Meaning
•Management accounting, also called managerial accounting or cost accounting, is the process of analyzing business costs and operations to prepare internal financial report, records, and account to aid managers’ decision making process in achieving business goals.
•In other words, it is the act of making sense of financial and costing data and translating that data into useful information for management and officers within an organization.
The Need for Accounting
Accounting information can be used to assess past financial performance of a
company and help predict its future performance.All kinds of organizations—
government agencies, nonprofit organizations, and others —rely on accounting to gauge their progress.
The accounting process begins with a transaction.A transaction is any event that affects the financial position of an organization and requires recording. Many concepts, conventions, and rules determine what events a company records as accounting transactions and how accountants measure the financial impact of each transaction.Financial statements are used to summarize the recorded accounting transactions
Process Characteristics in Operations: Volume, Variety, Flows, Types of Processes & Operations System, continuous flow & intermittent flow system. Process Product Matrix: Job production, batch production, Assembly line & Continuous flow process & production layout Service System Design Matrix: Design of Service system, Service Blue print
01.Understand the concept of ‘Overheads’.
02.Understand classification, allocation, apportionment and absorption of overheads.
03. Understand the Primary and Secondary Distribution of Overheads.
04. Understand the Traditional & Activity Based Costing methods
05. Identify the value added & non value added activity
Meaning
•Management accounting, also called managerial accounting or cost accounting, is the process of analyzing business costs and operations to prepare internal financial report, records, and account to aid managers’ decision making process in achieving business goals.
Auditing
Spicer and Pegler: "Auditing is such an examination of books of accounts and vouchers of business, as will enable the auditors to satisfy himself that the balance sheet is properly drawn up, so as to give a true and fair view of the state of affairs of the business and that the profit and loss account gives true and fair view of the profit/loss for the financial period, according to the best of information and explanation given to him and as shown by the books; and if not, in what respect he is not satisfied."
The Need for Accounting
Accounting information can be used to assess past financial performance of a
company and help predict its future performance.All kinds of organizations—
government agencies, nonprofit organizations, and others —rely on accounting to gauge their progress.
The accounting process begins with a transaction.A transaction is any event that affects the financial position of an organization and requires recording. Many concepts, conventions, and rules determine what events a company records as accounting transactions and how accountants measure the financial impact of each transaction.Financial statements are used to summarize the recorded accounting transactions
Process Characteristics in Operations: Volume, Variety, Flows, Types of Processes & Operations System, continuous flow & intermittent flow system. Process Product Matrix: Job production, batch production, Assembly line & Continuous flow process & production layout Service System Design Matrix: Design of Service system, Service Blue print
01.Understand the concept of ‘Overheads’.
02.Understand classification, allocation, apportionment and absorption of overheads.
03. Understand the Primary and Secondary Distribution of Overheads.
04. Understand the Traditional & Activity Based Costing methods
05. Identify the value added & non value added activity
Meaning
•Management accounting, also called managerial accounting or cost accounting, is the process of analyzing business costs and operations to prepare internal financial report, records, and account to aid managers’ decision making process in achieving business goals.
Auditing
Spicer and Pegler: "Auditing is such an examination of books of accounts and vouchers of business, as will enable the auditors to satisfy himself that the balance sheet is properly drawn up, so as to give a true and fair view of the state of affairs of the business and that the profit and loss account gives true and fair view of the profit/loss for the financial period, according to the best of information and explanation given to him and as shown by the books; and if not, in what respect he is not satisfied."
The Need for Accounting
Accounting information can be used to assess past financial performance of a company and help predict its future performance.All kinds of organizations—
government agencies, nonprofit organizations, and others —rely on accounting to gauge their progress.
The accounting process begins with a transaction.A transaction is any event that affects the financial position of an organization and requires recording. Many concepts, conventions, and rules determine what events a company records as accounting transactions and how accountants measure the financial impact of each transaction.Financial statements are used to summarize the recorded accounting transactions.
THE NEED FOR ACCOUNTING Accounting information can be used to assess past financial performance of a company and help predict its future performance.All kinds of organizations— government agencies, nonprofit organizations, and others —rely on accounting to gauge their progress.
Capital Investment
• Capital investment refers to funds invested in a firm or enterprise for the purpose of furthering its business objectives. Capital investment may also refer to a firm's acquisition of capital assets or fixed assets such as manufacturing plants and machinery that is expected to be productive over many years. Sources of capital investment are manifold and can include equity investors, banks, financial institutions, venture capital and angel investors.
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
Financial Management is a vital activity in any organization. It is the process of planning, organizing, controlling and monitoring financial resources with a view to achieve organizational goals and objectives.
Operations Management • Operations management refers to the administration of business practices to create the highest level of efficiency possible within an organization. It is concerned with converting materials and labor into goods and services as efficiently as possible to maximize the profit of an organization. Operations management teams attempt to balance costs with revenue to achieve the highest net operating profit possible.
What is management ?
Management is a universal phenomenon. It is a very popular and widely used term. All organizations - business, political, cultural or social are involved in management because it is the management which helps and directs the various efforts towards a definite purpose. According to Harold Koontz, “Management is an art of getting things done through and with the people in formally organized groups. It is an art of creating an environment in which people can perform and individuals and can co-operate towards attainment of group goals”. According to F.W. Taylor, “Management is an art of knowing what to do, when to do and see that it is done in the best and cheapest way”.
WORKING CAPITAL
According to the definition of Weston and Brigham, “Working Capital refers to a firm’s investment in short-term assets, cash, shortterm securities, accounts receivables and inventories”. Working Capital may be categorised: - Gross Working Capital - Net Working Capital
Management The process of getting things done, effectively and efficiently, through and with other people Efficiency Means doing the thing correctly; refers to the relationship between inputs and outputs; seeks to minimize resource costs Effectiveness Means doing the right things; goal attainment
Management The process of getting things done, effectively and efficiently, through and with other people.
Efficiency Means doing the thing correctly; refers to the relationship between inputs and outputs; seeks to minimize resource costs.
Effectiveness Means doing the right things; goal attainment.
Meaning of Financial Management
• Managerial activities which deals with planning and controlling of firms and financial sources. • Financial management is an area of financial decision making, harmonising individual motives and enterprise goals.
Scope of business economics, no uniformity of views exists among various authors. However, the following aspects are said to generally fall under business economics.
1. Demand Analysis and Forecasting
2. Cost and production Analysis.
3. Pricing Decisions, policies and practices.
4. Profit Management.
5. Capital Management.
Cost accounting is concerned with recording, classifying and summarizing costs for determination of costs of products or services, planning, controlling and reducing such costs and furnishing of information to management for decision making.
The objective of the course is to familiarize students with the different aspects of managing Human Resources in the organization through the phases of acquisition, development and retention
To understand the concept of Taxation, heads of income, including foreign income assessment procedures, adjudication and settlement of tax disputes are the focus points of study
in this paper.
Socio-Legal Dimensions of Gender (LLB-507 & 509 )cpjcollege
This paper intends to sensitize the students about the changing
dimensions of gender and also familiarizes them with the subtle manifestations of inequality rooted in our society.
The objective of the paper is to apprise the students with the laws relating to marriage, dissolution, matrimonial remedies, adoption, contemporary trends in family institutions in India, in particular the Hindus and Muslims.
Alternative Dispute Resolution (ADR) [LLB -309] cpjcollege
Alternative Dispute Resolution has become the primary means by which cases are resolved now days, especially commercial, business disputes. It has emerged as the preferred method for resolving civil cases, with litigation as a last resort. Alternative Dispute Resolution provides an overview of the statutory, procedural, and case law underlining these processes and their interplay with litigation. A significant theme is the evolving role of
professional ethics for attorneys operating in non-adversarial settings. Clients and courts increasingly express a preference for attorneys who are skilled not only in litigation but in problem-solving, which costs the clients less in terms of time, money and relationship. The law of ADR also provides an introduction to negotiation and mediation theory.
Environmental Studies and Environmental Laws (: LLB -301)cpjcollege
The objective of this paper is to acquaint the students with the environmental issues and the measures taken for its protection along with the norms prevailing at international and national
level
The paper will focus on the civil procedures followed in instituting a suit. The students will be familiarised with certain important concepts and practical skill development activity will provide insights into the actual working of the court procedures.
The objective of this paper is to provide an understanding of basic concepts of Indian Constitution and various organs created by the Constitution and their functions.
The paper needs to be taught in light of the New Companies Amendment Act 2013. The Companies act 1956 has not been repealed. The New Act of 2013 is made applicable by notifications as to particular sections by the Ministry of Company Affairs. The
notified sections which replace the provisions of Companies Act 1956 will be highlighted
It is an indispensable complementary part of our legal system without the study of which no advocate is suitably equipped with the basic requisites required to go to the court.
This paper focuses on understanding the forms that governments acquire along with nature and conflicts encountered by different forms of governments. Students would get trained to look into center-state conflicts and legislature-executive –judiciary conflicts.
The design is to look into how emerging issues in international relations become important in the legal context and prepare the students to understand International Law.
This paper focuses on various aspects of health care law including the constitutional perspective, obligations, and negligence of medical professionals and remedies available to
consumers of health care.
The object of this paper is to focus on land reforms in India, Constitutional provisions related to land reforms, Land Acquisition, Rehabilitation, and Resettlement Act,2013, Urban Real Estate Development Laws and the Provisions of the Rent Laws under the
Delhi Rent Control Act, 1958.
Business Environment and Ethical Practices (BBA LLB 213 )cpjcollege
The objective of the course is to familiarize students with the different aspects of business environment and ethical practices to be adopted by organizations in conducting their business.
2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
http://sandymillin.wordpress.com/iateflwebinar2024
Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
Knowledge and skills frameworks, generally called competency frameworks, for ELT teachers, trainers and managers have existed for a few years now. However, until I created one for my MA dissertation, there wasn’t one drawing together what we need to know and do to be able to effectively produce language learning materials.
This webinar will introduce you to my framework, highlighting the key competencies I identified from my research. It will also show how anybody involved in language teaching (any language, not just English!), teacher training, managing schools or developing language learning materials can benefit from using the framework.
Synthetic Fiber Construction in lab .pptxPavel ( NSTU)
Synthetic fiber production is a fascinating and complex field that blends chemistry, engineering, and environmental science. By understanding these aspects, students can gain a comprehensive view of synthetic fiber production, its impact on society and the environment, and the potential for future innovations. Synthetic fibers play a crucial role in modern society, impacting various aspects of daily life, industry, and the environment. ynthetic fibers are integral to modern life, offering a range of benefits from cost-effectiveness and versatility to innovative applications and performance characteristics. While they pose environmental challenges, ongoing research and development aim to create more sustainable and eco-friendly alternatives. Understanding the importance of synthetic fibers helps in appreciating their role in the economy, industry, and daily life, while also emphasizing the need for sustainable practices and innovation.
The French Revolution, which began in 1789, was a period of radical social and political upheaval in France. It marked the decline of absolute monarchies, the rise of secular and democratic republics, and the eventual rise of Napoleon Bonaparte. This revolutionary period is crucial in understanding the transition from feudalism to modernity in Europe.
For more information, visit-www.vavaclasses.com
Honest Reviews of Tim Han LMA Course Program.pptxtimhan337
Personal development courses are widely available today, with each one promising life-changing outcomes. Tim Han’s Life Mastery Achievers (LMA) Course has drawn a lot of interest. In addition to offering my frank assessment of Success Insider’s LMA Course, this piece examines the course’s effects via a variety of Tim Han LMA course reviews and Success Insider comments.
Embracing GenAI - A Strategic ImperativePeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...Levi Shapiro
Letter from the Congress of the United States regarding Anti-Semitism sent June 3rd to MIT President Sally Kornbluth, MIT Corp Chair, Mark Gorenberg
Dear Dr. Kornbluth and Mr. Gorenberg,
The US House of Representatives is deeply concerned by ongoing and pervasive acts of antisemitic
harassment and intimidation at the Massachusetts Institute of Technology (MIT). Failing to act decisively to ensure a safe learning environment for all students would be a grave dereliction of your responsibilities as President of MIT and Chair of the MIT Corporation.
This Congress will not stand idly by and allow an environment hostile to Jewish students to persist. The House believes that your institution is in violation of Title VI of the Civil Rights Act, and the inability or
unwillingness to rectify this violation through action requires accountability.
Postsecondary education is a unique opportunity for students to learn and have their ideas and beliefs challenged. However, universities receiving hundreds of millions of federal funds annually have denied
students that opportunity and have been hijacked to become venues for the promotion of terrorism, antisemitic harassment and intimidation, unlawful encampments, and in some cases, assaults and riots.
The House of Representatives will not countenance the use of federal funds to indoctrinate students into hateful, antisemitic, anti-American supporters of terrorism. Investigations into campus antisemitism by the Committee on Education and the Workforce and the Committee on Ways and Means have been expanded into a Congress-wide probe across all relevant jurisdictions to address this national crisis. The undersigned Committees will conduct oversight into the use of federal funds at MIT and its learning environment under authorities granted to each Committee.
• The Committee on Education and the Workforce has been investigating your institution since December 7, 2023. The Committee has broad jurisdiction over postsecondary education, including its compliance with Title VI of the Civil Rights Act, campus safety concerns over disruptions to the learning environment, and the awarding of federal student aid under the Higher Education Act.
• The Committee on Oversight and Accountability is investigating the sources of funding and other support flowing to groups espousing pro-Hamas propaganda and engaged in antisemitic harassment and intimidation of students. The Committee on Oversight and Accountability is the principal oversight committee of the US House of Representatives and has broad authority to investigate “any matter” at “any time” under House Rule X.
• The Committee on Ways and Means has been investigating several universities since November 15, 2023, when the Committee held a hearing entitled From Ivory Towers to Dark Corners: Investigating the Nexus Between Antisemitism, Tax-Exempt Universities, and Terror Financing. The Committee followed the hearing with letters to those institutions on January 10, 202
The Roman Empire A Historical Colossus.pdfkaushalkr1407
The Roman Empire, a vast and enduring power, stands as one of history's most remarkable civilizations, leaving an indelible imprint on the world. It emerged from the Roman Republic, transitioning into an imperial powerhouse under the leadership of Augustus Caesar in 27 BCE. This transformation marked the beginning of an era defined by unprecedented territorial expansion, architectural marvels, and profound cultural influence.
The empire's roots lie in the city of Rome, founded, according to legend, by Romulus in 753 BCE. Over centuries, Rome evolved from a small settlement to a formidable republic, characterized by a complex political system with elected officials and checks on power. However, internal strife, class conflicts, and military ambitions paved the way for the end of the Republic. Julius Caesar’s dictatorship and subsequent assassination in 44 BCE created a power vacuum, leading to a civil war. Octavian, later Augustus, emerged victorious, heralding the Roman Empire’s birth.
Under Augustus, the empire experienced the Pax Romana, a 200-year period of relative peace and stability. Augustus reformed the military, established efficient administrative systems, and initiated grand construction projects. The empire's borders expanded, encompassing territories from Britain to Egypt and from Spain to the Euphrates. Roman legions, renowned for their discipline and engineering prowess, secured and maintained these vast territories, building roads, fortifications, and cities that facilitated control and integration.
The Roman Empire’s society was hierarchical, with a rigid class system. At the top were the patricians, wealthy elites who held significant political power. Below them were the plebeians, free citizens with limited political influence, and the vast numbers of slaves who formed the backbone of the economy. The family unit was central, governed by the paterfamilias, the male head who held absolute authority.
Culturally, the Romans were eclectic, absorbing and adapting elements from the civilizations they encountered, particularly the Greeks. Roman art, literature, and philosophy reflected this synthesis, creating a rich cultural tapestry. Latin, the Roman language, became the lingua franca of the Western world, influencing numerous modern languages.
Roman architecture and engineering achievements were monumental. They perfected the arch, vault, and dome, constructing enduring structures like the Colosseum, Pantheon, and aqueducts. These engineering marvels not only showcased Roman ingenuity but also served practical purposes, from public entertainment to water supply.
BÀI TẬP BỔ TRỢ TIẾNG ANH GLOBAL SUCCESS LỚP 3 - CẢ NĂM (CÓ FILE NGHE VÀ ĐÁP Á...
Management Accounting
1. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Semester: THIRD Semester
Name of the Subject:
MANAGEMENT ACCOUNTING
UNIT-1
INTRODUCTION
2. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Meaning
•Management accounting, also called managerial accounting or cost accounting,
is the process of analyzing business costs and operations to prepare internal
financial report, records, and account to aid managers’ decision making process
in achieving business goals.
•In other words, it is the act of making sense of financial and costing data and
translating that data into useful information for management and officers within
an organization.
3. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
•According to J. Batty:
“Management Accountancy is the term used to describe the accounting methods,
systems and techniques which, with special knowledge and ability, assist management
in its task of maximizing profit or minimizing losses.”
•According to the Institute of Cost and Management Accountants, London,
Management Accounting is defined as:
“The application of professional knowledge and skill in the preparation of accounting
information in such a way as to assist management in the formulation of policies and in
the planning and control of the operation of the undertakings.”
4. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
OBJECTIVES OF MANAGEMENT ACCOUNTING
1. To Assist in Planning
2. To Assist in Organising
3. To Assist in Motivating
4. To Coordinate
5. To Control
6. To Communicate
7. To Interpret Financial Information
8. Miscellaneous
5. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
NATURE OR CHARACTERISTICS OF MANAGEMENT
ACCOUNTING
1. Future Prediction
2. Selective Technique
3. Analytical Approach
4. Provides the information in a useful manner
5. Helps management in taking decisions by supplying necessary information
and data
6. Studies Cause and Effect Analysis
7. Increases Efficiency
8. Achievement of desired objectives
9. Controls Forecasting
10. Helps in Decision Making
6. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
SCOPE OF MANAGEMENT ACCOUNTING
1. Financial Accounting
2. Cost Accounting
3. Financial Management
4. Budgeting and Forecasting
5. Inventory Control
6. Reporting to Management
7. Interpretation of Data
8. Control Procedures and Method
9. Internal Audit
10. Tax Accounting
7. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
ADVANTAGES OF MANAGEMENT ACCOUNTING
1. Increases Efficiency
2. Helps in Price Fixing and Target Fixing
3. Helps in Forecasting and Budgeting
4. Useful in controlling Wastage
5. Helps in Communicating Information
6. Controls Cost of Production
7. Proactive Analysis can be done
8. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
DISADVANTAGES OF MANAGEMENT ACOUNTING
1. Based on Financial and Cost Accounting
2. Its Expensive
3. Decisions given by Management Accountant may not be implemented
4. Provides only data and not decisions
5. Its only a tool to management and not an alternative to management
6. New Rules and Regulations have to framed which leads to opposition from the
employees
9. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
•According to J. Batty:
“Management Accountancy is the term used to describe the accounting methods,
systems and techniques which, with special knowledge and ability, assist management
in its task of maximizing profit or minimizing losses.”
•According to the Institute of Cost and Management Accountants, London,
Management Accounting is defined as:
“The application of professional knowledge and skill in the preparation of accounting
information in such a way as to assist management in the formulation of policies and in
the planning and control of the operation of the undertakings.”
10. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
DIFFERENCE BETWEEN FINANCIAL ACCOUNTING AND
MANAGEMENT ACCOUNTING
BASIS FINANCIAL
ACCOUNTING
MANAGEMENT
ACCOUNTING
User Types Outside (External) Inside (Internal)
Level of Aggregation Global (Entire Company) Detailed or subunits
Regulation FASB; GAAP; SEC Value-Added
Characteristics Objective, reliable,
consistent, historical
Estimates and projections
Time Horizon Historical Present & Future
Reporting Frequency Periodic; Years, etc Continuous
11. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
DIFFERENCE BETWEEN COST ACCOUNTING AND MANAGEMENT
ACCOUNTING
BASIS COST ACCOUNTING MANAGEMENT ACCOUNTING
Meaning The recording, classifying and
summarizing of cost data of an
organization is known as cost
accounting.
The accounting in which the both financial
and non-financial information are provided
to managers is known as Management
Accounting.
Information Type Quantitative. Quantitative and Qualitative.
Objective Ascertainment of cost of production. Providing information to managers to set
goals and forecast strategies.
Scope Concerned with ascertainment,
allocation, distribution and accounting
aspects of cost.
Impart and effect aspect of costs.
Recording Records past and present data It gives more stress on the analysis of future
projections.
Planning Short range planning Short range and long range planning
12. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Who is a Management Accountant?
• The officer who is concerned with management accounting function in
an organization is known as management accountant.
Functions of a Management Accountant
• To assure physical protection for the business through internal control
& proper insurance coverage.
• To consult with all segments of management.
• To administer the tax policies & procedures.
• To supervise & coordinate preparation of reports to govt. agencies.
• To compare performance with operating plan & standards & to report
and interpret its results.
13. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
DUTIES OF A MANAGEMENT ACCOUNTANT
• To maintenance of adequate records of all contracts and leases.
• The preparation as a budget director, in conjunction with other
officers of an annual budget, covering all activities of the
corporation for submit to board of directors prior to the fiscal year.
• The preparation & interpretation of all statistical records &
reports of the corporation.
• The costing of all physical inventories.
• The compilation of production costs.
• Continuous audit of all accounts & records of the corporation
wherever located.
14. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Semester: THIRD Semester
Name of the Subject:
MANAGEMENT ACCOUNTING
UNIT-II
15. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
FINANCIAL STATEMENTS
• MEANING
A financial statement is an authorized document of the company, which
explores the whole financial information of the company. The aim of the
financial statement is to deliver information and understand the financial aspects
of the company. Hence, preparation of the financial statement is very important
as much as the financial decisions.
Financial statements are the summary of the accounting process, which,
delivers useful information to both internal and external parties.
16. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
FINANCIAL STATEMENTS ANALYSIS
Financial statement analysis involves analyzing the information provided in the
financial statements to:
Provide information about the organization's:
• Past performance
• Present condition
• Future performance
Assess the organization's:
• Earnings in terms of power, persistence, quality and growth
• Solvency
17. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Financial statements consist of two important statements:
• Income Statement or Profit and Loss Account
Income statement is also known as profit and loss account, which mirrors the
operational position of the company during a period. Usually it consists of one
accounting year. It determines the whole operational performance of the concern
like total revenue produced and expenses suffered for earning that revenue.
• Balance Sheet or the Position Statement
Position statement is also known as balance sheet, which mirrors the financial
position of the company at the end of the financial year. Position statement helps
to ascertain and understand the total assets, liabilities and capital of the
company. One can understand the strength and weakness of the concern with the
assistance of the position statement.
18. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
PURPOSE OF FINANCIAL STATEMENTS
To use financial statements to evaluate an organization's
– Financial performance
– Financial position
– Prediction of future performance
To have a means of comparative analysis across time in terms of:
– Intercompany basis (within the company itself)
– Intercompany basis (between companies)
– Industry Averages (against that particular industry’s averages)
To apply analytical tools and techniques to financial statements
to obtain useful information to aid decision making
19. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
LIMITATIONS OF FINANCIAL STATEMENTS
Dependence on historical costs
Inflationary effects
Intangible assets not recorded
Based on specific time period
No discussion of non-financial issues
Not verified
20. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
FINANCIAL ANALYSIS
•MEANING
A financial statement is an authorized document of the company, which
explores the whole financial information of the company. The aim of the
financial statement is to deliver information and understand the financial aspects
of the company. Hence, preparation of the financial statement is very important
as much as the financial decisions.
Financial statements are the summary of the accounting process, which,
delivers useful information to both internal and external parties.
21. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
TOOLS OF FINANCIAL ANALYSIS
The following are the important tools of Financial Analysis:
Comparative Financial Statements
Common Size Financial Statements
Trend Percentages
Ratio Analysis
Fund Flow Statements
Cash Flow Statements
22. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
1. Comparative Financial Statements
Comparative Financial Statements are the complete set of financial statements
that an entity issues, revealing information for more than one reporting period.
The Financial Statements that may be included in this package are:
(i) The Income Statement (showing results for multiple periods)
(ii) The Balance Sheet (showing the financial position of the entity as of
more than one balance sheet date)
(iii) The Statement of Cash Flows (showing the cash flows for more
than one period)
23. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Comparative Financial Statements are quite useful for the following
reasons:
• Provides a comparison of an entity's financial performance over multiple
periods, so that you can determine trends. The statements may also reveal unusual
spikes in the reported information that can indicate the presence of accounting
errors.
• Provides a comparison of expenses to revenues and the proportions of various
items on the balance sheet over multiple periods. This information can be useful
for cost management purposes.
• May be useful for predicting future performance, though you should rely more
on operational indicators and leading indicators than on historical performance for
this type of analysis.
24. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
2. Common Size Financial Statements
A common size financial statement shows each line item on a financial statement
as a percentage of a base figure. Most commonly, this means the following:
• Income statement. Each revenue, expense, and profit line item is presented as a
percentage of net sales.
• Balance sheet. Each asset, liability, and shareholders' equity line item is
expressed as a percentage of total assets.
The concept has two uses, which are:
• Time series analysis. The percentages for each line item are compared over a
period of time, to discern trends that management can act upon. For example, an
increase in the cost of goods sold percentage might call for changes in price
points or more attention to supplier costs.
• Industry comparison. The financial statements of competitors can be converted
into the common size format, which makes them comparable to a company's own
financial statements. One can then determine how the cost structure or asset base
of a competitor varies from the company's.
25. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
3. Trend Percentages
• Method of analyzing information obtained over an extended
period by choosing a baseline period (usually the earliest year) and
stating the data associated with subsequent periods as a percentage
of that period.
26. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
4. Ratio Analysis
• A ratio analysis is a quantitative analysis of information contained
in a company’s financial statements.
• Ratio analysis is used to evaluate various aspects of a company’s
operating and financial performance such as its efficiency, liquidity,
profitability and solvency.
27. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
5. Funds Flow Statements
• Fund flow is the net of all cash inflows and outflows in and out of
various financial assets.
• Fund flow is usually measured on a monthly or quarterly basis; the
performance of an asset or fund is not taken into account, only
share redemptions, or outflows, and share purchases, or inflows.
• Net inflows create excess cash for managers to invest, which
theoretically creates demand for securities such as stocks and bonds.
28. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
6. Cash Flow Statements
• An examination of a company's cash inflows and outflows during
a specific period.
• The analysis begins with a starting balance and generates an
ending balance after accounting for all cash receipts and paid
expenses during the period.
• The cash flow analysis is often used for financial reporting
purposes. See also cash flow projection, cash flow forecast.
29. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
RATIO ANALYSIS
•MEANING
Ratio analysis is the process of determining and interpreting numerical
relationships based on financial statements. A ratio is a statistical yardstick that
provides a measure of the relationship between two variables or figures.
This relationship can be expressed as a percent or as a quotient. Ratios are
simple to calculate and easy to understand. The persons interested in the analysis
of financial statements can be grouped under three heads,
i) owners or investors
ii) creditors and
iii) financial executives.
30. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Classification of Ratios:
Financial ratios can be classified under the following five
groups:
1) Structural
2) Liquidity
3) Profitability
4) Turnover
5) Miscellaneous.
31. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
1) STRUCTURAL GROUP:
The following are the ratios in structural group:
i) Funded debt to total capitalisation:
The term ‘total’ capitalisation comprises loan term debt, capital stock and
reserves and surplus.
Total capitalisation (Share capital + Reserves and surplus + long term loans)
ii) Debt to Equity:
Long term loans + short term credit + Total debt to equity = Current liabilities and
provisions Equity share capital + reserves and surplus (or)
Long-term debt to equity =
Long – term debt / Equity share capital + Reserves and surplus
32. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
iii) Net fixed assets to funded debt:
This ratio acts as a supplementary measure to determine security for the lenders.
A ratio of 2:1 would mean that for every rupee of long-term indebtedness.
iv) Funded (long-term) debt to net working capital:
The ratio is calculated by dividing the long-term debt by the amount of the net
working capital. It helps in examining creditors’ contribution to the liquid assets
of the firm.
Long term loans Net working capital
2) LIQUIDITY GROUP:
I) CURRENT RATIO:
• It is computed by dividing current assets by current liabilities.
• Current assets / Current liabilities and provisions + short-term credit against
inventory
33. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
II) ACID TEST RATIO:
• It is also termed as quick ratio. It is determined by dividing “quick assets”, i.e.,
cash, marketable investments and sundry debtors, by current liabilities.
• It is also termed as quick ratio. It is determined by dividing “quick assets”, i.e.,
cash, marketable investments and sundry debtors, by current liabilities.
•
34. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
3) PROFITABILITY GROUP:
It has five ratio, and they are calculated as follows:
35. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
4) TURNOVER GROUP:
It has four ratios, and they are calculated as follows:
36. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
4) MISCELLANEOUS:
It contains four ratio and they are as follows:
37. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
LIMITATIONS OF RATIO ANALYSIS
1) It is always a challenging job to find an adequate standard.
2) When the two companies are of substantially different size, age and
diversified products,, comparison between them will be more difficult.
3) A change in price level can seriously affect the validity of comparisons of
ratios computed for different time periods.
4) Comparisons are also made difficult due to differences of the terms like
gross profit, operating profit, net profit etc.
5) If companies resort to ‘window dressing’, outsiders cannot look into the
facts and affect the validity of comparison.
6) Financial statements are based upon part performance and part events
which can only be guides to the extent they can reasonably be considered as
dues to the future.
38. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
FUNDS FLOW STATEMENTS
•MEANING
• Funds flow statement is a statement which discloses the analytical
information about the different sources of a fund and the application
of the same in an accounting cycle.
•It deals with the transactions which change either the amount of
current assets and current liabilities (in the form of decrease or
increase in working capital) or fixed assets, long-term loans
including ownership fund.
39. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
• Generally speaking, the Fund Flow analysis requires the
preparation of two statements:-
1. Statement of Changes in Working Capital.
2. Fund Flow Statement.
40. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
CASH FLOW ANALYSIS
•MEANING
• An examination of a company's cash inflows and outflows during a specific
period. The analysis begins with a starting balance and generates an ending
balance after accounting for all cash receipts and paid expenses during the period.
The cash flow analysis is often used for financial reporting purposes. See also
cash flow projection, cash flow forecast.
41. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Cash Flow Statement Components:
The cash flow statement components provide a detailed view of
cash flow from the following components:
1) Cash Flow from Operating Activities
2) Cash Flow From Investing Activities
3) Cash Flow From Finance Activities
42. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Cash Flow Statement Format
Operating Activities:
Net Income
+ Depreciation and Amortization
+/- One Time Adjustments (i.e. investment gains or losses not related to operations, deferred
taxes, stock compensation)
+/- Changes in Working Capital
= Cash Flow From Operations
Investing Activities:
+/- Net Capital Expenditures
+/- Net Investments
= Cash Flow from Investing Activities
Financing Activities
– dividends
+/- sale or purchase of company stock
+/- net borrowings
= Cash Flow from Financing Activities
Summary of Cash Flow Activities:
+/- Cash Flow From Operating Activities
+/- Cash Flow From Investing Activities
+/- Cash Flow From Financing Activities
= Net Change in Cash
+ Beginning Cash Balance
= Ending Cash Balance
43. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
BBA (G)
Semester: THIRD Semester
Name of the Subject:
MANAGEMENT ACCOUNTING
UNIT-3
44. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
BUDGETORY CONTROL
Meaning:
• Budgetary control is the process of determining various actual results with
budgeted figures for the enterprise for the future period and standards set then
comparing the budgeted figures with the actual performance for calculating
variances, if any.
• “According to Brown and Howard, “Budgetary control is a system of
controlling costs which includes the preparation of budgets, coordinating the
departments and establishing responsibilities, comparing actual performance
with the budgeted and acting upon results to achieve maximum profitability.”
45. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
OBJECTIVES OF BUDGETORY CONTROL:
The main objectives of budgetary control are the follows:
1. To ensure planning for future by setting up various budgets, the requirements
and expected performance of the enterprise are anticipated.
3. To operate various cost centres and departments with efficiency and economy.
4. Elimination of wastes and increase in profitability
5. To anticipate capital expenditure for future.
6. To centralize the control system.
7. Correction of deviations from the established standards.
8. Fixation of responsibility of various individuals in the organization.
46. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
ADVANTAGES OF BUDGETORY CONTROL:
Some of the advantages of budgetary control are:
1. Maximization of Profits
2. Co-ordination
3. Specific Aims
4. Tool for Measuring Performance
5. Economy
6. Determining Weaknesses
7. Corrective Action
8. Consciousness
9. Reduces Costs
10. Introduction of Incentive Schemes
47. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
DISADVANTAGES OF BUDGETORY CONTROL:
Some of the disadvantages of budgetary control are:
1. Uncertain Future
2. Budgetary Revision Required
3. Discourage Efficient Persons
4. Problem of Co-ordination
5. Conflict Among Different Departments
6. Depends Upon Support of Top Management
48. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
49. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
TYPES OF BUDGETS
Some of types of Budgets are:
(i) Sales Budget
(ii) Production budget
(iii) Financial budget
(iv) Overheads budget
(v) Personnel budget and
(vi) Master budget
50. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
ZERO BASED BUDGETING
Zero-based budgeting (ZBB) is a method of budgeting in which
all expenses must be justified for each new period. The process of zero-based
budgeting starts from a "zero base," and every function within an organization is
analyzed for its needs and costs. Budgets are then built around what is needed for
the upcoming period, regardless of whether each budget is higher or lower than
the previous one.
51. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
RESPONSIBILITY ACCOUNTING
• Responsibility Accounting is a system of control where responsibility is
assigned for the control of costs. The persons are made responsible for the
control of costs.
• Proper authority is given to the persons so that they are able to keep up their
performance. In case the performance is not according to the predetermined
standards then the persons who are assigned this duty will be personally
responsible for it. In responsibility accounting the emphasis is on men rather than
on systems.
52. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
STANDARD COSTING
• Standard costing is the practice of substituting an expected cost for an actual
cost in the accounting records, and then periodically recording variances showing
the difference between the expected and actual costs.
• This approach represents a simplified alternative to cost layering systems, such
as the FIFO and LIFO methods, where large amounts of historical cost
information must be maintained for items held in stock
53. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
• ADVANTAGES OF STANDARD COSTING:
1) Budgeting
2) Inventory costing
3) Overhead application
4) Price formulation
54. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
• Standard Cost Variances :
• A variance is the difference between the actual cost incurred and the standard
cost against which it is measured. A variance can also be used to measure the
difference between actual and expected sales. Thus, variance analysis can be
used to review the performance of both revenue and expenses.
• There are two basic types of variances from a standard that can arise, which are
the
1) RATE VARIANCE AND
2) VOLUME VARIANCE
55. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
• VARIANCE ANALYSIS
•Variance Analysis refers to the investigation as to the reasons for deviations in the
financial performance from the standards set by an organization in its budget. It helps
the management to keep a control on its operational performance.
TYPES OF VARIANCE ANALYSIS
Variance Analysis can be broadly classified into the following heads:
1) Material Variance
2) Labour Variance
3) Variable Overhead Variance
4) Fixed Overhead Variance
5) Sales Variance
56. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
BBA (G)
Semester: THIRD Semester
Name of the Subject:
MANAGEMENT ACCOUNTING
UNIT-4
57. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
MARGINAL COSTING
• Marginal Costing is a costing technique wherein the marginal cost,
i.e. variable cost is charged to units of cost, while the fixed cost for the
period is completely written off against the contribution.
• The term marginal cost implies the additional cost involved in
producing an extra unit of output, which can be reckoned by total
variable cost assigned to one unit. It can be calculated as:
Marginal Cost = Direct Material + Direct Labor + Direct Expenses
+ Variable Overheads
58. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
59. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
CHARACTERISTICS OF MARGINAL COSTING:
1) Classification into Fixed and Variable Cost: Costs are bifurcated, on
the basis of variability into fixed cost and variable costs. In the same
way, semi variable cost is separated.
2) Valuation of Stock: While valuing the finished goods and work in
progress, only variable cost are taken into account. However, the variable
selling and distribution overheads are not included in the valuation of
inventory.
3) Determination of Price: The prices are determined on the basis of
marginal cost and marginal contribution.
4) Profitability: The ascertainment of departmental and product’s
profitability is based on the contribution margin.
60. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
MARGINAL COSTING APPROACH
61. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
THE CONTRIBUTION CONCEPT
The contribution concept lies at the heart of marginal costing. Contribution can be
calculated as follows.
Contribution = Sales price - Variable costs
The idea of profit is not a particularly useful one as it depends on how many units are
sold. For this reason, the contribution concept is frequently employed by management
accountants.
•Contribution gives an idea of how much 'money' there is available to 'contribute'
towards paying for the overheads of the organisation.
•At varying levels of output and sales, contribution per unit is constant.
•At varying levels of output and sales, profit per unit varies.
•Total contribution = Contribution per unit x Sales volume.
•Profit = Total contribution - Fixed overheads
62. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
ABSORPTION COSTING
Absorption costing is a method of building up a full product cost which adds direct
costs and a proportion of production overhead costs by means of one or a number of
overhead absorption rates.
ABSORPTION COSTING STATEMENT
63. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
THE CONTRIBUTION CONCEPT
The contribution concept lies at the heart of marginal costing. Contribution can be
calculated as follows.
Contribution = Sales price - Variable costs
The idea of profit is not a particularly useful one as it depends on how many units are
sold. For this reason, the contribution concept is frequently employed by management
accountants.
•Contribution gives an idea of how much 'money' there is available to 'contribute'
towards paying for the overheads of the organisation.
•At varying levels of output and sales, contribution per unit is constant.
•At varying levels of output and sales, profit per unit varies.
•Total contribution = Contribution per unit x Sales volume.
•Profit = Total contribution - Fixed overheads
64. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
MARGINAL COSTING FORMULAES
1) MARGINAL COSTING EQUATION: SALES – VC = FC + PROFIT
2) Contribution = (Sales – VC) or (Profit + FC)
3) Profit Volume Ratio = Contribution / Sales
Profit Volume Ratio = Change in Profit / Change in Sales
When Profit = EBIT then Profit Volume Ratio = Change in Contribution /
Change in Sales
4) Break Even Point : Total Revenue = Total Cost
Break Even Point(In Rupees) = FC / PV Ratio
Break Even Point(In Rupees) = Break Even Point * Selling Price
Break Even Point(Quantity) = FC / Contribution p.u
Note:At BEP, Total Contribution = Total Fixed Cost
5) Margin Of Safety: Total Sales – Break even Sales
Margin Of Safety(In Rupees) = Profit / PV Ratio
Margin Of Safety(Quantity) = Profit / Contribution p.u
65. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Advantages of Marginal Costing:
The important advantages of Marginal Costing are:
(a) Marginal costing is easy to understand. It can be combined with standard costing
and budgetary control and thereby makes the control mechanism more effective.
(b) Eliminating of fixed overheads from the cost of production prevents the effect of
varying charges per unit, and also prevents the carrying forward of a portion of the
fixed overheads of the current period to the subsequent period.
(c) The problem of over or under absorption of overheads is avoided.
(d) A clear – cut division of costs into fixed and variable elements makes the flexible
budgetary control system easy and effective and thereby facilitates greater practical
cost control.
(e) It helps profit planning through break-even charts and profit graphs. Comparative
profitability can easily be assessed and brought to the notice of the management for
decision-making.
(f) It is an effective tool for determining efficient sales or production policies, or for
taking pricing and tendering decisions, particularly when the business is at low ebb.
66. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Disadvantages of Marginal Costing:
The important disadvantages of Marginal Costing are:
a) Segregation of all costs into fixed and variable costs is very difficult.
b) In marginal costing, greater importance is attached to the sales function thereby
relegating the production function largely to a secondary position.
c) The elimination of fixed costs from the valuation of inventories is illogical since
costs are also incurred in the manufacture of goods.
d) Pricing decision cannot be based on contribution alone.
e) Although the problem of over or under absorption of fixed overheads can be
overcome to a certain extent, the same problems still persists with regard to
variable overheads.
f) The application of the technique is limited in the case of industries in which,
according to the nature of business, large stocks have to be carried by way of work-
in-progress (e.g. contracting firms).
67. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
COST VOLUME PROFIT ANALYSIS:
• Cost-volume profit (CVP) analysis is based upon determining
the breakeven point of cost and volume of goods and can be useful for
managers making short-term economic decisions.
• Cost-volume profit analysis makes several assumptions in order to be
relevant including that the sales price, fixed costs and variable cost per
unit are constant. Running this analysis involves using several equations
using price, cost and other variables and plotting them out on an
economic graph.
68. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
DECISIONS INVOLVING ALTERNATIVE CHOICES
Introduction:
•Managerial decision-making is the process of choosing among
alternative courses of action.
•The manager chooses that course of action which he considers as the
most effective means of achieving goals and solving problems.
•All decisions are futuristic in nature, involving a forecast of what
management thinks is likely to occur.
69. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
Steps in Decision Making:
• Defining the Problem
–Perceptive analysis and insight may be required to articulate the problem. The real
problem may have to be distinguished from the apparent one.
• Developing the alternative choices
–In the initial stages of developing alternative solutions several possibilities
may arise. The manager should eliminate those which are clearly unattractive and
narrow his choice down to a few, perhaps two or three.
• Evaluating the alternatives
Each solution may have several advantages and disadvantages. These have to be
weighed and balanced for judging its overall desirability.
• Arriving at a decision
Once the alternative courses of action are evaluated in terms of their measurable
and non-measurable effects, the decision maker will be in a position to select one
of the alternatives.
70. Chanderprabhu Jain College of Higher Studies & School of Law
Plot No. OCF, Sector A-8, Narela, New Delhi – 110040
(Affiliated to Guru Gobind Singh Indraprastha University and Approved by Govt of NCT of Delhi & Bar Council of India)
DIFFERENT DECISIONS INVOLVED ARE:
•Evaluation of performance
•Profit planning
•Fixation of selling price
•Make or buy decisions
•Optimizing product mix
•CVP analysis in multi-product situations
•Decision to accept a special order
•Decision to continue or drop a product line
•Decision regarding equipment replacement