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Management Accounting Notes

Management Accounting Notes

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Published by kamdica
Management Accounting Notes
Management Accounting Notes

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Published by: kamdica on Nov 24, 2009
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08/04/2012

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Visitallmbastuff.blogspot.comfor morenotes, project reports etc.
Nature of Management AccountingCharacteristics of Management Accounting:
1. It is a selective technique. It compiles only the data from balance sheetand profit and loss, which is relevant and useful.2. It is concerned with data not decisions. It can inform but not prescribe.3. It deals with future. It is a kind of planning for the future becausedecisions are taken for future course of action.4. It examines the cause and effect of relationship. Normally, a profit andloss account will show the amount of profit or loss for the year but does nottell us the reasons for it. Management accounting studies the causes of profit or losses.5. It does not follow rigid rules and formats like financial accounting. Thenecessary info is provided in the shape of various statements or reports inorder to meet the needs of the management.
Objectives of Management Accounting:
1. To help the management in promoting efficiency.2. To finalize budgets covering all functions of a business.3. To study the actual performance with plan for identifying deviations andtheir causes.4. To analyze financial statements to enable the management to formulatefuture policies.5. To help the management at frequent intervals by providing operatingstatements and short-term financial statements.6. To arrange for the systematic allocation of responsibilities for theimplementation of plans and budgets.7. To provide a suitable organization for discharging the responsibilities.
Scope of Management Accounting:
1. Financial accounting: Related to the recording of business transactionsincluding income, expenditure, inventory movement, assets, liabilities, cashreceipts, etc.2. Cost accounting: Costing is a branch of accounting. It is the process of and technique of ascertaining costs. It includes standard costing, marginal
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costing, differential and opportunity cost analysis.3. Budgeting and forecasting: Covers budgetary control4. It reports financial results to the management5. It provides statistical data to various departments.
Functions of Management Accounting:
1. It assists in planning and formulating future policies.2. It helps to interpret and analyze the financial information.3. It controls and monitors performance.4. It helps to organize various functions of an organization.5. It offers solution for strategic business problems.6. It coordinates various departmental operations.7. It motivates employees.
Functions of management Accountant:
1.Collection of data2.Analysis3.Presentation of data
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Planning: A management accountant plans the entire accountingfunctions.
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Controlling: Examines the performance against the set standard andreports it to the management.
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Reporting: He reports to the management and advises them on futuredecisions.7.Coordinating: preparation of master budget8.Decision making
Standard costing
What is Material Cost Variance? What are its sub-divisions?Material Cost Variance
or Material Total Variance is the Variance inmaterial cost actually incurred on material and the material cost estimatedon material.Material Cost Variance can be derived as follows:
MCV = (Standard Quantity x Standard Rate) – (Actual Quantity x  Actual Rate)
Material Cost Variance can be sub-divided as follows:
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a)
Material Rate Variance
or Material Price Variance is the variance inthe rate or price of material actually spent and the material rate/priceestimated. Thus, even if there is no change in quantity consumed, if there is adifference in the total cost, then it is due to the difference in the rate atwhich material is consumed.Material Rate Variance can be derived as follows:
MRV = Actual Quantity (Standard Price – Actual Price)
b)
Material Usage Variance
is the variance in the usage of material inactual production and the estimated usage of material. Thus, even if there is no change in the rate of material, if there is a changein the total cost, then it is due to the change in consumption of material.Material Usage Variance can be derived as follows:
MUV = Standard Rate (Standard Quantity – Actual Quantity)
What is Material Usage Variance? What are its sub-divisions?Material Usage Variance
is the variance in the usage of material in actualproduction and the estimated usage of material. Thus, even if there is no change in the rate of material, if there is a changein the total cost, then it is due to the change in consumption of material.Material Usage Variance can be derived as follows:
MUV = Standard Rate (Standard Quantity – Actual Quantity)
Material Usage Variance can be further sub-divided into:a)
Material Mix Variance
: The difference between actual quantity of material and revised standard quantity of material is the Material MixVariance.Revised Standard Quantity is the Actual Quantity of Material divided in thestandard raw material ratio.Material Mix Variance can be derived as follows:
MMV = Standard Rate (Revised Standard Quantity ActualQuantity)
b)
Material Yield Variance
: The difference between the actual outputand the standard expected output is the Material Yield Variance. There are two methods of calculating Material Yield Variance. They are asfollows:
Input Method:MYV = (Standard Input – Actual Input) x Average Cost / unitOutput Method:
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