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Management Accounting by Paresh Shah (PS)
◦ Oxford University Press, 2009 Edition
Cost Accounting by Charles T. Hongren, S M Datar, George Foster, Madhav Rajan, Christopher Ittner (CS)
◦ Pearson Education, 13th Edition
Cost Management: Strategies for Business Decisions by Hilton, Maher, Selto (TMH) Costing for Management by S.K. Bhattacharya and John Deardean (Vikas) Management Accounting by Khan and Jain Cost and Management Accounting by Ravi Kishore (Taxmann)
Cost and Management Accounting Overview
Introduction Business Manager has to answer following questions ◦ What is the maximum profit that a business can draw? ◦ Has the profit margin increased or reduced as compared to previous years? ◦ Which product line is making more profit? ◦ Has too much capital been blocked in raw materials? 5 .
process or operations 6 .Cost Accounting Is the process of accounting for cost ◦ Begins with recording of income & expenditure ◦ Ends with preparation of statistical data ◦ Primarily concerned with cost determination of product. service.
make or buy decisions.Cost Accounting Is the process of accounting for cost ◦ Helps the management to have a clear indication of their economic performance direction in which they must move in order to improve economic efficiencies To solve complex mgmt problems like determination of most profitable mix. introduction of new products. replacement of equipments. discontinuance of non-profitable products 7 .
Cost Accounting Generally concerned with internal reporting for mgmt requirement Development of cost accounting is of recent origin due to ◦ Heavy industrialisation ◦ Overall cut throat competition ◦ Bulky and time consuming traditional acctg system lacks efficiency to solve complicated cost-related problems 8 .
The Chartered Institute of Mgmt Accounts. classifying and analysis of cost within the organisation (Water Scott) 9 . UK) ◦ Branch of general accounting and covers application or accounting principles relating to recording.Definitions Costing ◦ A tool to determine the cost of products or services or operations Cost Accounting ◦ Process of classifying and analysing the costs (CIMA.
art and practice of cost control and the ascertainment of information derived for managerial decision making (CIMA) 10 .Definitions Cost Accountancy ◦ Application of costing and cost accounting principles. methods and techniques to the science.
and by the different elements of cost To ascertain wastage in each process of manufacture and to prepare reports which can assist wastage control 11 .Functions of Cost Accounting To calculate the cost per unit of the various products manufactured by the firm To prepare a correct cost analysis of both process or operations.
so that the minimum capital is blocked up in the stocks 12 . and advise the management for the enhancement of profit To serve the management in the valuation of goods-in-process and finished goods.Functions of Cost Accounting To provide necessary information for the determination selling prices To compute product-wise profit.
Functions of Cost Accounting To install and implement cost control systems (budgetary control or standard cost system) for the control of material. and overhead expenses To advise the management for the formulation of future expansion policies and proposed capital outlays To establish an effective reporting system 13 . labour.
Functions of Cost Accounting To guide the mgmt in the preparation and implementation of incentive schemes based on productivity and cost savings To advise the management on the profitability of present or new lines of products. the comparative advantages and disadvantages of different types or production methods. the replacement of manual operations by automation 14 .
Additional Functions of Cost Accounting To supervise punched card accounting or data processing To organise internal audit system so that effective working of the accounting control and production control methods can be introduced from time to time and well be ensured 15 .
Additional Functions of Cost Accounting To coordinate with the industrial engineers for the introduction and implementation of methods suggested for improvement and or redundancy of programes and data To provide the Govt or other public bodies with the specialised service of cost audit 16 .
Liabilities. Owners’ Equity Cost Accounting Provides info to guide the management for proper Purpose planning. ie. coordination. Assets. the Co Act has Forms of Accounts Companies Act and Income made it obligatory to keep Tax Act costing records in some mfg companies 17 . operation. control and decision-making Kept as per requirement P&L A/cs and B/S are kept of management. for the requirement of Recently.Financial Actg v/s Cost Actg Point of difference Financial Accounting Provides info about organisation in a general way. Profit.
Financial Acctg v/s Cost Acctg Point of difference Recording Financial Accounting in subjective manner Cost Accounting In objective manner Items of costs are analysed. classified. job or product so the whole business that the unprofitable lines of businesses can be eliminated 18 . It shows the result of operation. and allocated in order to calculate the cost per unit Items of Costs Items of costs are expressed in totals Analysis of Profit It is only a part of financial accounts. These reveal the profits of process. apportioned.
Financial Acctg v/s Cost Acctg Point of difference Financial Accounting Emphasis on recording only. It submits These are prepared at the the cost reports to the end of accounting year management – weekly or monthly or as and when desired Periodicity Inventory Valuation Valued at cost or market price whichever is less Valued at cost 19 . No importance to control aspect Cost Accounting Control It provides a detailed system of cost control with the help of standards and budgets It is a continuous system of accounting.
Financial Acctg v/s Cost Acctg Point of difference Financial Accounting a) Relate to commercial transactions of the business b) Concerned with transactions related to third parties Cost Accounting a) Relate to manufacturing activities b) Concerned with transactions related to internal & third parties Nature of Transaction Figures Cost accounts deal partly Mainly deal with actual data with actual figures and partly with estimates 20 .
ratio accounting. budgetary control. capital budgeting decisions.Management Accounting Extension of managerial aspects of cost accounting Accounting to assist the mgmt in planning and decision making Employs various techniques like standard costing. uniform costing with inter-firm comparison. marginal costing. internal audit 21 .
decision-making and control It uses the principles and It uses the principles and practices practices of cost accounting and of cost accounting financial accounting It provides internal reporting to managers for use in planning and controlling routine operations It provides internal reporting to managers for use in decision making before formulating major plans and policies 22 .Cost Acctg v/s Mgmt Acctg Cost Accounting AAnalyses costs to control maximising efficiency Management Accounting AAssists the management in planning.
Cost Acctg v/s Mgmt Acctg Cost Accounting Management Accounting TThe management accountant CCost Accountant reports to the mgmt about suggests how to improve upon the variances from budgets or standards and the operating results by presents a comparative data of various suggesting ways for cost periods control and cost reduction Management Accountant works out future operating statements CCost Accountant works out the year’s operating results It is the complement of management accounting It is an extension of managerial aspects of cost accounting 23 .
Information is relevant if it affects the accomplishment of the objectives of the decision maker will change as a result of the decisions or choice made by the decision maker 24 .Role of Management Accountant The Accountant chooses the information to be reported to a manager by ◦ Identifying the specific purpose for which information is needed ◦ Determining the relevance of the information.
Role of Management Accountant ‘Controller’ or ‘Chief Management Accountant’ title is applied to various accounting positions In some organisations. they are just book keepers and in others they are executives who help top mgmt in planning and controlling Many people confuse ‘Controller’ and ‘Treasurer’. but they are different terms 25 .
Cost Acctg v/s Mgmt Acctg Controller PPlanning and Control RReporting and interpreting EEvaluating and Consulting Tax Administration Treasurer PProcurement of long-term finance Investor Short-term financing Banking Government Reporting Protection of assets Credits and Collections Investments Economic Appraisal Insurance 26 .
loss of time in material buying. department.Objects of Cost Accounting Cost Finding ◦ To determine the actual cost of each article. storing and issuing 27 . service. operation. process. segment of activity Cost reduction ◦ To reveal and report efficiencies in the form of material wastage.
Objects of Cost Accounting Cost Saving ◦ To provide actual figures of cost comparison with estimates of costs and price fixing ◦ To find out the degree of efficiency and productive capacity of men and machines and ideal standard for their working 28 .
Objects of Cost Accounting Cost Control ◦ To reduce cost thro’ budgetary control and standard costing ◦ To ensure continuous check and adjustment of stores and materials with help of perpetual inventory 29 .
Objects of Cost Accounting Managerial Decision. and to determine production policies and programs ◦ To implement incentive wage plans for workers 30 . Policy Making ◦ To study trends at different volumes of output.
and interlocking of financial and cost accounts to verify accuracy of each other ◦ To furnish necessary data for the preparation of profit and loss account and balance sheet at short intervals (eg. Policy Making ◦ To organise internal audit system. Monthly.Objects of Cost Accounting Managerial Decision. quarterly.) for each department or business as a whole 31 . etc.
Policy Making Useful Information Cost Control Provides valuable data Effective check 32 .Advantages of Cost Accounting Price Fixation Control on unprofitable activities Managerial Decision.
Advantages of Cost Accounting Preparation of budgets and regulations of production Fixation of responsibilities Independent Check Prevention of manipulation. misappropriation. and frauds 33 .
Objections against Cost Acctg Expensive Differences in results Unnecessary Worthless Inapplicability 34 .
separate costing system is not needed Reasonable accuracy is enough. of course.Principles of Costing Every concern must design its own costing system. this depends upon the nature of industry 35 . keeping in view its peculiar problems If financial books can afford the necessary information.
Principles of Costing Costing information should be collected as and when work proceeds A proper unit of cost should be determined 36 .
and overheads 37 .Essentials of Cost Acctg System Should be simple and easy Arrangement of Costing system should be adopted to suit the general organisation of the factory There should be coordination and cooperation among executives of various departments It should ensure proper accounting and allocation of material cost. labour cost.
or else.Essentials of Cost Acctg System Cost Accounts should be capable of reconciling with financial accounts. integral accounting system is to be followed Expenses of costing system should be commensurate with the results (economical) 38 .
Decision-making. creditors. Controlling. public enterprises and the society To whom Nature of Benefit PPlanning. Right man in right job thro’ job evaluation MManagement EEmployees 39 . Organising. Evaluation Incentive bonus. Pricing. Budgeting. Government. Higher earnings thro’ time and motion study.Importance of costing Not only assists management in various ways but also beneficial to employees.
Policy of price differentials. Useful in the import and export policy and preparation of national plans for economic development.Importance of costing To whom CCreditors Nature of Benefit SSupport to access more information as compared to financial accounts More taxes thro’ higher production. Better quality of products and services GGovernment SSociety 40 . Lower prices thro’ cost reduction measures.
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