Masters Degree in Business
Management
Course No.02
Institute of Human Resource Advancement
University of Colombo

MBM 03 -...
Introduction to Management Accounting
 What is management?

Direct resources to achieve a common
goal

2
Challenges to Managers
 Today business environment is so
complex and competitive.
Need to
achieve
sustainable
development...
Challenges to Managers
 MA
helps
them
providing
information in on order make
operational/ strategic decisions in
competit...
Different decisions
 What are the various decisions make by
Marketing manager
Production manager
HR manager
Project manag...
Management Accounting (MA)
 That part of accounting system which
facilitates to the management process
is called as MA
 ...
Management Accounting (MA)
 It
is
process
of
identification,
measurement, accumulation, analysis,
presentation,
interpret...
Concepts of MA
 Full cost concepts
 Marginal cost concepts
 Differential cost concept
 Responsibility Accounting Conce...
FA vs. MA
Financial accounting
Prepared for the whole
Entity
Applied GAAPs,
accounting standards
Legal requirement
Framewo...
Behavioral aspect of MA
 Through performance measurement
 Through budgeting

10
MA for managers







Planning device
Controlling device
Communicating device
Coordinating device
Evaluation device...
Cost Concepts, classification
and ascertainment of cost
 Cost information is important to,
-

analysis cost structure
est...
Cost sheet
Direct Cost
Direct Material

xxx

Direct Labour

xxx

Other Direct Cost

xxx

Prime Cost

xxx

Over Head Costs
...
Cost Elements
 Direct Cost?. cost that can be
conveniently identified with a particular
cost unit, cost center
- Direct m...
Cost elements

cont:

 Overhead Cost ?. cost that can not be
conveniently identified with a particular
cost unit, cost ce...
Cost classifications









Direct cost Vs. Indirect cost
Variable cost Vs. Fixed cost
Marginal cost Vs. Absorpt...
Over Head Cost
Traditional over head cost allocation
process.
-It has based on volume
-It ignores the involvement of
diffe...
Classification of Over Head
 Function (production, administration,
distribution)
 Elements (indirect material, indirect
...
Steps in Overhead Cost Accounting
 Collections and Classification
 Allocation
and
apportionment
to
production and servic...
Steps in Absorption process
 Allocation
 Apportionments
 Re-apportionment
 Absorption rate
Illustration 1 : Compute the prime cost,

Factory cost, Cost of production & Total cost
Direct material

57,000 Director’s...
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management accounting

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simple theories of management accounting presentation. and some one willing to learn MA can follow those out lines with some reference books to have good knowledge in MA.

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management accounting

  1. 1. Masters Degree in Business Management Course No.02 Institute of Human Resource Advancement University of Colombo MBM 03 - Management Accounting RMRB Rajapakse, Senior Lecturer in Accounting 1
  2. 2. Introduction to Management Accounting  What is management? Direct resources to achieve a common goal 2
  3. 3. Challenges to Managers  Today business environment is so complex and competitive. Need to achieve sustainable development through limited resources.  Managers role is challengeable.  So they need to make rational decisions that can facilitate to achieve organizational objectives. 3
  4. 4. Challenges to Managers  MA helps them providing information in on order make operational/ strategic decisions in competitive business environment 4
  5. 5. Different decisions  What are the various decisions make by Marketing manager Production manager HR manager Project manager Financial manager 5
  6. 6. Management Accounting (MA)  That part of accounting system which facilitates to the management process is called as MA  MA is a decision making system- it presents accounting information to assists management  MA is futuristic –it helps to evaluate future as it present. 6
  7. 7. Management Accounting (MA)  It is process of identification, measurement, accumulation, analysis, presentation, interpretation and communication of information which use by the management in order to plan, evacuate, control and assure accountability. 7
  8. 8. Concepts of MA  Full cost concepts  Marginal cost concepts  Differential cost concept  Responsibility Accounting Concept 8
  9. 9. FA vs. MA Financial accounting Prepared for the whole Entity Applied GAAPs, accounting standards Legal requirement Framework is given Use historical data External parties Management accounting Prepared for the sections, department, activity etc. No concepts is applied Management requirement No framework Historical / estimated data Internal parties 9
  10. 10. Behavioral aspect of MA  Through performance measurement  Through budgeting 10
  11. 11. MA for managers       Planning device Controlling device Communicating device Coordinating device Evaluation device Performance measurement 11
  12. 12. Cost Concepts, classification and ascertainment of cost  Cost information is important to, - analysis cost structure estimate / plan cost cost control performance evaluation profitability analysis make pricing decision special decisions like make or buy decisions, - product/ product line decisions etc 12
  13. 13. Cost sheet Direct Cost Direct Material xxx Direct Labour xxx Other Direct Cost xxx Prime Cost xxx Over Head Costs Production overhead cost Production cost xxx xxx Administrative overhead xxx Selling & Distribution overhead xxx Total Cost xxx Profit xxx Selling Price xxx
  14. 14. Cost Elements  Direct Cost?. cost that can be conveniently identified with a particular cost unit, cost center - Direct material cost - Direct labour cost - Other direct cost ?????
  15. 15. Cost elements cont:  Overhead Cost ?. cost that can not be conveniently identified with a particular cost unit, cost center - Production overhead - Administrative overhead - Selling and distribution overhead ??
  16. 16. Cost classifications         Direct cost Vs. Indirect cost Variable cost Vs. Fixed cost Marginal cost Vs. Absorption cost Relevant cost Vs. Irrelevant cost Product cost Vs. Period cost Sunk cost Imputed cost Opportunity cost etc;………….
  17. 17. Over Head Cost Traditional over head cost allocation process. -It has based on volume -It ignores the involvement of different activities.
  18. 18. Classification of Over Head  Function (production, administration, distribution)  Elements (indirect material, indirect labour, indirect expenses)  Behaviour / Variability (Fixed, variable, semi variable)
  19. 19. Steps in Overhead Cost Accounting  Collections and Classification  Allocation and apportionment to production and service departments  Re-apportionment of service departments to production departments  Absorption of Overheads
  20. 20. Steps in Absorption process  Allocation  Apportionments  Re-apportionment  Absorption rate
  21. 21. Illustration 1 : Compute the prime cost, Factory cost, Cost of production & Total cost Direct material 57,000 Director’s remuneration Direct wages 28,000 Telephone & postage 200 2,500 Printing & stationary 100 Factory rent & rates Office rent & rates 500 Legal charges 1,500 150 Plant repairs & maintenance 1,000 Advertising 1,500 Plant depreciation 1,250 Salesmen’s salary 2,500 Factory heating & lighting 400 Showroom rent Factory mgr’s salary 2,000 Sales Office salaries 500 1,16,000 1,600 21

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