The work of management:

In general, the work that management performs can be

classified as
(a)planning
(b)coordinating
(c) controlling
(d) decision making.
Planning:
The planning function of management involves the
selection of long-range and short-term objectives and
the drawing up of strategic plans to achieve those
objectives.
Coordinating:
In performing the coordination function, management
must decide how best to put together the firm’s
resources in order to carry out established plans.
Controlling:
Controlling entails the implementation of a decision
method and the use of feedback so that the firm’s goals
and specific strategic plans are optimally obtained.
Decision making:
Decision making is the purposeful selection from among
a set of alternatives in light of a given objective.
THE ORGANIZATIONAL ASPECT OF MANAGEMENT
ACCOUNTING:
There are two types of authorities
Line Authority:
Line authority is the authority to give orders to
subordinates. Production and sales managers typically
possess line authority.
Staff authority:
Stuff authority is the authority to give advice, support,
and service to line departments. Staff managers do not
command others. Examples of staff authority are found
in personnel, purchasing, engineering, and finance.
CONTROLLERSHIP:
The chief management accountant or the chief
accounting executive of an organization is called the
controller (often called comptroller, especially in the
government sector). the controller has line authority,
such as internal auditors, bookkeepers, budget analysts,
etc
The principal functions of the controller are:
1. Planning for control
2. Financial reporting and interpreting
3. Tax administration
4. Management audits, and development of accounting
systems and computer data processing
5. Internal audits
Summary:
(1) Management accounting provides data internal for
uses.
(2) The chief accounting executive in an organization is
often called the controller.
(3) The Institute of Management Accounting, created by
the National Association of Accountants, offers a
program for becoming a certified management
accountant indicating professional competence in this
expanding field.
(4) In contrast to financial accounting, management
accounting is not necessarily governed by the so-called
generally accepted accounting principles.
(5) Management accounting places more emphasis on
the future rather than on the past.
(6) One of the most important aspects of cost
accounting is cost accumulation for inventory valuation
and income determination.
(7) controlling entails the implementation of a decision
method and the use of feedback so that the firm’s goals
are optimally attained.
(8) The controller has line authority over his or her
subordinates but has staff authority from the viewpoint
of the organization as a whole.
(9) The principal functions of the controller include:
(a)providing capital; (b)arranging short-term and long-
term financing; (c)both of the above; (d) none of the
above.
(10) Management accounting is accounting for:
(a)decision making; (6) planning; (c)control; (d)all of the
above; (e)none of the above.
(11) Management accounting looks at parts as well as
the business as a whole: (a)true; (b)false.
(12) Management carries out four broad functions in an
organization. They are planning, , controlling, decision
making and coordinating.
(13) financial accounting is mainly concerned with
providing information for external users such as
stockholders and creditors.

Solved Problems
1.1 For each of the following, indicate whether it is
identified primarily with management accounting
(MA) or financial accounting (FA):
1. Draws heavily from other disciplines such as
economics and statistics (MA)
2. Prepares financial statements(FA)
3. Provides financial information to internal managers
(MA)
4. Emphasizes the past rather than the future(FA)
5. Focuses on relevant and flexible data (MA)
6. Is not mandatory (MA)
7. Focuses on the segments as well as the entire
organization(MA)
8. Is not subject to generally accepted accounting
principles (MA)
9. Is built around the fundamental accounting equation
of debits equal credits (FA)
10. Draws heavily from other business disciplines (MA)

For each of the following pairs, indicate how the first

individual is related to the second by writing (L) line
authority, (S) staff authority, or (N) no authority.
(a) Controller; internal auditor (L)
(g) Controller; assistant controller (L)
(b) VP, production; accounts receivable (N)
(h) Controller; shipping clerk bookkeeper (N)
(i) Assistant controller, computer; data (L)
(c) VP, finance; personnel director processing clerk (S)
(d) Controller; budget analyst (L)
(j) Production supervisor; foreman (L)
(e) VP, finance; treasurer (L)
(k) VP, manufacturing; payroll clerk (N)
(f) Treasurer; controller (S)
(I) Controller; VP, production (S)
What are the objectives of the program for Certified
Management Accountants (CMAs), and what topics
are covered in the examination for this certificate?
The objectives of the CMA program are fourfold:
(1)to establish management accounting as a recognized
profession by identifying the role of the management
accountant and financial manager
(2) to encourage higher educational standards in the
management accounting field;
(3) to establish an objective measure of an individual’s
knowledge and competence in the field of management
accounting; and
(4)to encourage continued professional development by
management accountants.
(a) Discuss the need for long-range goals in
business organizations?
The development of long-range goals is important for
providing the basis for plans, enhancing the efficiency of
the organization’s decision makers, and providing a
basis for evaluating alternate courses of action.
(b) Discuss how long-range goals are established?
Long-range goals are normally set by persons at the
highest level of the organization. However, input should
be solicited from employees at all levels of the
organization.
-Economic conditions (present and future)
-The desires of the owners and management
-The resources of the firm
(c) Define strategic planning and management
control. Discuss how they relate to each other and
contribute to the attainment of long-range goals?
Strategic planning is the development of a consistent set
of goals, plans, resources, and measurements by which
the achievement of goals can be assessed.
Management control is the process by which managers
assure that resources are obtained and used in an
efficient manner to accomplish the organization’s goals.
The purpose of management control is to encourage
managers to take actions in the best interest of the
organization so that the goals can be achieved.
(d) How does management accounting help a firm in
accomplishing its long-range goals?
The managerial accounting function helps a firm in
accomplishing its long-range goals by evaluating the
financial impact of the alternatives within given
constraints on profit performance.
It proposes financial goals such as rate of return, debt,
cash, and other ratios.
Cost:
 Cost always measure in monetary terms.
 Different type of cost are used for different purpose.
Cost classification:
Costs can be classified into various categories:
Cost by management function:
costs are divided into two major categories
(1) manufacturing costs
(2) nonmanufacturing costs, also called operating
expenses
MANUFACTURING COSTS:
Manufacturing costs are those costs associated with the
manufacturing activities of the company. Manufacturing
costs are subdivided into three categories:
 direct materials
 direct labor
 factory overhead
direct materials:
Direct materials are all materials that become an integral
part of the finished product. Examples are the steel used
to make an automobile and the wood to make furniture.
Glues, nails, and other minor items are called indirect
materials.
Direct labor:
Direct labor is the labor that is involved directly in
making the product.
Factory overhead:
Factory overhead can be defined as including all costs
of manufacturing except direct materials and direct
labor. examples include depreciation, rent, taxes,
insurance, fringe benefits, payroll taxes etc Factory
overhead is also called manufacturing overhead.
direct materials and direct labor when combined are
called prime costs.
Direct labor and factory overhead are combined into
conversion costs.
NONMANUFACTURING COSTS:
Nonmanufacturing costs (or operating expenses) are
subdivided into:
 selling expenses
 general and administrative expenses.
Selling expences:
Selling expenses are all the expenses associated with
obtaining sales and the delivery of the product.
Examples are advertising and sales commissions.
General and administrative expenses:
General and administrative expenses include all the
expenses that are incurred in connection with
performing general and administrative activities.
Examples are executives’ salaries and legal expenses.
DIRECT COSTS AND INDIRECT COSTS:
Direct cost:
Direct costs are those costs that can be traced directly
to the costing object. Examples are direct materials,
direct labor, and advertising.
Indirect cost:
Indirect costs are costs that are difficult to trace directly
to a specific costing object. Factory overhead items are
all indirect costs.eg glues and nails.
PRODUCT COSTS AND PERIOD COSTS:
Product cost:
Product costs are inventoriable costs, identified as part
of inventory on hand. They are therefore assets until
they are sold. Once they are sold, they become
expenses, i.e., cost of goods sold. All manufacturing
costs are product costs.
Period cost:
Period costs are not inventoriable and hence are
charged against sales revenue in the period in which the
revenue is earned. Selling and general and
administrative expenses are period costs.
VARIABLE COSTS, FIXED COSTS, AND
SEMIVARIABLE COSTS:
Variable costs:
Variable costs are costs that vary in total in direct
proportion to changes in activity. Examples are direct
materials and gasoline expense based on mileage
driven.
Fixed costs:
Fixed costs are costs that remain constant in total
regardless of changes in activity. Examples are rent,
insurance, and taxes.
Semivariable costs:
These costs contain both a variable component and a
fixed component.
COSTS FOR PLANNING, CONTROL, AND DECISION
MAKING:
CONTROLLABLE AND NONCONTROLLABLE
COSTS:
Controllable:
A cost is said to be controllable when the amount of the
cost is assigned to the head of a department and the
level of the cost is significantly under the manager’s
influence.
Noncontrollable:
Noncontrollable costs are those costs that are not
subject to influence at a given level of managerial
supervision.
STANDARD COSTS:
The standard cost is a production or operating cost that
is carefully predetermined. It is a target cost that should
be achieved.
INCREMENTAL (OR DIFFERENTIAL) COSTS:
The incremental cost is the difference in costs between
two or more alternatives.
SUNK COSTS:
Sunk costs are the costs of resources that have already
been incurred whose total will not be affected by any
decision made now or in the future. They represent past
or historical costs.
OPPORTUNITY COSTS:
An opportunity cost is the net revenue forgone by
rejecting an alternative.
RELEVANT COSTS:
Relevant costs are expected future costs that will differ
between alternatives.