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Definition
Management Accounting (or Managerial Accounting) is an

activity that provides financial and nonfinancial information to an organizations managers and other internal decision makers. Managerial Accounting information is designed to meet the specific needs of a companys management. Types of Management Accounting information:
Historical data, which provide objective measures of past

operations. Estimated date, which provide subjective estimates about future decisions.

Management uses both types of information in directing daily

operations, planning future operations, and developing business strategies.

Managerial Accounting Information

Classifying manufacturing and other costs and

reporting them in the financial statements Determining the cost of manufacturing a product or providing a service Estimating the behavior of costs for various levels of activity and assessing cost-volume-profit relationships Analyzing changes in operating income Planning for the future by preparing budgets

Managerial Accounting Information

Evaluating manufacturing costs by comparing actual

with expected results Evaluating decentralized operations by comparing actual and budgeted costs as well as computing various measures of profitability Evaluating special decision-making situations by comparing differential revenues and costs, and allocating product costs

Managerial Accounting Information

Evaluating alternative proposals for long-term

investments in noncurrent assets Evaluating the impact of cost allocation on pricing products and services and activity-based costing Planning operations using just-in-time concepts

Differences Between Managerial and Financial Accounting

Financial Accounting
Users External users and company management

Managerial Accounting
Company management

Nature of information
Guidelines for preparation Timeliness of Reporting Focus of Reporting

Objective
Prepared according to prevailing accounting standards Prepared at fixed intervals Company as a whole

Objective and Subjective

Prepared according to management needs Prepared at fixed intervals and on an asneeded basis Company as a whole or segment

The Management Accountant in the Organization

In most companies, departments or similar

organizational units are assigned responsibilities for specific functions or activities. The departments in a company can be viewed as having either of the following:
Line responsibilities Staff responsibilities

Partial Organization Chart

President and CEO

Senior Vice President Administration

Senior Vice President Marketing

Senior Vice President Equipment

Chief Financial Officer

Vice President Human Resource

Managing Director Mindanao Operations

Plant Manager Laguna Factory

Controller

Line Department and Staff Department

A line department is directly involved in providing goods or

services to the customers of the company.

Senior Vice President Equipment Plant Manager Laguna Factory Senior Vice President Marketing Managing Director Mindanao Operations

A staff department provides services, assistance, and advice

to the departments with line or other staff responsibilities.

Senior Vice President Administration Vice President Human Resources Chief Financial Officer Controller

The Controller
In most companies, the controller is the chief

management accountant. The controllers staff consists of a variety of other accountants who are responsible for specialized accounting functions:
Systems and procedures General accounting Budgets and budget analysis Special reports and analysis Taxes Cost accounting

Purpose of Management Accounting

Management accounting involves gathering

information for planning and control decisions.

Planning is the process of setting goals and making

plans to achieve them.

Companies formulate strategic long-term plans and then refine them with medium- and short-term plans. Strategic plans usually set a firms long-term direction Medium- and short-term plans translate the strategic plans into action.

Purpose of Management Accounting

Control is the process of monitoring planning

decisions and evaluating an organizations activities and employees.

It includes the measurement and evaluation of

actions, processes and outcomes.

Managerial Cost Concepts

Different costs for different purposes
Classification of costs 1. Behavior 2. Traceability 3. Controllability 4. Relevance 5. Function

Classification by Behavior
A Fixed Cost does not change with changes in the

volume of activity (within a range of activity known as an activitys relevant range). Example: Straight-line depreciation on an equipment A Variable Cost changes in proportion to the changes in the volume of activity. Example: Sales commissions computed as a percent of sales revenue When cost items are combined, total costs can be fixed, variable, or mixed. Mixed refers to a combination of fixed and variable costs.

Classification by Traceability
A cost is often traced to a cost object, which is a

product, process, department, or customer to which costs are assigned.

Direct costs traceable to a single cost object.

Example: materials and labor costs

Indirect costs cannot be easily and cost-beneficially

traced to a single cost object.

Example: maintenance costs that benefit more than one department

Classification by Controllability
Costs can be controllable or noncontrollable
Controllability depends on the hierarchical levels in

management.
Investments in machinery are controllable by upper-

level managers. Daily operating expenses such as overtime are controllable by lower-level management.

Useful for assigning responsibility to and evaluating

managers.

Classification by Relevance
Relevant costs are expected costs of a course of action

as compared to an alternative.
Examples:

Out-of-pocket costs future cash outlay and is relevant for decision making Opportunity costs potential benefits lost by choosing a specific action from two or more alternatives

Sunk Costs - are already incurred and cannot be

changed or avoided and therefore, not relevant.

Classification by Function (for Manufacturers)

Product costs capitalized as inventory Expenditures necessary and integral to finished products that include direct materials, direct labor and indirect manufacturing costs Costs that pertain to activities carried out to manufacture the product. Period costs costs expensed as incurred Identified with a time period; examples: administrative and selling expenses Costs that are not part of the manufacturing process