Chapter 1 - Introduction To Cost & Management Accounting
Chapter 1 - Introduction To Cost & Management Accounting
MANAGEMENT ACCOUNTING
Financial Cost
Accounting Accounting
Costing is:
- The process of determining cost of doing something
- i.e. Standard costing –usually associated with a manufacturing
company’s costs of direct material, direct labour and manufacturing
overhead.
- Standard cost >actual cost = favourable variance
DIFFERENCES BETWEEN COST ACCOUNTING & FINANCIAL
ACCOUNTING
6
DifferencesbetweenCostAccounting,ManagementAccounting&Financial
Accounting
Differences Financial Accounting Cost Acounting Management
Accounting
5.Analysis/ -Reports activities for the - Focus on small parts of -Focus on small parts ;
Segments co. in monetary terms products, department. cost & profitability of
Deal with monetary & non products,services,
monetary terms. customers & activities.
6. Precision - Information must be - Estimates & - Estimates &
accurate approximations are approximations are
more useful. more useful.
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DIFFERENCE BETWEEN MA & FA
No Basic of differences Management Financial Accounting
Accounting
Cost unit
Classification:
-Process CC - Specific process/continuous sequence of
operations carried out
-Production CC- production performed
-Service CC- Provision of service to other CC
COST CENTER:
Administr
Raw material
ation Cutting
storage
office
Assembly
Showroom
4 types of costs
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2) By behaviour
Variable
element
Fixed element
0 No. of Unit 0 No. of Unit
Cost Behavior
4 types of costs
Variable costs
Semi variable costs/
Semi fixed costs/
mixed cost 21
3) By Nature
• Materials
• Basic elements or ingredients of a product
• i.e. the materials cost of a cupboard is wood
• Labour
• People involved in making a product
• i.e. the labour cost of a cupboard comprises of the cost of
carpenter who made the cupboard
3 types of costs
Production OH
Materials IM
IE
Labour IL
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4) Traceability
2 types of costs
25
Cost classification
Fixed cost
Variable cost Costs that are
Semi variable @
semi fixed costs Step costs influenced by Costs that are
the decision not
of a manager influenced by
Costs are fixed then
the decision
rise to a new level
Costs that of a manager
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EXERCISE
For each of the cost behaviour below in respect of a cake
shop,
a) Fixed cost
b) Variable cost
c) Semi variable cost