INTRODUCTION

Prepared by:
SHAFAWATI FARHANA BINTI MOHD SAFIHIE
Faculty of Accountancy
Management Accounting
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 COURSE INFORMATION
• This course introduces application of techniques in the
analysis of relevant data to provide information for
managerial planning and control, and decision making.
• While computational competency is important, this course
will emphasize more on the application of techniques,
analyzing results obtained and making recommendation
that go beyond cost and financial aspects
• The topics covered include cost-volume-profit analysis,
budgeting and budgetary control, standard costing and
variance analysis, relevant cost concept and short term
decision making.
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 TEACHING METHODOLOGIES
• Combination of lectures and tutorials

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 COURSE PACK
• Text book
• PowerPoint slides to
accompany in-class
lectures
• Past year exam
questions
• Additional tutorial
questions

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 Learning Objectives
• At the end of this session, students are expected to
be able to:
1. Understand what is management accounting.
2. Define what is cost.
3. Classify costs according to:
1. Nature
2. Function
3. Period or product
4. Behaviour
5. Direct or indirect
6. Controllable or uncontrollable
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 Introduction
• Financial and management accounting are
important tools for a business with different
purposes.
• Accounting can be used to determine future
operational plans, to review past performance
and to check current business functions.
• Management and financial accounting have
different audiences.

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 MANAGEMENT ACCOUNTING
It is an integral part of the management process
concerning with identifying, presenting and
interpreting information which is used for
formulating strategy, planning, controlling,
decision making and optimising the use of
resources.

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 MANAGEMENT ACCOUNTING
• Management accounting involves professional
knowledge and skill in the preparation and
presentation of information.
• The sources of such information are the
financial and cost accounts.
• The information is used to assist management
in decision making and in the planning and
control of activities.

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 COST
• Cost can be defined as the amount of
expenditure incurred on, or attributable to, a
specified thing or activity.
• It is the resources given up to achieve a
particular objective.

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COST

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 CLASSIFICATION OF COSTS
• A way of analysing costs into logical groups so
that they can be summarised into meaningful
information.
• Management will require information to make
decisions on a variety of issues.

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 CLASSIFICATION OF COSTS
Product or
Behavior
Period

Direct or
Function
Indirect

Controllable or
Nature COSTS Uncontrollable

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COSTS ACCORDING TO NATURE

LABOUR

MATERIAL EXPENSES

NATURE

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Example

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COSTS ACCORDING TO FUNCTION

RESEARCH &
SELLING
DEVELOPMENT

DISTRIBUTION &
ADMINISTRATION
TRANSPORTATION

PRODUCTION FUNCTION FINANCE

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 PRODUCT VS PERIOD COST

PRODUCT • Cost of making or buying

an inventory for the
COST purpose of resale

• Cost that is charged to the

PERIOD Income Statement which is
not directly related to
COST production.

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 COST BEHAVIOUR

FIXED MIXED
COSTS COSTS

VARIABLE STEPPED
COSTS COSTS
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 FIXED COST

A fixed cost is
a cost that is Example:
not affected Rental
in total by the payment for a
changes in shop premise
activity level.
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 VARIABLE COST

A variable cost
is a cost that Example:
changes in total Cost of wood
in direct planks in the
proportion to production of
the level of dining tables
activity.
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 MIXED COST

A mixed cost
is a cost that Example:
has both Salesman
fixed element remuneration
and variable package
element.
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 STEPPED COST

A stepped cost is a
cost that is constant
for a range of
activity levels and Example:
then change and Supervisors’ salary
then remain
constant again for
another range

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 COST BEHAVIOUR AND
THE RELEVANT RANGE
• The relevant range of activity is the range of
activity levels over which a particular cost
behaviour pattern can be assumed to be valid.

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COST BEHAVIOUR AND
THE RELEVANT RANGE

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DIRECT COST VS. INDIRECT COST

INDIRECT COSTS
DIRECT COSTS
Costs that cannot be directly
Costs that can be directly
attributed to any cost
attributed to any cost
centre/cost unit and thus must
centre/cost unit
be shared on equitable basis.

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EXAMPLES OF DIRECT & INDIRECT COSTS
TYPES OF COST DESCRIPTION
COST OF MATERIALS Direct material cost
USED IN PRODUCTION
COST OF OIL FOR Indirect material cost
LUBRICATING
WAGES OF FACTORY Direct labour cost
EMPLOYEES
SALARY OF MANAGING Indirect labour cost
DIRECTOR
REPAIR COST Indirect expenses
ELECTRICITY BILL Indirect expenses

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CONTROLLABLE VS. UNCONTROLLABLE

CONTROLLABLE COSTS
Costs that are influenced by the decisions
or actions of a manager
Example: workers’ salary

UNCONTROLLABLE COSTS
Costs that cannot be influenced by the
decisions or actions of a manager
Example: price of raw materials

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 SUMMARY
1. Management accounting is the process and
techniques that focus on the effective and
efficient use of organisation resources, to support
managers in their tasks of enhancing both
customer value and shareholder value.
2. Cost is the amount of expenditure incurred on, or
attributable to, a specified thing or activity.
3. Costs can be classified either as nature, function,
period or product, behavior, direct or indirect, or
controllable or uncontrollable.
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 REFERENCE
• Management Accounting. Information For
Creating and Managing Value. Langfield-Smith,
Thorne and Hilton. 6th Edition. McGraw Hill.

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 Quiz 1
Match the following cost item to the correct cost behavior:

Cost Item Cost Behavior

Electricity expenses Variable cost
Cost of fabrics to produce a Fixed cost
wedding dress
Salary of a marketing Mixed cost
manager

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