Managerial Cost Accounting and Cost Concept

1. WELL COME
TO
OUR
PRESNTATION

2. Prepared By:
RED LODZ
Name of Group Members
Name Id
Md.Shamim Ahmed 12132101488
Md.Shamim 12132101479
Jannatun Naym Badhan 12132101490
Nusrat Jahan 12132101480
Md. Tanvir Ahmed 12132101462
Md. Tanvir Ahmed Siddiki 12132101470

3. MANAGERIAL ACCOUNTING
Managerial Accounting is concerned with
providing information to managers for use
within the organization.

4. Planning
Directing and
Motivating
Controlling

5. 1.Planning:
Planning involves establishing goals
and specifying how to achieve them.
2.Controlling:
Controlling involves gathering
feedback to ensure that the plan is
being properly executed or modified
as circumstances change.
3.Decision making:
Decision making involves selecting a
course of action from competing
alternatives.

6. General cost classifications
Manufacturing costs:
1.Direct Materials:
Direct Materials are those materials that become an
integral part of the finished product and whose costs can
be conveniently traced to the finished product .
Example-A radio installed in an automobile

7. 2.Direct labor:
Direct labor consists of
labor cost that can be
easily traced to individual
units of production.
Example-Wages paid to
automobile assembly
workers.
3.Manufacturing
overhead:
Manufacturing costs that
cannot be traced directly to
specific units produced.
Example- indirect labor&
indirect materials.

8. Product costs Vs Period costs
Product costs Period costs
Product costs include
direct materials, direct
labor, &
manufacturing
overhead.
Period costs are not
included in product
costs. They are
expensed on the
income statement.

9. Nonmanufacturing costs
1. Selling costs:
Selling costa include all costs that are incurred to secure
customer orders and get the finished product to the
customer.
Example- sales commissions , sales salaries .
2. Administrative costs:
Administrative costs include all costs associated with the
general management of an organization rather than with
manufacturing or selling .
Example-public relations, general accounting.

10. • The Traditional Format Income Statement
• The statement is prepared primarily for external
reporting purposes. It organizes costs into two
categories – cost of goods sold and selling and
administrative expenses.
• Cost of goods sold
• The cost of goods sold would include some variables
costs, such as direct materials, direct labor, and
variable overhead, and some fixed costs, such as fixed
manufacturing overhead.
• Cost of goods sold = Beginning merchandise inventory
+ Purchases – Ending merchandise inventory

11. Traditional Format
Sales…………………………………$1
2000
Cost of goods sold……………
6000
Gross margin…………………
6000
Selling and administrative
expenses:
Selling……………………. $3100
Administrative……… $1900
5000
Net operating income
$1000
• Contribution Format
Sales……………………………….$12000
Variable expenses:
Cost of goods sold…… $6000
Variable selling……… 600
Variable administrative 400 7000
Contribution margin………… 5000
Fixed expenses:
Fixed selling……………… 2500
Fixed administrative……1500 4000
Net operating income…………$1000

12. Cost classifications for assigning
costs to cost objects
• Direct cost:
A direct cost is a cost
that can be easily and
conveniently traced to a
specified cost objective.
Example- direct labor
and direct materials.
• Indirect cost:
An indirect cost is a
cost that cannot be
easily and conveniently
traced to a specified
cost objective.
Example-
manufacturing
overhead.

13. Cost classification for predicting cost
behavior
Variable cost:
A variable cost varies, in total, in direct
proportion to changes in the level of
activity.
Example- direct materials, direct labor.

14. • Mixed costs:
A mixed cost contains both variable and fixed
cost element. Mixed costs are also known as
semivariable costs.

15. • Fixed cost:
A fixed cost is a cost that remains constant, in total,
regardless of changes in the level of activity.
Example- rent, administrative salaries

16. Cost classifications for decision making
Differential cost:
A difference in costs between any two alternatives is
known as a differential cost.
Differential revenue:
A difference in revenues between any two alternatives is
known as differential revenue.
Example- You have a job paying $1,500 per month in
your hometown. You have a job offer in a neighboring city
that pays $2,000 per month. The commuting cost to the city
is $300 per month.
Differential revenue is:
$2,000 – $1,500 = $500
Differential cost is: $300

17. Opportunity cost:
Opportunity cost is the potential benefit that is
given up when one alternative is selected over
another.
Example- If you were not attending
college, you could be earning $15,000 per year.
Your opportunity cost of attending college for one
year is $15,000.

18. Sunk cost:
A sunk cost is a cost that has already been incurred and that
cannot be changed by any decision made now or in the
future.
Example- You bought an automobile that
cost $10,000 two years ago. The $10,000 cost is sunk
because whether you drive it, park it, trade it, or sell it, you
cannot change the $10,000 cost.