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Accounting is an information system. It is called the language of business. Management Accounting is a part of
Accounting which enables a business to be conducted more effectively & efficiently. It is an integral part of the
management process which provides information essential for:
Management Accounting is largely concerned with providing financial information to the managers for taking
decisions & achieving organizational goals. That is why, Management Accounting is also known as
“Accounting for Decision Making”.
b) Function of “Management Accounting”.
Stages/Functions: The decision making activities in Management Accounting are performed with the help of
some stages which may be highlighted as follows:
a) What is Semi-Fixed cost? How is it segregate?
The admixture of fixed and variable cost is call semi-fixed cost. This type of cost is partially fixed and partially
variable cost. It is also known as composite cost or mixed cost. Electricity bill, telephone bill garage rent and
parking fee, washing and waxing etc. are few example of semi-fixed cost.
Semi-Fixed cost may be segregated by using different methods. Differential cost is one of them. To segregate
semi-fixed cost, the following steps are to be applied:
1. Variable cost per unit is to be calculated
2. Variable Cost is to be calculated
3. Fixed Cost is to be calculated
Sunk cost: The cost of an asset, which cannot be recovered at the time of it replacement, would be treated as
sunk cost.
Opportunity cost: The cost of not availing the opportunity is called opportunity cost. This is not a regular cost.
This type of cost is considered at the time of choosing of selecting more profitable alternative.
Differential cost: The extra cost required or needed to produce additional unit is called differential cost. That is
differencing cost between two levels of production.
Conversion cost: The cost which is required to convert input to output is called conversion cost. Conversion
includes direct expenses, direct labor, works overhead and partial office and administration overheads.
Step cost: The cost which is related to the time that is not with the volume of production is called fixed cost. In
the long run, fixed cost maybe treated as step cost with the increase of capacity fixed cost gradually increase but
such increase happens step by step. That is why fixed cost is called step cost.
Overhead cost: Basically there are 3 element of cost:
Each element is divided into two groups: Direct & Indirect. All indirect components create overhead. Overhead
is classified into 3 centers, such as: work overhead, office and administrative overhead and selling and
distribution overhead.
a) Mention the component of cost.
The component of cost maybe exhibited as follow: