Learn about cost and managerial accounting

1. Adnan Sami
Student
BBA(Finance),
From DIHE

2.  PURPOSE
 To plan future (Budget, Standards)
 To control present (Comparing current results
with budget and standards)

3.  Financial Accounting is largely concerned
with financial statements for external use
 Managerial Accounting is primarily concerned
with the accumulation and analysis of
information relevant for internal use for
planning, controlling and decision making.

4. Financial accounting reports are
prepared for external parties
such as shareholders and
creditors, whereas managerial
accounting reports are prepared
for managers inside the
organization.

5.  Cost is defined as the “value” of the sacrifice
made to acquire goods or services, measured
in rupees.
 At the time of acquisition, the cost incurred
is for present or future benefits. When these
benefits are utilized, the costs become
expenses.

6.  All materials that can be identified with the
production of a finished product, that can be
easily traced to the product, and that
represent a major material cost of producing
that product. An example of direct material
is the wood used to build a table.

7.  All materials involved in the production of a
product that are not direct materials.
Indirect materials are included as part of
factory overhead. An example of an indirect
material is the glue used to build a table.

8.  All labor directly involved in the production
of a finished product that can be easily
traced to the product and that represents a
major labor cost of producing that product.
The work of machine operators in a
manufacturing company would be considered
direct labor.

9.  All labor involved in the production of a
product that is not considered direct labor.
Indirect labor is included as part of factory
overhead. The work of a plant supervisor is
an example of indirect labor.

10.  This all-inclusive cost pool is used to
accumulate indirect materials, indirect labor,
and all other indirect manufacturing costs
which can not be directly identified with
specific products. Examples of other factory
overhead costs, besides indirect materials
and indirect labor, are rent, light, and heat
for the factory, and depreciation of factory
equipment.

11.  Variable costs are those in which the total
cost changes in direct proportion to changes
in volume, or output, within the relevant
range, while the unit cost remains constant.
For example, if variable costs for direct
materials are Rs.100 per unit of output, each
time output increases by one unit; the
variable cost for direct material will increase
by Rs.100.

12.  Fixed costs are those in which total fixed
cost remains constant over a relevant range
of output, while the fixed cost per unit
varies with output.

13.  Total variable cost change in proportion to
changes in volume.
 Per unit variable costs remain constant
when volume changes.
 Total fixed costs remain constant when
volume changes.
 Per unit fixed costs increase (decrease)
when volume decreases (increases).

14.  These are costs directly and indirectly
identifiable with product. They are direct
materials, direct labor, and factory
overhead. These costs provide no benefit
until the product is sold. When the products
are sold, the total product costs are
recorded as an expenses, called the cost of
goods sold.

15.  Those costs neither directly nor indirectly related
to the product. Period costs are charged off
immediately.
The following are examples of period costs:
 An accountant’s salary (Administrative Exp.)
 Depreciation on a salesperson’s car (Selling Exp.)
 Interest incurred on loans (Interest Exp.)