Management accounting provides financial and non-financial information to managers for decision making purposes. It differs from financial accounting which produces reports for external users in several ways. Management accounting reports are for internal use only, are more timely, flexible, and focused on the future. It aims to help with planning, controlling, and decision making. The controller is responsible for management accounting and ensuring proper internal controls and compliance. Key functions include budgeting, reporting, evaluation, and protecting organizational assets.
Management accounting provides financial and non-financial information to managers for decision making purposes. It differs from financial accounting which produces reports for external users in several ways. Management accounting reports are for internal use only, are more timely, flexible, and focused on the future. It aims to help with planning, controlling, and decision making. The controller is responsible for management accounting and ensuring proper internal controls and compliance. Key functions include budgeting, reporting, evaluation, and protecting organizational assets.
Management accounting provides financial and non-financial information to managers for decision making purposes. It differs from financial accounting which produces reports for external users in several ways. Management accounting reports are for internal use only, are more timely, flexible, and focused on the future. It aims to help with planning, controlling, and decision making. The controller is responsible for management accounting and ensuring proper internal controls and compliance. Key functions include budgeting, reporting, evaluation, and protecting organizational assets.
MANAGEMENT ACCOUNTING – the process of tool of management in getting its job accumulation, analysis, preparation, done interpretation and communication of information CONTROLLER used by management to plan, evacuate, and - control and deals with records, control within an organization and to assure use systems and presence to attain the of accountability for its resources. objectives of internal controls and good managing. MANAGEMENT FUNCTIONS - Head accountant of the company. PLANNING - Overlook accounting staff - setting goals and objectives - Making sure records are maintained - budgeting is involved and policies are adhered. Goals – general CONTROLLERSHIP FUNCTIONS (PREGPET) Objectives – specific 1. PLANNING AND CONTROLLING – Example: budgeting - goal - I want lose weight 2. REPORTING – financial reports, SFP, SES, - objectives – I want to lose 10kg. SOCE DIRECTING – implementation of plans 3. EVALUATION – correcting, relevance of CONTROLLING – evaluation of reports performance and if the plan is being 4. GOVERNMENT RELATIONS AND achieved REPORTING – making sure they comply * All leads to DECISION MAKING 5. PROTECTION OF ASSETS – assets are not - DECISION MAKING – choosing the best abused option to achieve goals and objectives. 6. ECONOMIC APPRAISAL Consider the cost and be practical. 7. TAX ADMINISTRATION OBJECTIVES OF MANAGEMENT ACCOUNTING TREASURER INFORMATION (PGSB) - deals with the management of the 1. PROFIT MEASUREMENT – normally wealth of the organization as well as measured in terms of profitability finances 2. STANDARDS FOR CONTROLLING – actions - make sure that the company has made are to be made in accordance with enough cashflow for daily operation / plan function / transaction / enforcement 3. GUIDE FOR PLANNING – ensure that BASIC FUNCTION organizational resources and systems fit CASH FLOW MANAGEMENT with what is needed in the future - OPERATING – short term (credit and government and its internal to the collection agencies organization - INVESTING – noncurrent assets (PPE) - FINANCING – long term loans 2. PURPOSE OF INFO RISK MANAGEMENT FINANCIAL ACCTG MANAGEMENT ACCTG - INSURANCE Reports for general Reports for DISTINCTION AMONG MANAGEMENT purposes management only ACCOUNTING, COST ACCOUNTING AND FINANCIAL ACCOUNTING 3. RESTRICTIONS 1. MANAGEMENT ACCOUNTING – provides FINANCIAL ACCTG MANAGEMENT ACCTG financial and non-financial information to Regulated, restricted No regulations, does an organization’s managers and other and often controlled not adhere to GAAP internal decision makers. by GAAP; uses PFRS and does not use PFRS 2. COST ACCOUNTING - method for determining the cost of a project, process 4. TIMELINESS or thing FINANCIAL ACCTG MANAGEMENT ACCTG 3. FINANCIAL ACCOUNTING – the process of Often available only Available quickly producing financial statement for external after audited without the need to users. (complete), historical wait for an audit; INTERNATIONAL CERTIFICATION IN in nature; focus on current and/or future MANAGEMENT ACCOUNTING historical information oriented - CPA – Certified Public Accountant with some predictions - CMA – Certified Management Accountant - CFM – Certified Financial Manager 5. SCOPE OF INFO GAAP – Generally Accepted Accounting Principles FINANCIAL ACCTG MANAGEMENT ACCTG IFRS – International Financial Reporting Standards Reports are holistic Reports are PAS – Philippine Accounting Standards segmented PFRS – Philippine Financial Reporting Standards 6. TYPE OF INFORMATION IASB – International Accounting Standards Board FINANCIAL ACCTG MANAGEMENT ACCTG FINANCIAL ACCOUNTING VS. MANAGEMENT Focuses in accounting Multi-disciplinary, also ACCOUNTING and finance deals with other areas 1. USERS AND DECISION MAKERS of knowledge and FINANCIAL ACCTG MANAGEMENT ACCTG disciplines Shareholders, Managers, employees, investors, creditors, and decision makers 7. OTHERS FINANCIAL ACCTG MANAGEMENT ACCTG Time used x Total amount of machine – hours in Focuses on the Concerns with the the period was 7,200 hours. process of preparing usefulness of financial 7,200 x 35.75 = 257,400 (Applied OH to Units) the financial statement; timeliness OH – Overhead statements and COST OF GOODS SOLD – expense in accounting precision (cost of sales) - Cost of goods that are either MAS COMPUTATION NOTES: manufactures / purchased and then sold ACTUAL FACTORY OVERHEAD (FOH) (Beg inventory + Cost of goods sold) – End - Directly contributed Inventory = COGS - True cost incurred and typically include UNDERAPPLIED / OVERAPPLIED FOH things such as: indirect mas, indirect Actual FOH – Applied FOH = over/under applied labor, factory supply used, factory FOH insurance, factory depreciation, factory Overapplied = Applied > Actual maintenance and repairs, factory taxes. Under Applied = Applied < Actual - Any indirect costs related to completing CONTROLLABLE DIRECT FIXED COST – managers the job or making a product can control easily; salaries - Actual na naincur na cost sa period UNCONTROLLABLE DIRECT FIXED COST – can’t be - Indirect factory costs avoided; depreciation - Factory cost except DM, OL OTHER VARIABLE COST - Hindi kasama sa production expense - Direct Materials APPLIED FACTORY OVERHEAD (AFOH) - Direct Labor - Used until all the actual costs are available - Factory Overhead – Indirect Cost - Ongoing business expense not directly Direct Cost – Fixed cost & Variable Cost attributed to creating a product or service Indirect Cost – not directly accountable to a cost - Any costs that cannot be directly assigned subject; administration personnel, security to a cost object: rent, admin staff COST CONCEPTS compensation, insurance - “cost” – costs and expenses - Fixed rate - In management – knowing their nature, COST OBJECT behavior, and characteristics - Product, product line, process, etc. Accountant's perspective Example: CAPITAL EXPENDITURES Biz apply FOH to its product based on standards - long-term investment such as machine, FOH $35.75 / hour of machine and equipment. equipment - Puhunan - Large amount of money and resources PRODUCT COST investment - relates to the product (OM, DL, FOH) - Long-term impact on business profitability - expenses in producing of product - Converted to expense once their related - inventoriable and deferred as assets while income has been generated the units are unsold OPERATING EXPENDITURE * Prime Cost = DM + DL - is expense (daily business expenses) ex: * Conversion Cost = DL + FOH electric bill, utilities * Variable Production Cost = DM + DL +VFOH - gastos; directly supports the normal PERIOD COST business operations - relates to the period of incurrence - expense when the statements of - expenses not on production account profit/loss is presented - incurred to administer business, R&D, * imminent recognition sell / distribute product, attend to * associating cause and effect customer’s need * rational and systematic association - expense when incurred COSTS (cogs) AND EXPENSES (utilities) - have benefits DIRECT PRODUCT COST - relates to functional accounting of - Direct material and Direct Labor business - Directly identified with the finished * Cost of goods manufactures – incurred in goods / services producing goods and services (DM, DL, FOH) - Directly attributable in the process of * Cost of goods sold – relates to units that are making goods and services already sold FACTORY OVERHEAD – indirect product cost EXPENSES Manager’s Perspective - incurred in distributing goods and RELEVANT COST – used in making decisions managing a business Characteristics: * Distribution Expenses – Marketing Promotions - Differential costs – vary from 2 alternative * Administrative Expenses – systems & control. to another Government compliance - Future costs – estimated quantification of LOSSES the amount of a prospective expenditure - have no benefits; bad debts, loss of sales, IRRELEVANT COST loss of obsolescence - past cost, sunk cost, and historical cost. - reduction of asset’s value without benefit Irrelevant in making decisions (not to business leading to equity impairment relevant for decision making (spoilage) - cost remain the same regardless of a - managed / influenced by a manager choice to be made - manager’s decision making depends on - cost are not to be incurred in the future scop, nature and extent of authority - management deals about future NON CONTROLLABLE COST – outside of the DIRECT SEGMENT/DEPARTMENTAL COST decision power or influence a given manager. - directly identified with the department, PLANNED COST process, segment or activity - future cost / estimated costs - maybe variable / fixed cost - projected, estimated, budgeted, applied, - avoided upon the cessation of business standard costs unit operations * Projected cost – future value derived from using - ex: dept manager, salary, supplies forecutting models (causal model & profitability, purchase and use, rental of equipment, regression models utilities * Estimated Cost – future values derived using INDIRECT SEGMENT/DEPARTMENTAL COST standard quantities & prices as basis - Allocated costs, common costs, or with * Applied Cost – estimated valued derived using avoidable cost the normal costing system - Not directly identifies with a department / * Standard Cost – reliable valued accepted by business unit men from empirical, scientific and controllable - Continuously persist despite business unit studies ceases its operation ACTUAL COST – expenditure, already incurred - Ex: salaries of executives, advertising. and recorded in the books Systems review, interest expense * planned costs and actual cost difference is AVOIDABLE COST planning gap or a planning variance - can be prevented BUDGETED COST - not incurred once an activity is not - expected to be incurred at the level of performed activity used in preparing the master - becomes savings – imputed cost budget UNAVOIDABLE COST STANDARD COST - remain to be incurred and constant - flexible budget regardless of option - expected to be incurred at any level of - remain constant, do not change, activity aside from that used in master irrelevant in short term decision budget - ex: rent, depreciation, interest, property, * Budgeted & Standard cost – use the same taxes, unlimited fixed cost predetermined standard rates CONTROLLABLE COST * Capacity of variance – difference of Budgeted MARGINAL COST – marginal is per unit, increase and standard in cost per unit OUT OF POCKET COST - incurred and paid in cash DECREMENTAL COST – decreases in costs NON CASH COST – not paid in cash VARIABLE COST SUNK COST - change in total and is constant per unit - not manageable (past cost) - change in total in direct proportion to - represents commitments made by the changes in the level of production and business in its previous decisions and sales but is constant on per-unit basis cannot be avoided in the future FIXED COST - constant, historical, and irrelevant in short - constant in total and varies inversely per term decision unit FUTURE COST - remain constant regardless of the change - to be incurred in the upcoming periods in level of production and sales but (estimated, planned, budgeted) inversely changes on a per unit basis - relevant and value in making decisions * committed fixed cost – incurrence have been - affect upcoming acts. committed by the business in the past by reason Economist’s Perspective of contract, acquisition, or agreement EXPLICIT COST * discretionary fixed costs – incurrence is assured - intended to be incurred (budgeted) by the amount may change depending on the - already recorded / to be recorded in discretion / value judgement of manager books MIXED COST OR TOTAL COSTS – have variable IMPLICIT COST and fixed cost components - theoretical costs TC = FC + VC - they are assumed, not recognized in FC & VC – expressed in their constant terms books FC – total - opportunity cost and imputed costs VC – per unit basis OPPORTUNITY COST – given up SEPARATION OF THE FIXED & VARIABLE IMPUTED COST COMPONENTS OF MIXED COST - avoided 1. High low method - not incurred but are implied in a given - traditional method of cost segregation decision AKA “Range Analysis” - ex: loan 5k with 15% interest or use own - assumption: any change in total cost is money; 15% is the imputed cost if you attributable to the change in variable chose to use your own money costs INCREMENTAL COST – total increase in cost - in applicable when the relationship Total Cost = FC + (UCM) unit sold…. Y = a+bx between costs and unit (base) is inverse / BASIC CVP ANALYSIS negative CONTRIBUTION MARGIN (CM) (Sales – Variable Cost) BREAKEVEN POINT (BEP) Formula: (Total sales = Total Cost) Variable Cost Rate = change in cost / change in MARGIN OF SAFETY base or units (Budgeted Sales – Breakeven Sales) Change in base of unit: Target Profit - DL hours, machine hours, DL costs, units Sales Mix Analysis of production, number of shipments, set Degree of Operating Leverage (DOL) up time, and other activity basis (Contribution Margin / EBIT) Total Fixed Costs = total cost – total variable cost EBIT – Earnings before income and taxes Estimate the costs of given level of activity SALES / UNIT TC = TFC + UVC (Unit Variable Cost) (units) VARIABLE The total fixed cost remains the same regardless COST of the levels of activity FIXED COST 2. Scatter graph method - Is regression line - AKA visual fit analysis - Plots the observation on a graph - Uses the principles found in a regression PRODUCT COST line - Direct Materials - Straight line that depicts the relationship - Direct Labor of 2 variables - Factory Overhead X – independent PRIME COST Y – dependent - Direct Materials 3. Least squares regression method - Direct Labor Regression line: CONVERSION COST Y = a +bx - Direct Labor Y = dependent variable - Factory Overhead a = constant, point of intercept Prime + Conversion + VFOH = Variable Fixed Cost b = variable co=efficient of x/ slope VFOH – Variable Factory Overhead x = independent variable Example Problem: Total Cost = FC + VC EXPENSE ITEM ESTIMATED UNIT COST Example 1: High Low Method 2 Direct material 32 Kilos of Cost of XY x Direct labor 10 materials operation (x)(y) Variable FOH 15 80 800 64,000 6,400 Fixed FOH 6 60 480 28,800 3,600 Variable distribution & 3 20 320 6,400 400 admin 120 1200 144,000 14,400 Fixed Variable 4 140 1280 179,200 19,600 distribution & admin 40 480 19,200 1,600 100 1040 104,000 10,000 1. Conversion cost per unit X = 560 Y = 5,600 XY= 56,000 545,600 DL 10 Variable FOH 15 Fixed FOH 6 HIGH LOW METHOD: Conversion 31 Cost Kilos 2. Prime Cost per unit High 1,280 140 DM 32 Low 320 20 DL 10 Difference 960 120 Prime Cost 42 variable 960 3. Total Variable Cost per unit = =80 kilo 120 DM 32 High Low DL 10 Total Cost 1,280 320 Variable FOH 15 Less: Variable Cost TVC per unit 57 (140 x 8) (1,120) 4. Total cost that would incur during a (20 x 8) (160) month with a production level of 12k units Fixed Cost 160 160 & a sales level of 8k units = must be balanced = DM 32 Example 2: High Low Method DL 10 Total Maintenance cost VFOH 15 Maintenance Maintenance FFOH 6 hours cost Total Cost per unit 63 Jan 7,200 450,000 Production Level 12,000 Feb 6,800 422,000 Total cost in a month 756,000 *(12,000 x 63) Mar 7,000 440,000 Apr 6,400 418,000 a = FC The company expects to use 7,400 machine hours b = VC in May. ∑ y=na+b Σ x 80 (5,600 = 7a + 560b) 80 * 7 (n) came from the number of observation 1. VC Rate (kg of mats) Maintenance Maintenance * 80 came from (560 / 7) hours cost (545, 600 = 560a + 56,000b) High 7,200 450,000 Low 6,400 418,000 448,000 = 560a + 44800b Difference 800 32,000 Less: 545,600 = 560a + 56000b -97,600 = -11,200b cost 800 -11,200 = -11,200b = =40 pesos per machine use hours 32000 b = 8.71 variable cost VCR = Change in Costs / Change in activity base 5,600 = 7a + 560 (8.71) 2. Total Fixed Cost 5,600 = 7a + 4,877.6 TFC = TC - TVC 5,600 – 4,877.6 = 7a (nag transpose) High Low 722.4 = 7a Total Cost (maintenance) 450,000 418,000 7 7 Less: Variable Cost A = 103.2 Fixed Cost (7,200 x 40) (288,000) COST VOLUME PROFIT ANALYSIS (CVP Analysis) (6,400 x 40) (256,000) - To know the product quality, pricing, Total Fixed Cost 162,000 162,000 productive system 3. Budgeted maintenance cost in May 1. Sales Variable Cost 7,400 x 40 = 296,000 - Selling price Total Fixed Cost + 162,000 - Volume Budgeted Cost 458,000 2. Total Fixed Cost LEAST SQUARE METHOD 3. Variable Cost per unit ∑ y=na+b Σ x 4. Sales Mix ∑ x y=Σ x a+ b Σ x 2 Formula: Previous Example Problem 1: CONTRIBUTION MARGIN y = 5,600 = Sales – Variable Cost (VC) x = 560 BREAKEVEN POINT (BEP) IN UNITS xy = 545,600 = Total Fixed Cost / Unit Contribution Margin 2 x = 56,000 = TFC / UCM BREAKEVEN POINT (BEP) IN PESOS BEP Units = 3,840,000 / 96 = 40,000 = Total Fixed Cost / Unit Contribution Margin BEP Peso = TFC / UCMR Rate BEP Peso = 3,840,000 / 40% = 9,600,000 CONTRIBUTION MARGIN RATE (CMR) = Contribution Margin / Sale 3. Actual Sales MARGIN OF SAFETY (MOS) Amount Unit = actual budgeted sale (68,000 x 16,320,000 68,000 Breakeven sale 240) = Margin of Safety Less: BEP (9,600,000) (40,000) BEP – no profit or loss; cost and sale are the same MOS 6,720,000 28,000 MARGIN OF SAFETY RATIO = Margin of Safety / Actual sales or budgeted 4. MOS Ratio Sales = Margin of Safety / Actual sales or budgeted BEP Sales = Fixed Cost / Contribution Margin = 6,720,000 / 16,320,000 BEP Sales = 41.18% = Fixed Cost / CMP Notes: = Fixed Cost x Sales / Sales – Variable Cost Profit increases when sales increases and VCR expenses decrease = Variable Cost / Selling Price Sales Example 1: (Expense) Given: Profit (loss) Selling Price = 240/units To manage cost – to control, reduce it, to justify Variable Cost = 144/unit its priority of occurrence Fixed Cost = 3,840,000/year Units Sold = 68,000 1. Contribution Margin CM = Sales – Variable Cost (VC) CM = 240 – 144 = 96 CMR = Contribution Margin / Sale CMR = 96 / 240 = 0.4 or 40% VCR = Variable Cost / Selling Price VCR = 144 / 240 = 0.6 or 60% 2. BEP (units) BEP Units = TFC / UCM