To enhance learner’s understanding of the disclosure requirements of published financial

statements.

< BACHELOR OF ACCOUNTING WITH HONOURS >

< SEPT 2019>

< BBMA3103>

< MANAGEMENT ACCOUNTING 1>

MATRICULATION NO : <960828016204001>

IDENTITY CARD NO. : <960828-01-6204>

TELEPHONE NO. : <018-4654028>

E-MAIL : <KERTTANA28@GMAIL.COM>

LEARNING CENTRE : <JOHOR>

Enhance learner’s understanding on the importance of the cost concepts and characteristics of management accounting information.

TABLE CONTENT

Pages

1.0 Introduction of cost concepts and cost incurred in the selected business organization …………………… 1-2

2.0 Explanation of the characteristics of management accounting information ………………………………. 3-4

3.0 Discussion on how the cost concepts and their features are important to the management accountant …. 5

4.0 Implication of the importance of cost concepts and their features to management accountants in making decision … 6

5.0 Conclusion ……………………………………………. 7

6.0 References ……………………………………………. 8

Enhance learner’s understanding on the importance of the cost concepts and characteristics of management accounting 1information.

1.0 Many business decisions require a firm knowledge of several cost concepts.It is the process of accounting for cost,which is concerned

more the ascertainment,allocation,distribution and accounting aspects of cost.Different types of costs have differing characteristics.The cost

information system plays an important role in every organization within the decision making process.An important task of management is to

ensure the control over operations,process,activity sectors,and not ultimately on costs.The concepts of costs is important because it monitors

the results of the others.The detailed analysis of costs,the calculation of production cost,the loss quantification,the estimating of work

efficiency provides a solid basis for the financial control.Cost concepts is the monetary expense incurred by organizations for various

purposes such as acquiring resources,producing goods and services,advertising,and hiring workers. Cost concept is a facet of management

accounting that determines the actual cost associated with manufacturing a product or proving a service by looking at all expenses within the

supply chain.It is done for the purpose of budget preparation and profitability analysis.The information derived from this process is useful to

managers in determining which products,departments or services are most profitable and which ones need improvement. Cost can be defined

as monetary expenses that are incurred by an organization for a specified tiling or activity and aim to assist the management for planning and

decision-making it primary emphasizes on cost and deals with collection,analysis,interpretation and prospective for managerial decision

making on various business problems.Nestle (Malaysia) Berhad operates as an investment holding company.The company has two segments:-

Food and beverages and others,which include nutrition and Nestle Professional.Nestle products are categorized into coffee and

beverages,culinary aids/prepared foods,milks,liquid drinks,chocolate,ice-cream and Nestle Professional. Nestle (Malaysia) Berhad incur

several costs which is fixed,variable,mixed costs,marginal cost,overhead cost,production cost and administration cost.A fixed cost includes

rent,insurance premium paid and compensation to employees,does not change in lock step with the level of activity.The variable cost includes
Enhance learner’s understanding on the importance of the cost concepts and characteristics of management accounting 2information.
direct material,raw materials,fuel and water charges,stores and spares,advertising expenses,marketing expenses,distribution expenses,travel

expenses,depreciation and communication expenses,will change the level of activity changes.Those few costs that change somewhat with

activity are consider mixed costs.Marginal cost is the total of variable costs.It is based on the distinction between fixed and variable

costs.Fixed costs are ignored and variable costs are taken into consideration for determining the cost of products and value of work-in-

progress and finished goods.Furthermore,the product costs.A product may be an incidental by-product of a production process,it does not

really have any costs,since its cost would have been incurred anyways as a result of the production of the main product.The selling a by-

product at any price is profitable and no price is too low.Overhead plays a very important role while costing and pricing the

products.Overhead provide a fair price base for the product and costing and pricing.It required to absorb the relevant portion of the

overheads.Administration overhead is the indirect expenditure incurred in formulating the policy,directing the organization and controlling the

operations of an undertaking which is not related directly to production or selling activity or function.It consists of all expenses incurred in the

direction,control and administration.For example,expenses in running the office such as office rent,light,salaries and wages of clerk.Production cost

refer to the costs incurred by a business from manufacturing a product or providing a service.Production costs can include a variety of expenses such

as labour,raw materials,consumable manufacturing supplies,and general overhead.Product costs also include those incurred as part of the delivery of

a service to a customer.
Enhance learner’s understanding on the importance of the cost concepts and characteristics of management accounting 3information.

2.0 Management accounting information should comply with various of characteristics including verifiability, objectivity,

timeliness,comparability,understanbility and relevance if it is to be useful in planning,control and decision making.Verifiability helps assure

that information faithfully represents the economic phenomena it purports to represent.Verifiability means that different knowledgeable and

independent observers could reach con-census,although not necessarily complete agreement,that a particular depiction is a faithful

representation.Quantified information need not be a single point estimate to be verified.Verification can be direct or indirect.Direct

verification means verifying an amount or other representation through direct observation,for example by counting cash.Indirect verification

means checking the inputs to a model,formula or other technique and recalculating the outputs using the same methodology.An example of

verifiability is that of two accountants looking at the same information like inventory valuation and coming to similar conclusion.Objectivity

is also one of the characteristics that useful in planning and making decision.Accountant reliance on verifiable evidence such as

invoice,orders,physical counts or paper in the measurement of financial result.Objectivity makes it possible to compare financial statements of

different firms with a assurance of reliability and uniformity.For instance,management accountant should not alter or change when provide the

information to top level managers so the the manager can make the accurate decision without being influenced.Timeliness means having

information available to decision makers in time to be capable of influencing their decisions.Generally,the older the information is the less

useful it is.However,some information may continue to be timely long after the end of a reporting period because,for example some users may

need to identify and assess the trends of the particular period.Comparability refers to the quality of the information that enables users to make

comparison in evaluating similarities or differences between companies and industries over time.Information about a reporting entity is more

useful if it can be compared with similar information about other entities and with similar information about the same entity for another
Enhance learner’s understanding on the importance of the cost concepts and characteristics of management accounting 4information.
period or another date.Consistency is a key criterion if financial reports are to be comparable.Consistency refers to the requirement that

companies maintain consistency in the treatment of various items for all accounting periods.Company should not change the accounting

procedures or methods used each year.For example,is the methods for depreciating non-current assets.There are several acceptable methods to

recognize depreciation expenses,among them are the straight line method and reducing balance method.If a company had use the straight line

method in one period,the company should use the same method in the next accounting period.Understandability has got to do with the relative

ease with which financial information can be read and understood by users.Classifying,characterising and presenting information clearly and

concisely makes it understandable.Some phenomena are inherently complex and cannot be made easy to understand.Excluding information

about those phenomena from financial reports might make the information in those financial reports easier to understand.However,those

reports would be incomplete and therefore possibly misleading.Financial reports are prepared for users who have reasonable knowledge of

business and economic activities and who review and analyse the information diligently.At times,even well-informed and diligent users may

need to seek the aid of an adviser to understand the information about a complex economic phenomenon.Relevant financial information is

capable of making a difference in the decision made by users.Information is relevant when it influences the economic decision of users by

helping them to evaluate the past,present and future events.Relevant information is also necessary to identify whether there is a need to

conform or correct an action based on past evaluations.Financial information is capable of making a difference in decisions if it has predictive

value and confirmatory.For example the predictive value of the income statement is enhanced if unusual,abnormal and infrequent items of

income and expenses are separately disclosed.Lastly,example of confirmation value is revenue information for the current year,which can be

used as the basis for predicting revenues in future years,can also be compared with revenue predictions for the current year that were made in past

years.The results of those comparisons can help a user to correct and improve the processes that were used to make those previous predictions.
Enhance learner’s understanding on the importance of the cost concepts and characteristics of management accounting 5information.

3.0 The cost concepts useful in to the management accountants by provide necessary cost information to the management for planning,implements

and controlling.Cost concepts helps in controlling cost by applying some techniques such as standard costing and budgetary control.It also useful to

ascertains the total and per unit costs of production of goods and services that helps to fix the selling prices as well.Some examples of cost are

material,labour and other direct and indirect expenses,useful to finding out the total as well as per unit cost of

goods,services,processes,contract.Besides,provides reliable data and information which enable comparison of cost between periods,volume of

output,determent and process.It discloses the profitable and non profitable activities that enable management to decide to eliminate or control

unprofitable activities and expand or develop the profitable activities.Furthermore,it is also helps to investment and financial institution since it

discloses the profitability and financial position in which they intent to invest.It helps to introduce and implement different cost reduction

programs.Another important objective of cost concepts is to help in fixation of selling prices.The costs are accumulated,classified and analyzed to

ascertain cost per unit.The selling price per unit is calculated by adding a certain profit on the cost per units such as job costing,batch costing,output

costing services costing are used to determine the selling price.Finally cost concepts helps to accountants to checking the accuracy of financial

accounts and this is done by preparing cost reconciliation statement.

Enhance learner’s understanding on the importance of the cost concepts and characteristics of management accounting 6information.

4.0 Making decisions is a difficult task to accountants and cost concepts are a fundamental factor of the decision.The main four implications of the

usefulness of cost concepts and their feature to management accountants in making decision is in company performance,financial reporting,sell

process and pricing decisions.Cost concept useful to company performance to evaluate performance across companies.By examining the company’s

filings,can determine how many units of product the company sold and at what cost and then determine the cost per unit,and compare this to own

company’s cost per unit.While a larger company could be expected to have a lower cost per unit than a smaller company,figuring out if the two

companies are worthwhile.Besides,cost concept are required under generally accepted accounting principles called GAAP,for external financial

reporting purpose.GAAP required that all manufacturing costs are assigned to product,and that non-manufacturing assigned to products.Variable

costing system seek to stabilize net income with regard to changes in production levels,they do not assign all manufacturing costs to products.The

method of costing useful for internal decision making.Furthermore,cost concept are important when companies are deciding whether to sell an

intermediate product or to process the product further.The Nestle could sell coffee and beverages,culinary aids/prepared foods,milks,liquid

drinks,chocolate,ice-cream.By using a costing technique called relevant cost analysis,they can determine what amount of processing is the

most profitable for the Nestle.Lastly,how much the company spends to produce a unit of product is invaluable when figuring out the sales

price.If the company plan on competing on price,they will want to ensure that the product is priced lower than competitors,if the company sell

the product for less than its cost,the organization will not achieve their goals.While cost concept is useful for determining whether or not to

take special orders at lower prices.Some fixed costs of production,such as rent and salaries are already covered by normal production.In

situation can accept a lower price than normal in order to win a special order.Cost concept useful to accountant to how to come out with a

profit.
Enhance learner’s understanding on the importance of the cost concepts and characteristics of management accounting 7information.

5.0 Costs are critically important to many business decision,production pricing and hiring.Management accounting information plays important role

in effectiveness of the company.Various cost concepts help in understanding the business operations and cost involved in business operation firms

better.The company is making decision based on the management accounting information.In business,the manager must have have a clear

understanding of the cost output relations as it helps in cost control,marketing,pricing,profit and production.A business must have a clear

understanding of the different cost concepts for clear business thinking and proper application,output is an important factor which influences the

cost.Furthermore,management accountant’s understandable of cost concepts are vital in many areas of planning,control and decision making.The

cost analysis is pivotal in business decision-making as the cost incurred in the input and output is to be carefully understood before planning the

production capacity of the firm.Cost concept is the art and science of recording,classifying,summarizing and analyzing costs to help management

make prudent business decisions.

Enhance learner’s understanding on the importance of the cost concepts and characteristics of management accounting 8information.

REFERENCES

Artto K.A.”Life cycle cost concepts and

methodologies”, Journal of Cost Management

. Boy’d L.H. “the use of Cost Information for Making

Operating Decisions”, Journal of Cost Management,

May/June 2013

Gheorghe Lepădatu, 2011. "The Importance Of The Cost Information In Making Decisions," Romanian Economic Business Review

https://wikieducator.org/Introduction_to_Cost_Concepts