Managerial accounting is the practice of identifying, measuring, analyzing, interpreting, and

communicating financial information to managers for the pursuit of an organization's goals

Financial accounting is the process of preparing financial statements that companies' use to
show their financial performance and position to people outside
Difference Between Managerial Accounting And Financial Accounting:
Managerial accounting is for internal parties. Financial Accounting is For external Parties
Managerial Accounting Focus on specific area of the business. Financial Accounting Reports on
Entire Organization.
GAAP= Generally Accepted Accounting Principles

Why important of managerial accounting- It helps to answer important decision making

questions, Managerial accounting is essential for every aspect of the business operations:
Marketing, Operations Management, Human Resources, To illustrate how Managerial
Accounting systems could help BBA graduates solve Management and Operations problems

Why Important Cost Accounting---: Aids Profit Analysis ,Helps Formulate Future
Strategies. Makes Budgeting Easy, Helps Identify the Break-Even Point, Helps to Reduce
Overhead Costs.

Technique Of Managerial Accounting- = Financial Statement analysis, marginal cost

analysis, Standard costing, capital budgetary control ,Cash Flow Statement .Funds Flow
Statement ,Decision Making . forecasting

Managerial Accounting Users- managers, engaged employees, lenders and investors

Is it Essential To follow GAAP Rule in Managerial Accounting –No.it is an obtional not

necessary

Direct cost is a price that can be directly tied to the production of specific goods or services.
Example- direct labor, direct materials, and manufacturing supplies.
Indirect costs are costs that are not directly accountable to a cost object (such as a particular
project, facility, function or product). Example= rent, salaries, utilities, general office expenses
Fixed cost is a cost that does not change with an increase or decrease in the amount of goods or
services produced or sold. Example=Depreciation. Insurance. Interest expense. Property taxes.
Rent. Salaries. Utilities.
Overhead Cost- over head costs are the cost that are not directly related to production
activities. Example=Electricity Bill, Water Bill, Depreciation ,rent cost. Formula—Cost of
goods sold—cost of raw materials—Direct Labor Cost
Product cost= The costs involved in creating a product are called Product Costs. Formula-
Direct labour + direct material+ factory overhead.It contains manufacturing cost .This is Variable cost.
Period costs refer to costs is any cost that can not be capitalized into prepaid expenses,inventory
or fixed asset.. It contains non manufacturing cost. This is Fixed Cost. Example marketing
expenses, rent (not directly tied to a production facility), office depreciation, and indirect labor.
Also, interest expense Formula---marketing and selling expenses+administrative
expenses+interest expenses.
Prime Cost : directly related to the materials and labor used in production. formula=direct raw
material+direct labour
Variable costs are costs that change as the quantity of the good or service that a business
produces changes. Example= sales commissions, direct labor costs, cost of raw materials used
in production, and utility costs
Sunk Cost- sunk cost refers to money that has already been spent and which cannot be
recovered. Example-, your rent, marketing campaign expenses or money spent on new
equipment can be considered sunk costs.
Non Manufacturing cost---Non-manufacturing costs refer to those incurred outside the factory or
production department Example- Selling cost, Marketing cost, Administrative cost, Interest cost,
Insurance cost
Normal Cost-- Normal Cost are the normal or regular costs which are incurred in the normal
conditions during the normal operations of the organization.
Conversion costs include direct labor and overhead expenses incurred due to the transformation
of raw materials into finished products. Formula- Direct Labor + Manufacturing Overheads.

Total cost- in economics, the sum of all costs incurred by a firm in producing a certain level of
output. Formula- = Total fixed cost+total variable cost
Opportunity cost - the loss of other alternatives when one alternative is chosen. Example-, you
spend time and money going to a movie, you cannot spend that time at home reading a book, and you
can't spend the money on something else.

Differential Cost- Differential cost refers to the difference between the cost of two alternative
decisions. Example- if the cost of alternative A is $10,000 per year and the cost of alternative B
is $8,000 per year. The difference of $2,000 would be differential cost.
Unit cost: The unit cost is the price incurred by a company to produce formula- Total average
cost per unit=total production cost in period/ total output in period
A & B Which one is Opportunity Cost---Project B is a Opportunity Cost .
Gross Profit Formula-= revenue –cost of goods sold
Cost of goods sold Formula= beginning inventory + new purchase – ending inventory
Contribution margin Formula= Sales - cost of goods sold - variable expenses
Job Order Costing- Job order Costing is a Costing System used in those situation where Many
Different Product job or services are produced each period. Example-Factory job costing ,Batch
Costing,Contract Costing.
Absorption Costing-Refers to include All cost associated with a production process that is
assigned to the unit produced .Formula-direct Cost+indirect,,Fixed+Variable

Only variable cost can be differential costs. Do you agree? Explain.

NO .The differential cost refers to the difference in costs between the two alternative courses of
actions. Thus, the differential costs can be fixed costs as well and not only variable costs.
Why some companies uses Multiple Overhead Rate- To More Appropriately Allocate
overhead cost Among Product .

Predetermined of overhead rate---

Contribution Format income statement ↔ Sales Revenue---Cost of Goods Sold--Variable
expanses =Contribution Margin –Fixed Expenses=net income
Traditional Format Income Statement = Sales Revenue---Cost of Goods Sold=Gross Profit—
Variable Expenses –Fixed Expanses =net income .
Which income Statement Format Is More Useful and Why?—Contribution Format .because
in this format is variable cost can be reduced which is good for contribution margin. Its reduce
variable cost thas why it is more useful