Chapter 1 – The Manager and Management Accounti ng
Managerial accounting is easier than financial accounting because it isn’t a fixed system and therefore
does not use fixed rules. Therefore managerial accounting is future-oriented and will focus on the
users themselves while financial accounting is historical because of the fixed rules.
Stakeholders literally means having a “stake” in something or having an interest in something.
Stakeholders come as internal and external.
> Internal: employees – manager – owner.
> External: suppliers – society – government – creditors – shareholders – customers.
The areas in which management accountants provide information: planning and controlling the
organisation – cost price calculation – cost allocation – investment appraisal – cost volume profit
analysis/ BEP analysis.
How the information flows in a company, when about accounting:
,Chapter 2 – Cost Terms and Purposes
What is a cost (expense)?
= Resources that you need to sacrifice to generate revenues or achieve an organization's specific
objective.
What is a cost object?
= Anything we can accumulate a cost for – they can accumulate on different organizational levels. For
example, we can accumulate a cost for products, services, customers, departments, business units.
Variety of cost classifications – because in MA we work with all them different costs which have
different purposes:
1. Product VS Period Cost:
- Product costs are tied directly to making a product (e.g., raw materials, labor, and factory
overhead). These costs are capitalized as inventory and only become expenses when the
product is sold.
- Period costs are expenses not tied to production (e.g., rent, admin salaries, marketing). They
are expensed in the period they are incurred.
2. Fixed VS Variable Cost
- Fixed costs remain constant regardless of production levels (e.g., rent, salaries). They do not
change with the amount of goods produced or sold.
- Variable costs fluctuate with production volume (e.g., raw materials, shipping). They
increase as more goods are produced and decrease as production slows.
3. Direct VS Indirect Cost
- Direct costs are directly traceable to a specific product or service (e.g., raw materials, direct
labor). They are clearly linked to production.
- Indirect costs are not directly traceable to a single product (e.g., utilities, rent,
administrative expenses). They support overall operations but can't be tied to a specific
product.
4. Budgeted VS Actual Cost
- Budgeted costs are estimated costs planned for a specific period or project (e.g., a forecast
for raw materials or marketing). They represent what a business expects to spend.
- Actual costs are the real costs incurred during a period or project (e.g., the actual amount
spent on raw materials or marketing). These are the expenses that were actually paid.
What are “cost of goods sold”?
= product costs > these COGS make up direct material costs, direct labour costs and manufacturing
overhead costs.
Operating expenses = period costs.
, Calculation of costs of goods sold:
Step 1
Beginning materials inventory
+ materials purchased during period
- ending materials inventory
= direct material costs (costs of materials used)
Step 2
Direct materials costs
+ direct labor costs
+ manufacturing overhead costs
= total manufacturing costs
Step 3
Beginning work-in-process
+ total manufacturing costs
- ending work-in-process
= cost of goods manufactured
Step 4
Beginning finished goods inventory
+ cost of goods manufactured
= cost of goods available for sale
- ending finished goods inventory
= cost of goods sold
Step 5
Sales revenues
- cost of goods sold
= gross profit
- operating expenses
= operating income
Managerial accounting is easier than financial accounting because it isn’t a fixed system and therefore
does not use fixed rules. Therefore managerial accounting is future-oriented and will focus on the
users themselves while financial accounting is historical because of the fixed rules.
Stakeholders literally means having a “stake” in something or having an interest in something.
Stakeholders come as internal and external.
> Internal: employees – manager – owner.
> External: suppliers – society – government – creditors – shareholders – customers.
The areas in which management accountants provide information: planning and controlling the
organisation – cost price calculation – cost allocation – investment appraisal – cost volume profit
analysis/ BEP analysis.
How the information flows in a company, when about accounting:
,Chapter 2 – Cost Terms and Purposes
What is a cost (expense)?
= Resources that you need to sacrifice to generate revenues or achieve an organization's specific
objective.
What is a cost object?
= Anything we can accumulate a cost for – they can accumulate on different organizational levels. For
example, we can accumulate a cost for products, services, customers, departments, business units.
Variety of cost classifications – because in MA we work with all them different costs which have
different purposes:
1. Product VS Period Cost:
- Product costs are tied directly to making a product (e.g., raw materials, labor, and factory
overhead). These costs are capitalized as inventory and only become expenses when the
product is sold.
- Period costs are expenses not tied to production (e.g., rent, admin salaries, marketing). They
are expensed in the period they are incurred.
2. Fixed VS Variable Cost
- Fixed costs remain constant regardless of production levels (e.g., rent, salaries). They do not
change with the amount of goods produced or sold.
- Variable costs fluctuate with production volume (e.g., raw materials, shipping). They
increase as more goods are produced and decrease as production slows.
3. Direct VS Indirect Cost
- Direct costs are directly traceable to a specific product or service (e.g., raw materials, direct
labor). They are clearly linked to production.
- Indirect costs are not directly traceable to a single product (e.g., utilities, rent,
administrative expenses). They support overall operations but can't be tied to a specific
product.
4. Budgeted VS Actual Cost
- Budgeted costs are estimated costs planned for a specific period or project (e.g., a forecast
for raw materials or marketing). They represent what a business expects to spend.
- Actual costs are the real costs incurred during a period or project (e.g., the actual amount
spent on raw materials or marketing). These are the expenses that were actually paid.
What are “cost of goods sold”?
= product costs > these COGS make up direct material costs, direct labour costs and manufacturing
overhead costs.
Operating expenses = period costs.
, Calculation of costs of goods sold:
Step 1
Beginning materials inventory
+ materials purchased during period
- ending materials inventory
= direct material costs (costs of materials used)
Step 2
Direct materials costs
+ direct labor costs
+ manufacturing overhead costs
= total manufacturing costs
Step 3
Beginning work-in-process
+ total manufacturing costs
- ending work-in-process
= cost of goods manufactured
Step 4
Beginning finished goods inventory
+ cost of goods manufactured
= cost of goods available for sale
- ending finished goods inventory
= cost of goods sold
Step 5
Sales revenues
- cost of goods sold
= gross profit
- operating expenses
= operating income
