Management Accounting

Management accounting is the application of accounting techniques to the provision of information designed to assist all levels of management in planning and controlling the activities of the firm. Management accounting is concerned with the needs of management with making decisions about scarce resources in uncertain situations. Many authorities have defined the term management accounting; a few selected definitions are: Association of Certified and Corporate Accountants. Management accounting is the application of accounting and statistical techniques to the specified purpose of producing and interpreting information designed to assist management in its functions of promoting maximum efficiency and in envisaging, formulating and co-ordinating their execution. The Institute of Chartered Accountants of England and Wales. Any form of accounting which enables a business to be conducted more efficiently can be regarded as management accounting. Chartered Institute of Management Accountants, London. Management accounting is the application of professional knowledge and skill in the preparation of accounting information in such a way as to assist management in the formation of policies and in the planning and controlling of the operations of the undertaking.

Objectives of Management Accounting

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To make decisions To increase profitability To increase productivity To improve efficiency To utilise resources optionally To widen horizon of foresightedness To eliminate/reduce wastages etc. To build business image To lead to better employee-employer relationship To improve customer satisfaction To bring cost control and cost reduction To plan

Nature of Management Accounting

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A tool for decision making A technique of planning and control Related to future Selective nature

Supplies data, not decisions

Functions of Management Accounting

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Forecasting and planning Classification of data Analysis and interpretation Control Co-ordination Communication Qualitative information Decision-making

Principles of Management Accounting

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Matching of costs and revenues Realisation Conservatism Business a separate entity Objectivity Consistency Accounting of normal costs Flexibility Control-at-source accounting Profitability of the system Management by exception Inflation accounting Forward looking Efficient utilisation of resources Personal contacts Integration of information Appropriate means of information Distinction of controllable and uncontrollable costs Basis of apportionment of overheads Efficiency measurement criterion

Contents
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Management accounting: nature & scope 1. Functions 2. Techniques 3. Principles 4. Utility 5. Limitations

Cost control, cost reduction and cost management 1. Organisation for cost reduction 2. Cost reduction programme 3. Techniques of cost reduction 4. Reduction in variety of products 5. Value analysis Budgetary control 1. Fixed and flexible budgeting 2. Control ratios 3. Performance budgeting 4. Programme budget 5. Zero base budgeting 6. Advantages and limitations of budgetary control Standard costing and variance analysis 1. Direct material variances 2. Direct labour variances 3. Revision variances 4. Overhead variances 5. Sales variances 6. Control of variances

Marginal or variable costing and cost volume profit analysis 1. Variable costing 2. Direct costing 3. Differential costing 4. Absorption costing 5. Segregation of semi-variable overheads 6. Contribution 7. Profit/volume ratio 8. Key factor 9. Cost volume profit analysis 10. Break-even analysis 11. Break-even chart 12. Margin of safety 13. Angle of incidence 14. Advantages, limitations and applications of marginal costing Decision-making 1. Make or buy decisions 2. Expand or buy decisions 3. Lease or buy decisions

4. 5. 6. 7. 8. 9. 10. 11.
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Selling or further processing decisions Retain or replace decisions Exploring new markets Optimum sales or production mix Adding or dropping of a product Temporary suspension or continue Permanent closing down or continue Machine or hand labour

Responsibility accounting 1. Responsibility centres 2. Pre-requisites 3. Divisional performance measurement