CH.

01

Accounting- the process of identifying, measuring and communicating economic information to permit
informed judgements and decisions by users of information.

User of accounting information:

1. Internal users within the organization;

2. External such as SH, creditors – outside the organization
Management accounting vs. Financial Accounting
Management accounting:
- help internal users to make better decision ad improve the efficiency and effectiveness of
operations;
- Provides info relating to different parts of the business;
- Future oriented;
- Reports often published on a daily basis.
Financial accounting:
- provides information to external users;
- Focus on the whole business;
- Reports are published semi-annually.
Major differences: legal requirements, focus on, bodies, time dimension, report frequency

Decision making process

Planning process:
1. Identify the objectives;
2. Search for alternative courses of action;
3. Select appropriate courses of action;
4. Implement the decisions;
Control process:
5. Compare actual and planned outcomes;
6. Respond to divergences from plan
Factors that influenced the changes in the competitive environment:
- Globalization of the world trade;
- Privatization of government-controlled companies and deregulation in various industries;
- Changing customer preferencies in accordance with the level of service in cost, quality , delivery
and the choice of new products;
- The emergence of e-business
Factors that directly affect customer satisfaction;
- Cost efficiency;
- Quality;
- Time and innovation
- Continuous improvement
Functions of a cost and management accounting system:
- Allocate cost between cost of goods sold and inventories for internal and external profit
reporting and inventory valuation;
- Relevant information to help managers make better decisions;
- Provide info for planning, control and performance measurement.

CH.02
Cost- amount of resources ( in monetary terms) required for obtaining a certain object.
Cost object: any activity for which a separate measurement of costs is required. Cost of new product,
the cost of operating a sales outlet and the cost of operating a specific machine.
Some costs and revenues in the short term are not relevant for decision-making: if you wish to
determine the costs of driving to work in your own car or using public transport, the cost of the road
fund taxation licence and insurance will remain the same for both alternatives, assuming that you intent
to keep your car for leisure purposes. Cost that remain unchanged for all alternatives are not relevant
for decision-making.
Cost information is required for:
- Allocate cost between cost of goods sold and inventories for internal and external profit
reporting and inventory valuation;
- Relevant information to help managers make better decisions;
- Provide info for planning, control and performance measurement.
Direct costs- costs that can be specifically and exclusively identified with a particular cost object:
1. Materials;
2. Labour costs
Indirect cost- cannot be identified specifically and exclusively with a given cost object (indirect
materials, indirect labour and expenses).
In a manufactory organization – 3 types of overheads:
1. Manufacturing overheads
2. Distribution overheads
3. Administrative overheads
Cost allocation- process of assigning cost to cost objects when a direct measure of resources
consumed by those objects is not possible or not convenient.
Product costs: are identified with 1. goods purchased or 2. Goods produced
Attached to inventory evaluation
Period costs: 1.do not increase the value of the product; 2. They are not directly related to the
product. Not attached to inventory evaluation