2. 2
Cost and management
accounting
Provides management with costs for
products, inventories, operations or
functions and compares actual to
predetermined data
It also provides a variety of data for
many day-to-day decision as well as
essential information for long-range
decisions
3. 3
Functions of managerial
accounting
Determining the cost
Providing relevant information for better
decision-making
Providing information for planning,
control, decision-making and
application
4. 4
Planning
Deals with the estimation of product
costs, setting up of costing system to
record cost data, preparation of cost
standards and budgets, planning of
materials and manpower resources,
analysing cost behavior with changes in
levels of activity
5. 5
Control
Deals with the maintenance of product
costing record, comparison of actual
performance with standards or budgets,
anlaysis of variances, recommendation
of corrective actions, controlling cost to
ensure operational efficiency and
effectiveness
6. 6
Decision-making
Deals with whether it is more profitable
to make or buy a component, determine
the economic order quantity and
production batch size, replace fixed
asset, add or drop products, decide
pricing
7. 7
Application
Cost accounting has extended from
manufacturing operations to a variety of
service industries such as hotels,
bands, airline, etc
Cost accounting system should be
flexible and adaptable to meet the new
business environment and the changing
nature of the company
8. 8
Element of cost
Cost object
Cost
Cost unit
Cost centre
Profit centre
9. 9
Cost object
It is an activity or item or operation for
which a separate measurement of costs
is desired
E.g. the cost of operating the personnel
department of a company, the cost of a
repair fob, and the cost for control
10. 10
Cost
It is the amount of expenditure incurred
on a specific cost object
Total cost = quantity used * cost per
unit (unit cost)
11. 11
Cost unit
It is a quantitative unit of product or
service in which costs are ascertained,
e.g. cost per table made, cost per metre
of cloth
12. 12
Cost centre
It is a location or function of an
organisation in respect of which costs
are ascertained
E.g. the rent, rates and maintenance of
buildings; the wages and salaries of
strorekeepers
13. 13
Profit centre
It is location or function where
managers are accountable for sales
revenues and expenses
E.g. division of a company that is
responsible for the sales of products
15. 15
Direct cost
Cost that can be identified specifically
with or traced to a given cost object
The direct costs consist of the following
three elements:
Direct materials
Direct labour
Direct expenses
16. 16
Direct materials
The cost of materials – the cost of
materials used entering into and
becoming the elements of a product or
service
E.g. fabrics in garments
17. 17
Direct labour
The cost of remuneration for working
time
E.g. assembly workers’ wages in toy
assembly
19. 19
Indirect cost (overhead)
Cost that cannot be identified
specifically with or traced to a given
cost object
They are identified with cost centres as
overheads
Indirect materials
Indirect labour
Indirect expenses
20. 20
Indirect materials
Such as stationery, consumable
supplies, spare parts for machine that
assist to the production of final products
21. 21
Indirect labour
Such as salaries of factory supervision
and office staff that do not directly
involve in production of the final product
22. 22
Indirect expenses
Such as rent, rates, depreciation,
maintenance expenses that do not have
instant relationships with the
manufacturing processes
23. 23
Cost accumulation
•Prime cost = direct materials + direct labour + direct expenses
•Production cost = Prime cost + factory overhead
OR
= Direct materials + Conversion cost
*Conversion cost is the production cost of converting raw materials into
finished product
•Total cost = Prime cost + Overheads (admin, selling,distribution cost)
OR
= Production cost + period cost (administrative, selling,
distribution and finance cost)
•Period cost is treated as expenses and matched against sales for calculating
profit, e.g. office rental
24. 24
Cost coding
A code is a system of symbols
designed to be applied to a classified
set of items to give a brief, accurate
reference, facilitating entry, collation
and analysis
Coding is important in modern
computerised accounting systems for
catergories various composite
accounting items
25. 25
Reasons
To reducing error owing to descriptions
Enable easy recalling
Reduce computer file size as a code
26. 26
Cost behaviour
Costs can be classified into variable,
fixed, semi-variable, or step-costs
according to how they behave with
respect of changes in activity levels
27. 27
Variable cost
It increases or decreases in direct
proportion to levels of activity, but the
unit variable cost remains constant
E.g. cost of food served in a restaurant
28. 28
Fixed cost
Total fixed cost remains constant over a
relevant range of activity level but unit
fixed cost falls with an increase in
activity volume
29. 29
Semi-variable cost
It processes characteristics of both
fixed and variable cost
It increases or decreases with activity
level but not in direct proportion
30. 30
Step cost
It remains constant for a range of
activity levels, then, on further increase
in activity, the cost jumps to a new level
and remains constant over a certain
range until the next jump occurs
31. 31
Cost for stock valuation
Unexpired and expired cost
Product and period cost
32. 32
Unexpired cost
Unexpired costs are the resources that
have been acquired and are expected
to contribute to the future revenue
They will be recorded as assets in
current period
They will be charged as expenses when
they have been consumed in the
generation of revenue
33. 33
Expired costs
Expired costs are the expenses
attributable to the generation of revenue
in the current period
34. 34
Product cost
Product cost are related to the goods
purchased or produced for resale
If the products are sold, the product cost will
be included in the cost of goods sold and
recorded as expenses in current period
If the products are unsold, the product costs
will be included in the closing stock and
recorded as assets in the balance sheet
35. 35
Period cost
Period cost related to the operation of a
business
They are treated as fixed cost and
charged as expenses when they are
incurred
They should not be included in the
stock valuation
38. 38
Financial accounting
Provides information to users who are
external to the business
It reports on past transactions to draw
up financial statements
The format are governed by law and
accounting standards established by
the professional accounting policies
39. 39
Cost accounting
Is concerned with internal users of
accounting information, such as
operation managers
The generated reports are specific to
the requirement of the management
The reporting can be in any format
which suits the user
40. 40
Management accounting
Comprises all cost accounting functions
The accounting for product and service
costs, management accounting extends
to use various internal accounting
reports for planning, control and
decision making
42. 42
Management
(cost)accounting
Financial accounting
Nature Records material,
labour and
overhead costs in
product or job
Reports produced
are for internal
management and
contol
Records company
transaction events
External financial
statements are
produced
Accounting
system
Not based on the
double entry system
Follows the double
entry system
43. 43
Management
(cost)accounting
Financial accounting
Accounting
principles
No need to use
accounting principles
Adopt any
accounting
techniques that
generates useful
accounting
information
Use Generally
Accepted Accounting
Principles for recording
transactions
Users of
information
Used by different
levels of management
or departments
responsible for
respective activities
Used by external
parties: shareholders,
creditors, government,
etc
45. 45
Management
(cost)accounting
Financial accounting
Time focus Future orientation:
forecasts, estimates
and historic data for
management
actions
Past orientation: use
of historic data for
reporting and
evaluation
Perspectiv
e
Detailed analysis of
parts of the entity,
products, regions,
etc
Financial summary of
the whole orgainisation
47. 47
Management
accounting
Cost accounting
Objective To provide
information for
planning and
decision making by
the management
To ascertain and
control cost
Basic of
recording
Concerned with
transactions related
to the future
Based on both present
and future transactions
for cost ascertainment
48. 48
Management
accounting
Cost accounting
Coverage Covers a wider
area: financial
accounts, cost
accounts, taxation,
etc.
Covers matters
relating to
ascertainment and
control of cost of
product or service
Utility Only the needs of
internal
management
The needs of both
internal and external
interested groups
