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    MA Book

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    Divya Maloo

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    © All Rights Reserved
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    Delhi University CBCS Syllabus MANAGEMENT ACCOUNTING . BOW (HONS) SEMESIER-V Duration: 3 hours Mac Made 79 | Objective: To impart the students, knowledge about the use of Financial, cost and ot er data for the purpose of ma nagerial planning, contol and decision making, ‘UNIT 1: INTRODUCTION Meaning, Objectives, Nature and Scope of management accounting, Diferenze between cost -2ccounting and management accounting, Cost contiol and Cost reduction, Cast manacertent UNIT IE Budgetary Control ik Concept of budget, budgeting and budgetary contol, objectives, merits, ard limitations. EH fudget administration. Functional, budgets. Fed and lexib.e budgets. Zero base budccing + Foyanme and peforiance budgeting LUNIT II: STANDARD COSTING Weaning of standard cost and standard costing, advantages, Limitations 274 appliations, Variance Analysis - material, labour, overheads and sales variances. Disposition of Variances, | Contra Ratios, LUNTT IV: MARGINAL COSTING Absorption versus Variable Costig, Distinctive features and income determination. Cost-Voiume- ‘oft Andy, Profit Volume ratio. Break-even analysis-algebraic and graphic methods. Angle of incidence, margin of safety, Key factor, determination oF cost inference aot. JUNI V: DECISION MAKING Stes in Oscision Making Process, Concept of Relevant Costs and Benefits, Various short-term Aecision making situations - profitable product mix Aceptance or Rejection ef specal/expart fers, Make or by, Addition or Elimination ofa product line, sel or process Fre, operate Shut dows Pricing Decisions: Major factors influencing pricing decison, varius methods of \RY ISSUES si Actointing: Concept, Significance, Ditferent Responsibility Cenres, Dvsional ne Hes mance Measurement: Financial and Non-Financial measures. Transfer Fricing Contents SS Ene - 1+ Nature and Scope of Management Accounting hats Intotcn ha Nearing and éfition of naragenent scouting a2 ature of waragemen accounting 1“ Scope of manage accounting ue (jective or oetons 15 Tools ae teemiqes used in management ccousting 1s Comparison wth Financia accounting uo Comparison with cost accuning 18 Ustatens ts ee Cost contol and Ces redaction 13 - Cost management sit fay tens he Objectie ype questions 13 Egy pe questions au eee ar 7" taboduction 2a Neanig and efnition of buige and budgetary con 22 Objectives 23 ‘evctages 2h Linton 24 Esson of ffectve budgeting 25 Bue aeitation 26 Fanetionl budgets 28 aster boot 26 Fo and eile budgets 216 Revion of budgets 220 Baéget reports 2ai sos Tea baie baget 22 “2 formance btgeteg 224 Probes ard solitons 225, Key tems 258, Objective type questions 258 seh Ea type aestins 28 © Face gestion: 260 xAtandard Costing and Variance Analysis, 3.1-3.103, : M inition aa Meaning and defiition of stand cost and sanded costing 32 Aaptaitty a2 os a Aeytems sn Standard cost and estnated cot 3 y 5 Standard eating and butgetay contol 3 (ike te esions Sr Abvatsoes ve {say ye esion om Limtatons 35 uetins is Prelnners Decision Maki 6.1-6.80 ttre - Apso et Labour arnces ‘Stott and Long-term decisions 6 iz Overhead variances leant ost and relevrerevenies 6a ‘ Sales vaenes Cast and ron option betwen aius executes, S. roductlon, A cst ection progtanie told make 2 tty of sequence of operations t fink ct the Yet one, tows the most stable machies fr the won, to ei and fat to ec ‘erty inet eat il net ede Srp by the we of bter ually tn, 0 provide beter toting cnitons conductive to eficieny, ee. : sly, 4 Administration, Rens under this ea invade svags effected by mang the ange of cash 4)” sunt to cusiomars intodengmeckarial and elena to office otine. mong internal | and exeral communication sen, et [°<"" 5 Marketing In this ueion, cons can be ede by evsng the meds of emanation of falsnen, r-arange terial responses of els recetaies, alfing caret methods of i [idvenising, improving product design and production qualty so as to reduc aftersales service, {cononsrg channels of dbutin, imroing packing Finance, A cost selucion poganme shoud ain st scuag capil at economist cot, ignployng cpt to gve atin rece and eiraing cvs and under captain and wastfe feet anisl ec ae Aotb Reduction and Value Analysis Malu analysis is a scientific approach to cost reduction. tt aims at cost eduction by increasing gal in a product, In fact, cost reduction may be efected in two ways = design ofa produc ests in reduced cost of packing eta end Sope of Menagement kecounting sas (@) Cast redvtion by econonisng exponditue and increasing productivity and {) Cost edoction by improving the use vale and esteem value of prodctUse rae refers to ‘those qualities and characteristics which make a product useful and esteem value tle te those properties which make it attractive and create init an aestetic value, ‘Value alysis attempts to reduce cas by operating i the latter method lve analysis nay thus be described as a systematic analsis'and evauation ofthe techniques and functions in the vations spheres ofan orgristion with a view to exploring channels of pifesmanceimprovemect, sa thatthe value inthe product o service may be bettered. Iisa technique which cused to analyse all aspects of an existing product or service to determing the minimam cast necessary for specie “us! ‘quirement Basically, the ies isto weigh cost against value. ‘ools and Techniques of Cost Reduction and Cost Controt ‘Various tools and technigue wsed fr cst reduction include the flloing 1. Standard costing 2, Budgetary conti 3. Inventary conto! 4, Praduction planning and contol 5. Standadsaton and simpifcation : 6 Operational rasearch and statistical techniques 7 Wale analysis . 8 Automation 9. Design improverent 10. Market cesar 14, dob evaluation and merit ating 12 Work study 13, Osganistion and methods study 16, Quality conto ‘i (COST MANAGEMENT ‘The present day business eivtonment is signifcanly diferent from that ofthe ystejeas. The ‘api pace of change is because of facior such as — gaalzation of matet, spectacular advances in {nfoeation and manufacturing technology, deregulation, increasing emphasis un tatal quality ‘management, oz. The enphais on quality of products and productivity requires new awasures of contol. Coit accountng infomation plays a very important role in determining the appropiate strategie ection for the ighislio and effective management, Of couse, cost atourting methede ana techniques ave important but equally important i to understand how to we tie for effective econ making, Cost mangenent aves thse changing cequirenents. In the changed business Senai, the manager ave tumed tonards cost managevient to ind ways and meas to eontinotsly fieduee cons to improve prodct/sevce quality al atthe eae tine fnsinyaitaiy. Definition Gy, Cost management is anew entrant inthe terminology af managomont and is widely used “hese Fes Gas in th bine world, Somehow, no wriform definition ofthis team His developed so fx. lh Uw words of Homgren, cost management is used “to dace te-dpwoaches and activi of gers in the short term and-long term planning and contol deccions that jrreae valu for putomes and dope cosof products and sie." eee = controlling and decision making.” Monagentnt Accounting A Hotue end Spe of Konagenentdecunting has ‘cording to Hansen and Mover, “Get management identifies, colects, measures, asses and EXAMINATION QUESTIONS reports information thats seal managers in costing (determining wit something cots), lam Objective Type Questions 1 ray thus bese that cot management ithe praticl appliation and use of cst accounting 4 and Flee? ‘methods and techniques by the managenent to improve business performance. Infomation provides 7 f 7 Ay ecrtacrounting system eps rangers rake Jens ego the awe en mie 4. Management sccoumtng is a ban of accaurig tht pofues ination for nanges within an used, changes of product designs, changes in plant processes, et Advantages ‘The following are the advantages of cost management: 1. Gest management helys in eas based suateic planning. It provides ctl information that manager nods to develop and implement sucesfl strategic. In taking a suategie emphases, ‘cost management looks ta lorg teem competitive sucess ofthe fim. 2 Cost management helps in improving factoral productivity and profit argo os: management ensutes tat planning and contiol of eats are dccty linked with evenues and profit planing. For example, the elect of aditional cst incurted on sales promotce ‘and product nification on the increase in revenue and prot is studied, 4, ost management methods and races are use to-help the fim in gaining sucess 5 It improves unerstanding of proses and activities, The same cost may be analysed in Aitferent weys to stay its lationship with the activity This help in more fective planning, Cost management isan integral part of the general nagement, planning and moniersg nechanism and itis not practised in isolation. 1 can be effectively used by both production and service exganistons. Ose of cost management can significantly benefit many organisations by nceeig esnuree productivity and margins and fctting effective management of costs, Cost Management, Cost Accounting and Management Accounting rt management at a uch ade for and encompass bth st accounting dtd management accountng Ct accuaing is concerted wih axteanment of casts of poste entees fat eet reanagement is nat only concerned wilh how mach someting cost Dut ate mith the se atl dive costs sich as quilt of the product, rooctivty of feta, cyle Une, ee Hes management need adeoper understanding ofa im’ cot suture The co ilonation poe cost arountng pags at inprtnt export le for manageent in eon plang, eoneicn decison a " ‘Nanayementacunting i cone wth nt only cost iomaton bt ith ni et other financial infomation that can be tse fr planing, contraling and dean meng over objective of nanigenertaecunting to make sue that esonintion makes stfrthe sor sssourcs so that buns objectives may be atiered, 4 YER Management. counting: It concerned with acto nanagenent ; anagement Aconfant Hf ian ofl who anaes and intrptets cunt nfrmtin eet he ota epee of pagent ing information that is useft te : tet i ao ced controller of Sandlot, oe kabel sare eduction neat, aa ws of est accounting by the management 10: hat i east reduction? Cink enampes. 1, Distinguish betwen east capil and cast recut, ¥2. What meant by co tonto and el section > WN Bg debe te inpntae of ie nls nota ‘she MG Wet 3c cok meat? cs ag 7 Hotton a fow aes in which cast mucin i poste a ge wanatectsng concer ie nec orssition 2 Manageme counting based on dole ety syste. 4 Monjenent cnt i aa eed cole 4 cr acting a pat magnet aout rt scoutane mut bet ies tee Acsrars offs. 6. Spal ims ay id iia to fed «ste of mangenetacuning wi is ite cas 1. Mourn oun sen net aed wont oper Be So ess Yaxapenet scouting 8 bosch anal secur. 4 Ratio ara ad furs fw sateen: ut ef magnet sezuntig. 10, Man enpias of maxaynere stung eo si tae td cont eof : hs 2. re 2 Fae: 3. Te: rm 5S; 6. 7 ue Pe nant or Haag aula fn te fos maimsation of 9. Te: 3.) Essay Type Questions 4, feline management scouting and explain it abject, 2. What ate the functions of masagenet scouting” 3 What is manageent acon In wht pect i fete? fom 1 c0m Mors Dey financial acorn? (5 Hore Dui) 4 In ha respects eet accountg feet fram mangement accusing ? 5, Disease role of management azcuntnt sr «nodern gala, ©. Ealan the nature and spe of manager aout 7. Disease management acouting aan effete Lal of navel east 1. “Ther isan inate mlationaip between suragenent scttng and nance Anions” Boda 9. Management accountng i oncemed with accusing tnermtion Which i sr to naneneat* xii (Com Hos, Dei) (Rom, Hors Debi: CA. BE tom, Bagel) (8. ns De (CA, ter) (ue Hone Dai) “Prodct desig provides far greats coe fer cst eeetor ica 2 note ow cost narageet. tition make, pot cn be sane a praed ricly by co eto a cost eutin. ‘cuss and sate the areas of cost ection you oda Ue to ease Gewa. Ine) “Gharaceristies - Budgets hare the filling characteristics (a) A buaget is prinarily 2 planning device but it also steves as & basis for perfomance etlation ad cont (o) Abuiget is prepared ites in money terms a in quantitative tems 0” ot {c) A budge is prpaed or «defi ‘ature pei 5} urges ea fudge isto ipleent he ples formulae by management fe ating the sven abjetives ‘Budgeting - ‘he act of preparing budgets i called budgeting. Inthe words of J. Baty, “the ent a of preparing the budgets is known ax budgeting.” Meaning and Definition of Budgetary Controt Budgetary conto is a system of controling costs throuok preps js thus ony a part ofthe budgetary contro. According to C.LM.A., London 1S the establishment of budgets relating to the responsibilities of executives of 0 FOiCy fantinsous comparison of the actual with the budgeted results, eter to secure by endwidual tction the objective ofthe palicy orto provide a basis frit rovison.” in the words of Brown and Howard, “Budgetary control system isa system of controlling costs which includes the preparation of budgets, coordinating the departments and establisting = Maponatbies comparing actual pefrmerce with the budgeted and acting upon resus Co chive maximum profitability.” (Characterlstles—the main characteristics of budgetary contol ate (6) Establishment of budgets ft each fantion/departrcent ofthe organisation. (0) Comperison of actual pevfornance withthe budgets on a continuous bass {0 Analysis of vations of actual performance fro that the budgeted performance to now the reasons there (d Taking suitable remedial ection, where neces (@) Revision of budgets in view of changes in conditions ite principles involved in bulgeting have been likened to thore followed hy the captain of tip. Before the voyage. he wil plan his route, taking into account such factors as shipping ards, tdas and possible adverse weather forecast. During the journey, he will eeoré detals ogress ed frequently check actual progress with that planned, Though trying to kexp to Fpl’ he'may have to deviate from the plan if prevailing circumstances require it. On Prpleton of the journey, he will compare the condition he encountered with those e expected Gespeesce ao gained wil ese ty fn planing sina woases i he are, Te BAle analogy seves to lstate the Basic practice used in budgeting and budgetary contol, Sie iechniqu of budgetary controle now widely used in the business word, Hany businesses, cause of ack of efficent planing which coud have revealed thatthe business should sot Bec bsen started or that one should have been prepated to face serous dangers aheat BUDGETING AND BUDGETARY CONTROL raf budgets. Budgeting Budgetary one ‘andthe Introduction; tearing and definition of budget and budgetary control; Objectives; [Advantages Limitations; Essentials of effective budgeting: Budget adramistration; Functional budgets; Master budget; Fed and exible budgets; Revision of budgets; ‘usge reports; Zar base budget; Perlormance budgeting; Problems and sclutions; Examination questions Introduction Business budgeting isthe most widely used and hichest rated management tool of planning lad control. Planing is the key te good management 33 it involves looking systematically at th future, Business budgets help managers in developing financiel plan to guide thei in allocating thelr resouces ovec a speife Future period. Control isthe process of measuring and contectin factual peformence to ensure that plane for implementing the chosen coutse ofactibn are cata out, Meaning and Definition of Budget Datgt fr top tng dfn it fv of tine epee eta or atte tr, In iain lo buses bute! 4 fornal expen of the ed ae pnd ora dete fate prt, The Chae tte o oa eae ele Landon bie fale an andr uate a He ila peed of tne fhe oly 19 be ped dun Mt ped el Pea rer drag gen ject any ce icone, pena ad ep Ga 5 Matis words of Grn Shinn snes bulge ise predetermine di actin died od bt gi To coven pets and as pal Be Subeque eruon of pefermars receding a Born we Hoa bgt 0 predetmind statement of els ara som pe Wp © cpt ea ang Budget important to note carflly the distinction between forecast and 2 budget ctf a pedo of what may happen asa este of a given vet of teumstanens I cist of probable futte events. ‘ude andBagetry Contd 2 A but, on the other hand, i «planned exercise to achiove ate. bated on the pros ‘nd’ cons of a foecast. Forecasting thus precedes the proparation of bali. Thus the main points of distinction between the two ae thus ‘Budgets relate to ‘plannad events, ie, policies and programmes tobe pursued, orcas is ‘concerned ith probable events, events expected to happen unde antipated conditions, 2% Budget, being x forma sine plan, can be prepared only the anthorsed management but forecast can be made by anybody 5, Budget is tol oF conti while the forecast i simply an antiigatin of events 4 Forecasting is a preveguiste for buigeting utile budgeting i rot 2 pre requisite fr forecasting, 5, Budgets relate to economic activities of business, entegpies, government or others Forecast may reiate to economic as will a5 non economic acivites, 9. weather Fonecast, stock market forecast, et Objectives of Budgetary Control The-following ate the main objectives of a budgetary const system, 1. Planning, & budget provides a detailed plan of action fora business ovr a definite pevod of time, Fealled plans ae drawn up relating to production, sales, raw material requirement, labour needs, advertising and sales promotion performance, esearch and evelopment activities, ‘sapital additions, ete: Planning helps in anticipating many problems lng before they may arise 4nd solutions car. te sougit Lough catefl study. This: most business emergencies far be ‘voided by planning. ta bit, budgeting forces managements to think abeo, to anticipate and Drepate for the stsaton, 2 Co-ordination. Budgeting sits managers in co-onnating their efforts so that objectives of {he organisation a a whole harmonise with the objectives of its divisions. fective planing and crgansing conifute a lot in achieving co-ordination. There should be eo-osdnation ia the tredgets of vaious departments, For ample, the budget of sales should ben ccorization with ‘the budget of production, Sinilary, the production budget should be prepared in eo-ordination withthe purchase budget, and so oa. 3. Communication. & buiget is @ communication device. The approved budget-copes ire {istrbutet to all managenet personnel which provides not only adequate adentandieg and ‘nowedge of the programmes and polices te be followed but also alerts about the restrictions to be adhered to, 1 is aot the bugget stelf that facilitates communication, but the vital information i ‘onmmunicate inthe act of preparing budgets and participation ofa responsible lati this ae 4, Motivation. 'A budget isa weful device for motivating nanigers to perfor in tne with ihe company objectives, I individual have actively participated inthe preparation af bulges & sets.a8 a strong motivating force to achive the targets 5. Coit, Can is necesary to ensue that plans and abjecies ail de thi Dodgels ar bei azhowed. conta at applied to bucetn, isa sptenated er fo egy th ‘atdgpteitlg(ini ‘whether the planned performance is being achieved or tok, ee Hama i nade betwen plane and actual pecernance he ince bw ‘wo is teported'to the management for taking corrective scion Fence ts gacess. Eecation of a budget mill not occur automaticaly It ne 24 Pee Management accounting oy nr ermance evaluation. A bulge prories useful means of infermig mazagss ow wa that fering meeting targets they have peviutlyhged te seta ay eee dtomotin atin of evading employes on the ass af her achieving the ede targets of Promotion of a manager may be linked to hie budget schievement sent ‘Advantages of Budgetary Control ‘Budgetary conto provides the follong advantages 2, positing mods manage ihinkaheat—to anit and preparer caning unions 2. Budgeting co-odinates the ais 11 various departments and Fane . 3H iereaes production efficiency aliminates waste net utils thee 4 Le pinpoints efficiency or tack of i & RigetaD contol aime at maximization of profits ehough eaefl planning and conto $I provides a yardstick amnnst which actual rests can be conyoe 7. It shows managenent where zction is needed to remedy 9 sateen a 4 0 Tamas {hat working copitlis avaiable forthe etfictent operation ofthe busines, 4 ivecs capital expenditure in the most profitable decoy X dass int all evel of management 2 tise, rateful and adequate considers atl factors before ceaching important decisions z 11, arbudget motivates executives to attin the given goss, 12 Baletary contol system castes necessary conditions ‘or the intadiction of sandand ‘ostng technique, 413, Budgeting also aids in obtaining bank ceed 16 A Udgetary conta system assists in deegation of authority and assgnnent of responsibilty, 15: Bugeting creates cost conscousness and rtuoguees an attitude of tnd in which wate and efficiency cannot tive. Limitations of Budgetary Control hast avantages given abate simpresive, but a budge it not a cure al fr organisation pe eudbetary conto system sffers from certain limitations and those using the ston a de fully aware of ther, ‘The main limitations ave; rio beriaet plan is based on estimates, izes are based on forecasts and freeting of E Saupe 21,01 Hieck Absolute accuracy, therefore. is nt potsile ih freciteg od Inddgeting, Th strength or weakness of the budgetary cont ages SiGUgey wth whichealinetés are made, Thus, while using the spe, the ct te thudget is'based on estimates mast be kopt in view 2. Danger of rigidity. 8’budget programme must be dynamic and ‘contiznously deat sith the system depends to a Large extent, B-

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