Cost

Accounting: A Managerial Accounting Perspective

IE Business School

Luis Fernández–Revuelta

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 Session #1

Introduction
IE Business School

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Cost / Management
Accounting

An important part of management

accounting: cost accounting.

The part of accounting that helps managers in:

Planning Controlling Decision Execution of

making strategy
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 1 Cost accumulation

2 Best practices in costs: ABC

3 Capacity problems & pricing

4 C-V-P analysis

5 Budgeting

6 Decision making with cost information

7 Pricing
Cost Accounting
We will see in this subject: 8 Customer profitability analysis

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 Managerial Accounting

“... [Cost is defined] as a resource Cost object is that thing we want to A past cost is the cost incurred
sacrificed or forgone to achieve a know the cost of … (historical cost), as distinguished
specific objective” from an actual (nowadays) and a
budgeted (future) cost
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What is a cost system for?

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Many companies now recognize that their cost systems are inadequate for
today’s powerful competition. Systems designed mainly to value inventory
for financial and tax statements are not giving managers the accurate and
timely information they need to promote operating efficiencies and
measure product costs.
Kaplan

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 Financial Accounting

There are five characteristics for the

financial accounting.

Conformity to US Financial accounting Economic Historical Classification:

GAAP, IAS, etc reports target transactions, using information by nature
external users up of assets, etc
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 Managerial Accounting

There are seven characteristics for the

managerial accounting.

Non-conformity Information Business Forecasted Data are shared Classification Relevance,

to financial targets internal transactions information by financial & by function relevance,
accounting decision- managerial relevance
standards making © IE Business School ● 2019
accounting 9
 Types of Costs

Costs Total Unit

1. Variable “varies” in total same per unit

2. Fixed “fixed” in total changes per unit

Cost of the Product Direct

Variable Fixed

Cost of the Period Indirect

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 Cost Object

Cost
Cost Object
Accumulation

Cost Object
Cost Accumulation Cost
Allocation

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 Beginning direct materials inventory

+ Purchases of direct materials

= Available for use

- Ending direct materials inventory

= Direct materials used

+ Direct manufacturing labor

+ Indirect manufacturing costs (Variable and Fixed)

= Manufacturing costs incurred during the current period

+ Beginning finished goods inventory

Schedule of Cost of = Goods available for sale
Goods Sold - Ending finished goods inventory

= Cost of goods sold

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 Income Statement

It shows the company’s revenues and

expenses during a particular period

Revenues Cost of GROSS Operating OPERATING

(Sales) - goods sold
=
MARGIN
-
costs
=
INCOME

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Thank You!

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