- •Lecture Notes b.Devlin
- •Introduction
- •Management accounting
- •1 Financial accounting.
- •2 Management accounting
- •To provide information about product costing to be used in financial
- •To provide information for planning, controlling and organising.
- •To ascertain the cost of a product. This information is used to value stock which is required for external reporting .
- •To assist management in the decision-making process.
- •Marginal costing
- •Decision making
- •In the short-run all fixed costs remain unchanged and therefore treated as irrelevant.
- •Variable overhead
- •2 Shut-down decisions
- •3 Make or Buy
- •Variable overheads £2
- •Variable cost of production £7
- •Variable overhead £2
- •4 Limiting factor decisions
- •5 Profit Planning or cost profit volume analysis
- •Cost volume profit analysis
- •It is possible to ascertain these by using a break-even chart or by using formulae.
- •Budgeting
- •1. Sales Budget 19x0
- •Production budget 19x0
- •3. Materials Usage Budget 19x0 (Component usage)
- •4. The Material Purchase Budget 19x0
- •Cash summary December 19x0
- •Depreciation never appears in a cash budget as it is a non-cash expense.
- •In respect to credit transactions time lags have to be built into the cash budget
- •It is useful to have a memo column to record items which will appear in the balance sheet if required. Budgeted Profit and Loss Account for six months ending 30 June 19x1
- •Budgeted Balance Sheet as at 30 June 19x1
- •Investment appraisal methods
- •1 Payback
- •2 Accounting rate of return
- •Investment appraisal compares the cash outflows with the cash returns from the project and these cash flows take place over a lengthy period of time.
- •3 Net Present Value
- •6 Profitability Index
- •The costing
- •Overheads
- •Indirect materials used in Dept. B £35,000
- •Insurance of machinery £5,000
- •In the absorption stage an overhead recovery (absorption) rate (oar) is calculated. The formula used is:
- •30,000 Machine hrs.
- •35,000 Labour hrs.
- •In recent years there has been criticism of the traditional system of costing for overheads ( Kaplan & Cooper ). Traditional cost systems were designed when:
- •Information processing costs were high;
- •Inspection cost:
- •Standard costing
- •Variances represent the differences between standard costs and actual costs. The standard cost is what the cost is estimated to be and this is compared to what the cost is actually.
- •Variable Overhead Variance
- •Variable overhead efficiency variance
- •Responsibility accounting
- •It is a ‘ system of accounting that segregates revenues and costs into areas of personal responsibility in order to assess the performance attained by persons to whom authority has been assigned’.
- •Net Residual Income
ACF311M1/M2 Module
Lecture Notes b.Devlin
Introduction
TO
Management accounting
Lesson 1 Introduction to Management Accounting
What is accounting?
Accounting is an information system. It exists to provide information for the end-user. It is possible to distinguish between two branches of accounting.
1 Financial accounting.
The purpose of financial accounting is to report the financial performance of the company. It’s main focus is on external reporting to a number of groups viz.
Owners ( shareholders )
Loan creditors ( banks )
Trade creditors (suppliers )
Sundry creditors ( suppliers of services )
Government agencies ( tax authorities )
Employees ( trade unions )
A set of financial statements - a profit and loss account, a balance sheet and a cash flow statement are prepared and published.
2 Management accounting
The main purpose of management accounting is to provide information to the management team at all levels within the organisation for the following purposes:
(a) formulating the policies - strategic planning
(b) planning the activities of the organisation - corporate planning
(c) controlling the activities of the organisation
(d) decision-making - long-term and tactical
(e) performance appraisal at strategic and operational level
Definition: Management accounting is the application of professional knowledge and skill in the preparation and presentation of accounting information in such a way as to assist management in the formulation of policies and in planning and controlling the operations of the organisation.
Let us look at a simple financial statement.
Example Financial Accounts
|
£ |
£ |
Sales |
|
30,000 |
Cost of sales |
|
24,000 |
|
|
-------- |
Gross profit |
|
6,000 |
|
|
-------- |
Deduct |
|
|
Administration expenses |
2,000 |
|
Selling and distribution expenses |
1,000 |
|
|
-------- |
3,000 |
|
|
-------- |
Net profit |
|
3,000 |
|
|
-------- |
Financial accounts indicate the results of a business over a period of time. They deal with historic or past costs and are concerned with stewardship accounting.
A management accounting/ cost statement provides information to allow managers to plan, control and organise the activities of the business. The purpose of a costing/maagement accounting information system is:
To provide information about product costing to be used in financial
statements.