Accounting for Managers: MANAGERIAL ACCOUNTING FICHE (midterm prep)
Session 1 | What is managerial accounting?
à Accounting is a language that communicates economic information to stakeholders.
American Accounting Association definition:
à the process of identifying, measuring, and communicating economic information to permit
informed judgments and decisions by users of the information.
Roles:
• Managers à decision making and control
• Shareholders à value of the investment
• Employees à job security and wages
• Creditors à ability to repay loans
• Government à taxation and meeting of legal requirements
What is MANAGERIAL ACCOUNTING?
à the language used internally. It is concerned with the provision of information to managers.
à aims to improve decision-making, the efficiency and the effectiveness of existing operations.
This unlike financial accounting; the language used to communicate to external users, and
which is subject to regulation.
Differences between Financial Accounting and Managerial Accounting
• There is a statutory requirement for limited companies to produce annual financial
accounts, while it is optional for management accounting
• Financial accounting reports describe the whole of the business, whereas management
accounting focuses on reporting information for different parts of the business.
• Financial accounting reports historical information, whereas management accounting
places emphasis on reporting estimated future costs and revenues.
• Management accounting reports are produced at more frequent intervals
What is a COST?
à Amount of resources in monetary terms to obtain something
Cost object à any item for which we want a separate measurement for cost
Why do we need cost information?
à Inventory valuation, pricing decisions, budgeting, cost control and cost reduction
1
, Full / total COST – Components
DIRECT COST Can be directly traced to
the cost object
INDIRECT Cannot be directly traced
COST to the cost object
A FIXED COST à total cost remains unchanged when output changes
Fixed cost per unit will be lower if you have more output/units
E.g. a fixed cost of $500 per year
500 units made per year à FC/unit is $1
1000 units made per year à the FC/unit
is $0.5 per unit
A total FC is constant, a FC per unit
decreases with volume.
VARIABLE COST à total cost changes when output changes. Cost per unit is constant.
The variable cost per unit will be the same for each unit of output.
e.g. a VC of $1 per unit
500 units made per year à total VC
= 500
1000 units made per year à total
VC = 1000
2
Session 1 | What is managerial accounting?
à Accounting is a language that communicates economic information to stakeholders.
American Accounting Association definition:
à the process of identifying, measuring, and communicating economic information to permit
informed judgments and decisions by users of the information.
Roles:
• Managers à decision making and control
• Shareholders à value of the investment
• Employees à job security and wages
• Creditors à ability to repay loans
• Government à taxation and meeting of legal requirements
What is MANAGERIAL ACCOUNTING?
à the language used internally. It is concerned with the provision of information to managers.
à aims to improve decision-making, the efficiency and the effectiveness of existing operations.
This unlike financial accounting; the language used to communicate to external users, and
which is subject to regulation.
Differences between Financial Accounting and Managerial Accounting
• There is a statutory requirement for limited companies to produce annual financial
accounts, while it is optional for management accounting
• Financial accounting reports describe the whole of the business, whereas management
accounting focuses on reporting information for different parts of the business.
• Financial accounting reports historical information, whereas management accounting
places emphasis on reporting estimated future costs and revenues.
• Management accounting reports are produced at more frequent intervals
What is a COST?
à Amount of resources in monetary terms to obtain something
Cost object à any item for which we want a separate measurement for cost
Why do we need cost information?
à Inventory valuation, pricing decisions, budgeting, cost control and cost reduction
1
, Full / total COST – Components
DIRECT COST Can be directly traced to
the cost object
INDIRECT Cannot be directly traced
COST to the cost object
A FIXED COST à total cost remains unchanged when output changes
Fixed cost per unit will be lower if you have more output/units
E.g. a fixed cost of $500 per year
500 units made per year à FC/unit is $1
1000 units made per year à the FC/unit
is $0.5 per unit
A total FC is constant, a FC per unit
decreases with volume.
VARIABLE COST à total cost changes when output changes. Cost per unit is constant.
The variable cost per unit will be the same for each unit of output.
e.g. a VC of $1 per unit
500 units made per year à total VC
= 500
1000 units made per year à total
VC = 1000
2
