QUESTION 1

DIFFERENCES BETWEEN MANAGEMENT ACCOUNTING AND FINANCIAL ACCOUNTING

MANAGEMENT ACC FINANCIAL ACC

For external and internal use
For internal use

Is not binded by law and does not have Is regulated by law and needs to follow
standards to follow IFRS/GAAP

Future oriented Historical basis

Tends to focus on segments of the company to Focus on the whole organization activities
make decisions

Can be prepared whenever it is needed Be prepared annually, quarterly or once half a

year

QUESTION 2

EXPLAIN THE DIFFERENCE BETWEEN COST CLASSIFICATION AND COST BEHAVIOR.

Cost classification is the process of grouping costs referring to their nature: traceability into products.
There are direct costs, and indirect costs. Direct costs can be traced into making products,
manufacturing indirect costs can also be traced to determining product price.

Cost behaviour is how cost changes in relation to changes in activities: fixed, variable, semi-fixed,
semi-variable costs.

STRATEGIC MANAGEMENT ACCOUNTING

RECAP OF MANAGEMENT ACCOUNTING BASICS
QUESTION 3

PREPARE A RECONCILIATION BETWEEN THE VARIABLE COSTING SYSTEM AND ABSORPTION SYSTEM.

In general, reconciliation between variable and absorption costing can be made by using the profit
under marginal costing to adjust with the fixed manufacturing overheads allocated in opening
inventory brought in the beginning of the period (minus) or fixed manufacturing overheads allocated
in closing inventory at the end of the period (plus).

Example:

STRATEGIC MANAGEMENT ACCOUNTING

RECAP OF MANAGEMENT ACCOUNTING BASICS
Under marginal costing, fixed manufacturing overhead is fully eliminated in the period, while $5,000
of fixed manufacturing overhead is postponed into the next period through product cost of closing
inventory, therefore, the $10,000 marginal profit should be increased by $5,000 to $15,000 under
absorption costing.

STRATEGIC MANAGEMENT ACCOUNTING

RECAP OF MANAGEMENT ACCOUNTING BASICS