
Total Quality Management (TQM)
Process Reengineering
Anticipated results:
1. Process is simplified.
2. Process is completed in less time.
3. Costs are reduced.
4. Opportunities for errors are reduced.
Process Reengineering versus TQM
Total Quality
Management
1.Tweaks existing processes to realize gradual improvements.
2.Uses a team approach involving people who work directly in the process.
Process Reengineering
1. Radically overhauls existing processes.
2. Likely to be imposed from above and to use outside consultants.
Theory of Constraints
A constraint (also called a bottleneck) is
anything that prevents you from getting more of
what you want.
Chapter 2
Manufacturing Cost
Manufacturing cost are those cost that
are used to manufacture goods directly.
There are three types of manufacturing
cost; which are:
1. Direct Material
2. Direct Labor
3. Manufacturing overhead
Direct Materials
Raw materials that become an integral part of the product and that can be
conveniently traced directly to it.
Example: A radio installed in an automobile
Direct Labor
Those labor costs that can be easily traced to individual units of product.
Example: Wages paid to automobile assembly workers
Manufacturing Overhead
Manufacturing costs that cannot be traced directly to specific units produced.
Examples: Indirect materials and indirect labor
2-18
Nonmanufacturing Costs
Marketing/
Selling
Costs
Costs necessary to
secure the order and
deliver the product.
Administrative
Costs
All executive,
organizational, and
clerical costs.
2-19
Product Costs Versus Period Costs
Product costs include
direct materials, direct
labor, and
manufacturing overhead.
Period costs include all selling costs and
administrative costs.
Inventory Cost of Good Sold
Balance
Sheet
Income
Statement
Sale
Expense
Income
Statement
2-20
Cost Classifications for Predicting Cost Behavior
How a cost will react to changes in the level of
activity within the relevant range.
• Total variable costs change when activity changes.
• Total fixed costs remain unchanged when activity changes.
• A mixed cost is One that contains both variable and fixed cost elements.
Variable Cost
Your total texting bill is based on how
many texts you send.
Number of Texts Sent
Tota
l Te
xtin
g B
ill
Fixed Cost
Your monthly contract fee for your cell phone is fixed for the number of monthly minutes in your
contract. The monthly contract fee does not change based on the number of calls you make.
Number of Minutes Used
Within Monthly Plan
Mo
nth
ly C
ell P
ho
ne
Co
ntr
ac
t Fe
e
Mixed Cost
In case of a Telephone bill Line Rent is
fixed cost and Call Charge is variable
cost.