Unit (I)

Management accounting:-
Management accounting is the process of preparing reports about business operations that help managers make short-term and long-term decisions. It helps a business pursue its goals by
identifying, measuring, analyzing, interpreting and communicating information to managers.

Management accounting also is known as managerial accounting and can be defined as a process of providing financial information and resources to the managers in decision making.

Managerial accounting is the practice of identifying, measuring, analyzing, interpreting, and communicating financial information to managers for the pursuit of an organization's goals.

What is the main purpose of management accounting?

The main objective of managerial accounting is to maximize profit and minimize losses. It is concerned with the presentation of data to predict inconsistencies in
finances that help managers make important decisions.

What is management accounting example?

Answer: Managerial accounting often focuses on making future projections for segments of a company. ... For example, Sportswear Company might measure the
percentage of defective products produced or the percentage of on-time deliveries to customers.

What are the benefits of management accounting?

Advantages of management accounting

 Planning. The management can prepare the plan and execute the same for effective operation of business. ...
 Controlling. ...
 Service to Customers. ...
 Organizing. ...
 Coordinating. ...
 Improvement of Efficiency. ...
 Motivating. ...
 Communication.

What are the tools of management accounting?

Important tools and techniques used in management accounting

 Financial Planning. The main objective of any business organization is maximization of profits. ...
 Financial Statement Analysis. ...
 Cost Accounting. ...
 Fund Flow Analysis. ...
 Cash Flow Analysis. ...
 Standard Costing. ...
 Marginal Costing. ...
 Budgetary Control.

Which is the main characteristic of management accounting?

Management accounting information should comply with a various number of characteristics including verifiability, objectivity, timeliness,
comparability, reliability, understandability and relevance if it is to be useful in planning, control and decision-making.

What is the format of Management accounting?

Management accounting concepts and techniques include a few pieces of information that are somewhat standard. Sales, costs, profits, available cash,
accounts receivable and payable, assets, liabilities, inventories, and certain statistical analyses. Additionally, they contain business or industry specific
factors.

What are the 4 types of accounting?

Discovering the 4 Types of Accounting

 Corporate Accounting. ...
 Public Accounting. ...
 Government Accounting. ...
 Forensic Accounting. .

What is application of management accounting?

Management accounting techniques surveyed include the applications of traditional methods such as Standard Costing, Budgeting and Cost-Volume-
Profit (CVP) and other integrated approaches such as Just-in-Time (JIT), Activity-Based-Costing (ABC), Benchmarking and Target Costing.
What are limitations of management accounting?

Limitations or disadvantages of management accounting

 Based on Financial and Cost Records. ...

 Personal Bias. ...
 Lack of Knowledge and Understanding of the Related Subjects. ...
 Provides only Data. ...
 Preference to Intuitive Decision Making. ...
 Management Accounting is only a Tool. ...
 Continuity and Participation. ...
 Broad Based Scope.

What is difference between financial accounting and management accounting?

The difference between financial and managerial accounting is that financial accounting is the collection of accounting data to create financial statements,
while managerial accounting is the internal processing used to account for business transactions.

What is nature of management accounting?

Management Accounting is “the application of appropriate techniques and concepts in processing historical and projected economic data of an
entity to assist management in establishing plans for reasonable economic objectives and in the making of rational decisions with a view towards these
objectives”

What are the functions and limitations of management accounting?

Limitations of Management Accounting:

 Limitations of Cost and Financial Accounting Systems: ...

 Persistence of Intuitive Decision-making: ...
 Very Wide Scope: ...
 Very Costly: ...
 It Invites Opposition from Within the Organization: ...
 It is a Comparatively New Discipline and Still in the Process of Development
What is the meaning of financial accounting?

Financial accounting is a specific branch of accounting involving a process of recording, summarizing, and reporting the myriad of transactions resulting
from business operations over a period of time.

What is the purpose of financial accounting?

In a practical sense, the main objective of financial accounting is to accurately prepare an organization's financial accounts for a specific period, otherwise
known as financial statements. The three primary financial statements are the income statement, the balance sheet and the statement of cash flows

What are the types of financial accounting?

There are two types of financial accounting: cash and accrual accounting. Both methods use double-entry accounting to accurately record financial transactions.
While very small businesses frequently use cash accounting, all larger businesses as well as publicly traded businesses are required to use accrual accounting.

What is the main function of financial accounting?

Understanding the Main Functions of Financial Accounting. The main functions of accounting are to keep an accurate record of financial transactions, to create a
journal of expenditure, and to prepare this information for statements that are often required by law.

What are the advantages of financial accounting?

Advantages of Accounting

 Maintenance of business records.

 Preparation of financial statements.
 Comparison of results.
 Decision making.
 Evidence in legal matters.
 Provides information to related parties.
 Helps in taxation matters.
 Valuation of business

Management information system(MIS):-

A management information system is an information system used for decision-making, and for the coordination, control, analysis, and visualization of information in an organization.
The study of the management information systems involves people, processes and technology in an organizational context.
What does MIS mean in accounting?

Management Information System

A Management Information System, often simply referred to as MIS, can be understood by looking at each of the words that make up the name. There is the management, the
information, and the system. At the heart of it, such a system is one that will provide important information to the management of the company.

What defines MIS?

Management Information Systems (MIS) is the study of people, technology, organizations, and the relationships among them. MIS professionals help
firms realize maximum benefit from investment in personnel, equipment, and business processes.

How does MIS relate to accounting?

MIS actually helps the organization, especially the managers, to organize and evaluate information and data, and provide information in a timely and efficient
manner. ... MIS generally focuses on accounting and economic aspects of a firm, analyzing problems and providing solutions.

What is the relationship between management and accounting?

Accounting and Management are very closely related. Because management depends entirely on accounting for information in financial affairs to make
decisions. Accounting provides all kinds of financial information in project planning and implementation of a business concern.

What are the relationship between management accounting and financial accounting?

Management accounting focuses on the stewardship or implementation aspects of management actions while financial accounting focuses on the
investment uses of information. Management accounting is thus simultaneously a profession that supports financial reporting while attempting to develop
beyond this narrow scope.

What is the role of management accounting in the organization?

The Role of Management Accounting in the Organization. The purpose of management accounting in the organization is to support competitive decision
making by collecting, processing, and communicating information that helps management plan, control, and evaluate business processes and
company strategy.

How important is the role of a management accountant in the organization?

Essentially, management accountants provide key insights that help a company's management team make many of their decisions. They also support
decision making within a company by providing a wealth of financial and statistical information, often assisted by powerful accounting software

Unit (II)
Why is the relationship of cost volume and profit important to management?

The relationship between cost, volume and profit makes up the profit structure of an enterprise. ... As a starting point in profit planning, it helps to determine
the maximum sales volume to avoid losses, and the sales volume at which the profit goal of the firm will be achieved.

What is the CVP equation?

The key CVP formula is as follows: profit = revenue – costs. Of course, to be able to apply this formula, you need to know how to work out your revenue:
(retail price x number of units). Plus, you need to know how to work out your costs: fixed costs + (unit variable cost x number of units).

Why is cost volume profit CVP analysis important?

By breaking down costs into fixed versus variable, CVP analysis gives companies strong insight into the profitability of their products or services.
Many companies and accounting professionals use cost-volume-profit analysis to make informed decisions about the products or services they sell.

Definition of Cost Volume Profit Analysis

Cost Volume Profit Analysis explains the behavior of profits in response to a change in cost and volume. In other words, it is an analysis
presenting the impact of cost and volume on profits. Commonly called as CVP Analysis, a manager can find out the level of sales where
the company will be in a no-profit-no-loss situation with this analysis. This situation is called break-even point. In a similar fashion, CVP
analysis can also explain the no. of units of sales required to achieve a particular targeted operating income.

What is meant by break-even point?

The breakeven point is the level of production at which the costs of production equal the revenues for a product. In investing, the breakeven point is said to be achieved
when the market price of an asset is the same as its original cost.
What is break-even point and its importance?

A break-even point is the point at which total cost and total revenue for a particular venture are equal. At the break-even point, an organization has recouped its costs but
not yet made any profit. The term is often used in business, especially regarding sales, as well as investments and other areas.

What is Meant by Cost Volume Profit Relationship?

Managerial accounting provides useful tools, such as cost-volume-profit relationships, to aid decision-making. Cost volume profit
relationship helps you understand different ways to meet your company’s net income goals.

A. The Basics of Cost-Volume-Profit (CVP) Analysis: Cost-volume-profit (CVP) analysis is a key step in many decisions. CVP analysis
involves specifying a model of the relations among the prices of products, the volume or level of activity, unit variable costs, total fixed costs,
and the sales mix. This model is used to predict the impact on profits of changes in those parameters.

1. Contribution Margin. Contribution margin is the amount remaining from sales revenue after variable expenses have been deducted. It
contributes towards covering fixed costs and then towards profit.

2. Unit Contribution Margin. The unit contribution margin can be used to predict changes in total contribution margin as a result of changes in
the unit sales of a product. To do this, the unit contribution margin is simply multiplied by the change in unit sales. Assuming no change in fixed
costs, the change in total contribution margin falls directly to the bottom line as a change in profits.

3. Contribution Margin Ratio. The contribution margin (CM) ratio is the ratio of the contribution margin to total sales. It shows how the
contribution margin is affected by a given dollar change in total sales. The contribution margin ratio is often easier to work with than the unit
contribution margin, particularly when a company has many products. This is because the contribution margin ratio is denominated in sales
dollars, which is a convenient way to express activity in multi-product firms.

B. Some Applications of CVP Concepts: CVP analysis is typically used to estimate the impact on profits of changes in selling price, variable
cost per unit, sales volume, and total fixed costs. CVP analysis can be used to estimate the effect on profit of a change in any one (or any
combination) of these parameters. A variety of examples of applications of CVP are provided in the text.

C. CVP Relationships in Graphic Form.:CVP graphs can be used to gain insight into the behavior of expenses and profits. The basic CVP
graph is drawn with dollars on the vertical axis and unit sales on the horizontal axis. Total fixed expense is drawn first and then variable expense
is added to the fixed expense to draw the total expense line. Finally, the total revenue line is drawn. The total profit (or loss) is the vertical
difference between the total revenue and total expense lines. The break-even occurs at the point where the total revenue and total expenses
lines cross.

D. Break-Even Analysis and Target Profit Analysis: Target profit analysis is concerned with estimating the level of sales required to attain a
specified target profit. Break-even analysis is a special case of target profit analysis in which the target profit is zero.

1. Basic CVP equations. Both the equation and contribution (formula) methods of break-even and target profit analysis are based on the
contribution approach to the income statement. The format of this statement can be expressed in equation form as

Margin of Safety

The margin of safety is volume of sales that the company is selling above the break -even point. Like the break-even point, the margin of safety can be
expressed either in units or sales dollars. However, the margin of safety is most often expressed as a percentage of sales.

The first step in calculating the margin of safety is to calculate the break-even point in sales dollars. Once the break-even point is calculated, this figure is
subtracted from the actual sales in dollars. This figure is the margin of safety in dollars. To convert this to a percentage, simply divide the margin of safety
in dollars by the actual sales and multiple by 100.

What are the uses of BEP?

Break-even point is useful in a lot of situations like: It helps to determine the impact on profit if physical labor (variable cost) is substituted by automation (fixed cost). It helps
to determine the effect of the change in the price of a product on the profits

Marginal costing?

Definition: Marginal Costing is a costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost for the period is
completely written off against the contribution. Marginal cost is the change in the total cost when the quantity produced is incremented by one.
 Why would a company use marginal costing?

Facilitates cost control – By separating the fixed and variable costs, marginal costing provides an excellent means of controlling costs. 3. Avoids arbitrary
apportionment of overheads – Marginal costing avoids the complexities of allocation and apportionment of fixed overheads which is really arbitrary.

what are the functions of marginal costing?

The purpose of analyzing marginal cost is to determine at what point an organization can achieve economies of scale to optimize production and
overall operations. If the marginal cost of producing one additional unit is lower than the per-unit price, the producer has the potential to gain a profit.

Marginal Costing

Definition: Marginal Costing is a costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost
for the period is completely written off against the contribution.

The term marginal cost implies the additional cost involved in producing an extra unit of output, which can be reckoned by total
variable cost assigned to one unit. It can be calculated as:

Marginal Cost = Direct Material + Direct Labor + Direct Expenses + Variable Overheads

Characteristics of Marginal Costing

 Classification into Fixed and Variable Cost: Costs are bifurcated, on the basis of variability into fixed cost and variable costs. In the same
way, semi variable cost is separated.
 Valuation of Stock: While valuing the finished goods and work in progress, only variable cost are taken into account. However, the variable
selling and distribution overheads are not included in the valuation of inventory.
 Determination of Price: The prices are determined on the basis of marginal cost and marginal contribution.
 Profitability: The ascertainment of departmental and product’s profitability is based on the contribution margin.
In addition to the above characteristics, marginal costing system brings together the techniques of cost recording and reporting.
 Unit (III)
What is standard costing?
Standard costing is the practice of estimating the expense of a production process. It's a branch of cost accounting that's used by a manufacturer, for
example, to plan their costs for the coming year on various expenses such as direct material, direct labor or overhead

What are types of standard costing?

There are three main categories of standard costs, basic standard costs, ideal standard costs and currently attainable standard costs.

What is purpose of standard costing?

In accounting, a standard costing system is a tool for planning budgets, managing and controlling costs, and evaluating cost management
performance. A standard costing system involves estimating the required costs of a production process.

Characteristics of Standard Costing

The chief characteristics of standard costing are the following:

1. Cost determination: Standard costing is designed to determine the cost of an output based on past experience and future trends.

2. Cost comparison: When actual costs are known, these are compared to budgeted costs.

3. Control over variances: The comparison between standard and actual cost is performed to gain insight into the variances.

4. Verification of variances: Once the variances are known, an effective study is undertaken to forecast future variances.

5. Reporting: For the benefit of top management, reports are prepared and dispatched that specify who is responsible for variances.

6. Revision: The management gives corrective suggestions for variances.

Features of Standard Costing

Standard costing is a technique of cost accounting.

The cost or service or product is predetermined.

The predetermined cost is known as standard cost.

Actual cost of product and service is ascertained.

The comparison is made between standard cost and actual cost and variances are noted.

Variances are analyzed to find out the reason.

Variances are reported to management in order to take corrective action.

How are standards set in standard costing?

A standard cost system is a method of setting cost targets and evaluating performance. Targets or expected costs are set based on a variety of criteria,
and actual performance relative to expected targets is measured. Significant differences between expectations and actual results are investigated

Variance Analysis
Variance analysis is the procedure of computing the differences between standard costs and actual costs and recognizing the causes of those differences. Studies indicated that
variance is the difference between standard performance and actual performance. It is the process of scrutinizing variance by subdividing the total variance in such a way that
management can assign responsibility for off-Standard Performance.

Variance analysis has four steps:

1. Compute the amount of the variance.

2. Determine the cause of any significant variance.
3. Identify performance measures that will track those activities, analyse the results of the tracking, and determine what is needed to correct the problem.
4. Take corrective action.

Types of Variances: Variances is categorized into two categories that include Cost Variance and Sales Variance.

Cost Variance: Total Cost Variance is the difference between Standards Cost for the Actual Output and the Actual Total Cost sustained for manufacturing actual output. The Total
Cost Variance consists of:

I. Direct Material Cost Variance

II. Direct Labour Cost Variance
III. Overhead Cost Variance
 Direct Material Variances: Direct Material Variances are also known as Material Cost Variances. The Material Cost Variance is the difference between the Standard cost of
materials for the Actual Output and the Actual Cost of materials used for producing actual output. The Material Cost Variance is computed as:

Labour Cost Variance: Labour Cost Variance is the difference between the Standard Cost of labour allowed for the actual output achieved and the actual wages paid. It is also
termed as Direct Wage Variance or Wage Variance. Labour Cost Variance is calculated as follow:

Overhead variance: Overhead is explained as the cumulative of indirect material cost, indirect labour cost and indirect expenses. Overhead Variances may occur due to the
difference between standard cost of overhead for actual production and the actual overhead cost incurred. The Overhead Cost Variance may be computed as follows:

Component of Variance analysis.

Sales variance: The Variances so far analysis is linked to the cost of goods sold. Quantum of profit is derived from the difference between the cost and sales revenue. Cost Variances
affect the amount of profit positively or unfavourably depending upon the cost from materials, labour and overheads. Additionally, it is important to analyse the difference between
actual sales and the targeted sales because this difference will have a direct impact on the profit and sales. Therefore the analysis of sales variances is important to study profit
variances.

Sales Variances can be calculated by two methods:

I. Sales Value Method.

II. Sales Margin or Profit Method.

Basis of Calculation: Variance analysis emphasizes the causes of the variation in income and expenses during a period compared to the financial plan. In order to make variances
significant, the idea of 'flexed budget' is used when calculating variances. Flexed budget acts as a link between the original budget (fixed budget) and the actual results. Flexed
budget is prepared in retrospect based on the actual output. Sales volume variance accounts for the difference between budgeted profit and the profit under a flexed budget. All
remaining variances are calculated as the difference between actual results and the flexed budget.

To summarize, Variance Analysis, is administrative accounting which denotes to the analysis of deviations in financial performance from the standards definite in organizational
budgets. In Variance Analysis, the difference between actual cost and its budgeted or standard cost segregated into price or quality component. It has been shown that favourable
variance occurs when output exceeds input or when the price paid for the goods and services is less than anticipated. An unfavourable variance occurs when output is less than
input or when the price for goods and services is greater than expected.

Unit (iv)