This presentation help the students of Management Accounting to learn basic Concepts.

1. INTRODUCTION
TO
MANAGEMENT
ACCOUNTING

2. WHAT IS MANAGEMENT
ACCOUNTING ?
It relates to the use of all such information
gathered and processed by Cost
Accounting. Management Accounting is
about getting information from Cost
Accountants and then use it for Decision
Making Purpose.

3. FUNCTIONS OF MANAGEMENT
ACCOUNTING

4. Following are the Key Points which the Cost
and Management Accounting generates:
1. Provide information for Planning, Control and
Performance Measurement.
2. Provide relevant information to help Manager
make better decision.

5. 3. Allocation for cost of goods sold and
inventories for internal & external profit
reporting.

6. DIFFERENCE BETWEEN
MANAGEMENT ACCOUNTING
AND FINANCIAL ACCOUNTING

7. 1. It is concerned with the
provision of information
to people within the
organization.
1. It is concerned with the
provision of information
to external parties
outside the organization.
MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING

8. 2. This Management
Accounting could be
called Internal
Accounting.
2. It could be called
External Accounting.
MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING

9. 3. It reports are prepared
for the Manager inside
the organization.
3. It reports are prepared
for the use of external
parties. Such as
Creditors &
Shareholders. It also
puts emphasize on
summarize of financial
consequences.
MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING

10. 4. It gives the important
data with which the
organization are run.
4. It gives the outcomes of
an organization overall
performance in the past
as interpreted by those
outside the organization.
MANAGEMENT ACCOUNTING FINANCIAL ACCOUNTING

11. DIFFERENCE BETWEEN
MANAGEMENT ACCOUNTING
AND COST ACCOUNTING

12. 1.It deals with the effect
and impact of cost in the
business.
1. It deals with
ascertainment, allocation
and apportionment
accounting aspects of
cost.
MANAGEMENT ACCOUNTING COST ACCOUNTING

13. 2. It is derived from Cost
and Financial
Accounting.
2. It provides a base for
Management
Accounting.
MANAGEMENT ACCOUNTING COST ACCOUNTING

14. 3. It includes Financial &
Cost Accounting, Tax
Accounting and Tax
Planning.
It does not include
Financial Accounting,
Tax Accounting and Tax
Planning
MANAGEMENT ACCOUNTING COST ACCOUNTING

15. 4. It is concerned with
Short Term Planning.
4. It is concerned with
Short Range and Long
Range Planning.
MANAGEMENT ACCOUNTING COST ACCOUNTING

16. 5. It assist and evaluate
the management
performance.
5. It assist the
management with
functioning
MANAGEMENT ACCOUNTING COST ACCOUNTING

17. CLASSIFICATION OF COST
TERMS AND CONCEPTS

18. COST
Cost can be define as the expenditure
(actual or national) incurred on to a given
thing.

19. CLASSIFICATION OF COST
 Classification according to Elements.
 Classification according to Nature.
 Classification according to Behavior.
 Classification according to Functions.
 Classification according to Time.
 Classification of costs for Management
decision making.

20. CLASSIFICATION ACCORDING
TO ELEMENTS
There are three Elements of costing:
 Material
 Labor
 FOH (Factory Over Head)

21. CLASSIFICATION ACCORDING
TO NATURE
As per this classification, costs can be
classified into:
 Direct and Indirect Material
 Direct and Indirect Labor
 Direct and Indirect Expenses

22. Direct Material is the material that is
identifiable (traceable) with the product.
For Example:
In a cup of Tea, quantity of milk consumed
can be identified.
DIRECT AND INDIRECT
MATERIAL

23. Indirect Material cannot be identified with
the product.
For Example:
Lubricants, Fuel, Oil, Cotton Wastes etc.
cannot be identified with a given unit of
product.
DIRECT AND INDIRECT
MATERIAL

24. Direct Labor can be identified with a given
unit of product.
For Example:
When wages are paid according to the
piece rate, wages per unit can be identified.
DIRECT AND INDIRECT
LABOR

25. Indirect Labor cannot be identified with the
given unit of production.
For Example:
Wages paid to Sweepers, Gardeners,
Maintenance Workers etc.
DIRECT AND INDIRECT
LABOR

26. Direct Expenses refers to expenses that
specifically incurred and charged for
specific or particular job, process, service,
cost center or cost unit.
For Example:
Royalties payable on use of patents,
copyrights etc.
DIRECT AND INDIRECT
EXPENSES

27. Indirect Expenses cannot be traced to
specific product, job, process, service, cost
center or cost unit.
For Example:
Insurance, rent, electricity, advertising etc.
DIRECT AND INDIRECT
EXPENSES

28. CLASSIFICATION ACCORDING
TO BEHAVIOR
According to behavior, cost can be classified
into:
 Fixed Costs
 Variable Costs
 Semi-Variable Costs

29. Out of the total costs, some costs remain fixed
irrespective of changes in the production
volume. These costs are called the fixed costs.
FIXED COSTS

30. These costs are variable in nature, i.e. they
change according to the volume of
production. Their variability is in the same
proportion to the production.
VARIABLE COSTS

31. Certain costs are partly fixed and partly
variable. In other words, they contain the
features o both types of costs. These costs
are neither totally fixed nor totally variable.
SEMI-VARIABLE COSTS

32. CLASSIFICATION ACCORDING
TO FUNTIONS
According to the Functions, costs can be
classified into:
 Productive Costs
 Administrative Costs
 Selling and Distribution Costs
 Research and Development

33. All costs incurred for production of goods
are known as production costs.
PRODUCTION COSTS

34. Cost incurred for administration are called
administrative costs.
ADMINISTRATIVE COSTS

35. All costs incurred for procuring an order are
called as selling costs while all costs
incurred for execution of order are
distribution costs.
SELLING AND DISTRIBUTION
COSTS

36. Expenditure incurred for Research and
Development can be classified as research
and development costs.
RESEARCH AND
DEVELOPMENT

37. CLASSIFICATION ACCORDING
TO TIME
Costs can also be classified according to time:
 Historical Costs
 Predetermined Cost

38. These are the costs which are incurred in
the past, i.e. in the past year, past month or
even in the last week or yesterday. The
historical costs are ascertained after the
period is over.
HISTORICAL COSTS

39. These costs relating to the product are
computed in advance of production, on the
basis of a specification of all the factors
affecting cost and cost data. Predetermined
costs ,may be either standard or estimated.
PREDETERMINED COST

40. CLASSIFICATION OF COSTS FOR
MANAGEMENT DECISION MAKING
According to the Management decision making, costs
can be classified into:
 Marginal Cost
 Differential Cost
 Opportunity Cost
 Relevant Cost
 Replacement Cost
 Abnormal Cost
 Controllable Cost
 Shutdown Cost
 Capacity Cost

41. Marginal cost is the change in the
aggregate costs due to change in the
volume of output by one unit.
MARGINAL COST

42. Differential cost are also known as
incremental cost. This cost is the difference
in total cost that will arise from the selection
of one alternative to the other.
DIFFERNETIAL COST

43. It is the value of benefit sacrificed in favor of
an alternative course of action.
OPPORTUNITY COST

44. The relevant cost is the cost which is
relevant in various decision of
management.
RELEVANT COST

45. This cost is the cost at which existing items
of material or fixed assets can be replaced.
REPLACEMENT COST

46. It is an unusual or a typical cost whose
occurrence is usually not regular and is
unexpected. This cost arises due to some
abnormal situation of production.
ABNORMAL COST

47. Controllable costs are those which can be
controlled or influenced by a conscious
management action.
CONTROLLABLE COST

48. These costs are the costs which are
incurred if the operations are shut down
and they will disappear if the operation are
continued.
SHUTDOWN COST