BUS 361 – Management Accounting

Week 1 - Introduction
Unit 1.0 Introduction – Management Accounting
Unit 1.1 Subject Matter of Accounting (Financial)
Unit 1.2 Subject Matter of Accounting (Cost and Management)
Unit 1.3 Difference Between Financial Accounting and Management Accounting
Unit 1.4 Elementwise Classification of Cost (Material / Labour / FoH)
Unit 1.5 Naturewise Classification of Cost - Indirect and Direct
Unit 1.6 Functional Classification of Cost - Prod/Admin/Market/RnD
Unit 1.7 Behaviorwise Classification of Cost - Variable/Fixed
Unit 1.8 Classification of Cost for Decision Making - Relevant/Opportunity/Sunk
Unit 1.9 Schedule of Cost of Goods Manufactured
Unit 1.10 Preparing Income Statement of Manufacturing Business
 BUS 361 – Management Accounting
Week 1 - Introduction
Unit 1.0 Introduction – Management Accounting
Unit 1.1 Subject Matter of Accounting (Financial)
Unit 1.2 Subject Matter of Accounting (Cost and Management)
Unit 1.3 Difference Between Financial Accounting and Management Accounting
Unit 1.4 Elementwise Classification of Cost (Material / Labour / FoH)
Unit 1.5 Naturewise Classification of Cost - Indirect and Direct
Unit 1.6 Functional Classification of Cost - Prod/Admin/Market/RnD
Unit 1.7 Behaviorwise Classification of Cost - Variable/Fixed
Unit 1.8 Classification of Cost for Decision Making - Relevant/Opportunity/Sunk
Unit 1.9 Schedule of Cost of Goods Manufactured
Unit 1.10 Preparing Income Statement of Manufacturing Business
 BUS 361 – Management Accounting
Accounting
It is the systematic study of
• Recording
• Classifying
• Analyzing, &
• Interpreting
of all the Business Transactions in term of Money
 BUS 361 – Management Accounting
Cost Accounting
It is branch of accounting that deals with Cost per unit of
products and services for the purpose
• Product Pricing
• Planning and Controlling
• Managerial Decision Making
 BUS 361 – Management Accounting
Managerial Accounting
It is branch of accounting that deals with Managerial
Decision Making on the basis of Data provided in Financial
Accounting as Well as Cost Accounting
 BUS 361 – Management Accounting
Week 1 - Introduction
Unit 1.0 Introduction – Management Accounting
Unit 1.1 Subject Matter of Accounting (Financial)
Unit 1.2 Subject Matter of Accounting (Cost and Management)
Unit 1.3 Difference Between Financial Accounting and Management Accounting
Unit 1.4 Elementwise Classification of Cost (Material / Labour / FoH)
Unit 1.5 Naturewise Classification of Cost - Indirect and Direct
Unit 1.6 Functional Classification of Cost - Prod/Admin/Market/RnD
Unit 1.7 Behaviorwise Classification of Cost - Variable/Fixed
Unit 1.8 Classification of Cost for Decision Making - Relevant/Opportunity/Sunk
Unit 1.9 Schedule of Cost of Goods Manufactured
Unit 1.10 Preparing Income Statement of Manufacturing Business
 BUS 361 – Management Accounting
Points Management Accounting Financial Accounting
Background Not very Old hardly 70/80 Years old Since double entry book keeping system
by Italian Merchant Lucas Pacoli 1494
User Group Internal Managers, decision makers, share Shareholders, Directors, Managers,
holders Investors, creditors, Govt. agencies
Information Future oriented, different Statements like Historic Cost, Profit & Loss and
generation budgets, variance reports, marginal costing Balance Sheet
Report Format Tailor Made Readymade
Calculation of Cost of Product: Process or Total Cost / Expenses must be matched
Purpose / Job Control aspects, Ways and means to with revenue, No such approach of Control
Scope reduce cost of
Cost
Quantitative Both Quantitative and Monetary
Information Information is prepared Only Monetary Information is prepared
 BUS 361 – Management Accounting
Week 1 - Introduction
Unit 1.0 Introduction – Management Accounting
Unit 1.1 Subject Matter of Accounting (Financial)
Unit 1.2 Subject Matter of Accounting (Cost and Management)
Unit 1.3 Difference Between Financial Accounting and Management Accounting
Unit 1.4 Elementwise Classification of Cost (Material / Labour / FoH)
Unit 1.5 Naturewise Classification of Cost - Indirect and Direct
Unit 1.6 Functional Classification of Cost - Prod/Admin/Market/RnD
Unit 1.7 Behaviorwise Classification of Cost - Variable/Fixed
Unit 1.8 Classification of Cost for Decision Making - Relevant/Opportunity/Sunk
Unit 1.9 Schedule of Cost of Goods Manufactured
Unit 1.10 Preparing Income Statement of Manufacturing Business
 BUS 361 – Management Accounting
Elements/Components of Cost
• Material

• Labour

• Factory Overheads
 BUS 361 – Management Accounting
Week 1 - Introduction
Unit 1.0 Introduction – Management Accounting
Unit 1.1 Subject Matter of Accounting (Financial)
Unit 1.2 Subject Matter of Accounting (Cost and Management)
Unit 1.3 Difference Between Financial Accounting and Management Accounting
Unit 1.4 Elementwise Classification of Cost (Material / Labour / FoH)
Unit 1.5 Naturewise Classification of Cost - Indirect and Direct
Unit 1.6 Functional Classification of Cost - Prod/Admin/Market/RnD
Unit 1.7 Behaviorwise Classification of Cost - Variable/Fixed
Unit 1.8 Classification of Cost for Decision Making - Relevant/Opportunity/Sunk
Unit 1.9 Schedule of Cost of Goods Manufactured
Unit 1.10 Preparing Income Statement of Manufacturing Business
 BUS 361 – Management Accounting
Cost Classification
• Direct Cost
• Material or Labour (Key Contributor)

• Indirect Cost
• Factory Overheads (Small Contributor) / Miscellanous
 BUS 361 – Management Accounting
Week 1 - Introduction
Unit 1.0 Introduction – Management Accounting
Unit 1.1 Subject Matter of Accounting (Financial)
Unit 1.2 Subject Matter of Accounting (Cost and Management)
Unit 1.3 Difference Between Financial Accounting and Management Accounting
Unit 1.4 Elementwise Classification of Cost (Material / Labour / FoH)
Unit 1.5 Naturewise Classification of Cost - Indirect and Direct
Unit 1.6 Functional Classification of Cost - Prod/Admin/Market/RnD
Unit 1.7 Behaviorwise Classification of Cost - Variable/Fixed
Unit 1.8 Classification of Cost for Decision Making - Relevant/Opportunity/Sunk
Unit 1.9 Schedule of Cost of Goods Manufactured
Unit 1.10 Preparing Income Statement of Manufacturing Business
 BUS 361 – Management Accounting
Functional Classification of Cost
• Production Cost
• Administrative Cost
• Marketing Cost
• Research and Development Cost
 BUS 361 – Management Accounting
Week 1 - Introduction
Unit 1.0 Introduction – Management Accounting
Unit 1.1 Subject Matter of Accounting (Financial)
Unit 1.2 Subject Matter of Accounting (Cost and Management)
Unit 1.3 Difference Between Financial Accounting and Management Accounting
Unit 1.4 Elementwise Classification of Cost (Material / Labour / FoH)
Unit 1.5 Naturewise Classification of Cost - Indirect and Direct
Unit 1.6 Functional Classification of Cost - Prod/Admin/Market/RnD
Unit 1.7 Behaviorwise Classification of Cost - Variable/Fixed
Unit 1.8 Classification of Cost for Decision Making - Relevant/Opportunity/Sunk
Unit 1.9 Schedule of Cost of Goods Manufactured
Unit 1.10 Preparing Income Statement of Manufacturing Business
 BUS 361 – Management Accounting
Behaviorwise Classification of Cost
• Fixed Cost
No relation with Level of Activity, remains Fixed irresepective of
Level of Output Produced

• Variable Cost
Related with level of Activity, Per Unit Variable Cost remains
same but Higher the level of Output total Variable Cost will Increase
BUS 361 – Management Accounting
BUS 361 – Management Accounting
 BUS 361 – Management Accounting
Week 1 - Introduction
Unit 1.0 Introduction – Management Accounting
Unit 1.1 Subject Matter of Accounting (Financial)
Unit 1.2 Subject Matter of Accounting (Cost and Management)
Unit 1.3 Difference Between Financial Accounting and Management Accounting
Unit 1.4 Elementwise Classification of Cost (Material / Labour / FoH)
Unit 1.5 Naturewise Classification of Cost - Indirect and Direct
Unit 1.6 Functional Classification of Cost - Prod/Admin/Market/RnD
Unit 1.7 Behaviorwise Classification of Cost - Variable/Fixed
Unit 1.8 Classification of Cost for Decision Making - Relevant/Opportunity/Sunk
Unit 1.9 Schedule of Cost of Goods Manufactured
Unit 1.10 Preparing Income Statement of Manufacturing Business
 BUS 361 – Management Accounting
Classification of Cost – Decision Making

• Relevant Cost
• Opportunity Cost
• Sunk Cost
 BUS 361 – Management Accounting
Week 1 - Introduction
Unit 1.0 Introduction – Management Accounting
Unit 1.1 Subject Matter of Accounting (Financial)
Unit 1.2 Subject Matter of Accounting (Cost and Management)
Unit 1.3 Difference Between Financial Accounting and Management Accounting
Unit 1.4 Elementwise Classification of Cost (Material / Labour / FoH)
Unit 1.5 Naturewise Classification of Cost - Indirect and Direct
Unit 1.6 Functional Classification of Cost - Prod/Admin/Market/RnD
Unit 1.7 Behaviorwise Classification of Cost - Variable/Fixed
Unit 1.8 Classification of Cost for Decision Making - Relevant/Opportunity/Sunk
Unit 1.9 Schedule of Cost of Goods Manufactured
Unit 1.10 Preparing Income Statement of Manufacturing Business
 BUS 361 – Management Accounting
Schedule of Cost of Goods Manufactured
 BUS 361 – Management Accounting
PQ – 1
From the following data for the year ending June, 1997, determine.
A] The cost of goods manufactured for this year and also the cost of goods sold
Direct Material purchased Rs. 200,000
Direct Labour Costs 210,000
Manufacturing Overhead Cost. 175,000
Inventories were counted and priced as below:
June 30, 1997 June 30, 1996
Inventory of direct Materials. Rs. 50,000 Rs. 40,000
Inventory of work in process 80,000 75,000
Inventory of finished goods 25,000 30,000
 
 BUS 361 – Management Accounting
Solution of PQ-1
 BUS 361 – Management Accounting
Solution of PQ-1
 BUS 361 – Management Accounting
PQ – 2: The following data have been taken from the book of Manufacturing Company Ltd. For the year
1997-98.
Inventories July 1 June 30
Raw Materials Rs. 16,000 Rs. 18,000
Goods In Process 24,000 22,000
Finished Goods 12,000 26,000
Data for the Year
Sales Rs. 480,000
Purchases ( Raw Materials ) 110,000
Purchase discount 2,000
Direct Labour 90,000
Factory Over Head 98,000
Operating Expenses 70,000
REQUIRED:
a) Statement of Cost of Goods Manufactured b) Income Statement
 BUS 361 – Management Accounting
Solution of PQ-2
 BUS 361 – Management Accounting
Solution of PQ-2
 BUS 361 – Management Accounting
Solution of PQ-2