MAC2601 – STUDY NOTES
LEARNING UNIT 1: MANAGEMENT ACCOUNTING
DISTINGUISH BETWEEN MANAGEMENT ACCOUNTING AND FINANCIAL
ACCOUNTING:
1. Financial accounting
a. Recording business transactions (journals and posted in summary from/to
accounts in GL)
i. TB containing balances of all GL accounts are extracted from GL
from time to time.
b. Financial reporting
i. TB is used as basis for preparation of AFS
ii. AFS must comply with IFRS
c. Focus of Financial accounting is:
i. On the whole organisations
ii. On the financial consequences of past events
iii. On accuracy, as the auditors must be able to verify
iv. In compliance with legislation and prescribed standards
v. External, i.e. presented to parties outside the organisation
2. Management accounting
a. Planning (using historical and current information to make future
projections)
b. Decision-making (preparing reports on the expected cash flows of who or
more alternatives)
c. Monitoring and control (preparing reports of actual expenditure compared
to budgeted expenditure)
d. Long-term planning of the organisation includes strategies to achieve
financial as well as social and environmental goals. Management
accounts’ focus is :
i. On the whole organisation as well as parts
ii. On the possible financial consequences of future plans
iii. On timely and relevant information used in decision making
iv. Not in compliance with legislation and reporting standards, but
ethical and sustainability standards
v. Internally focused
e. Cost accounting (sub-set of management accounting)
i. Focused on cost computation, cost control, overall cost reduction in
the organisation.
ii. Involves a process of measuring, analysing, and reporting both
financial as well as non-financial information
,BRIEFLY DESCRIBE THE PLANNING, DECISION-MAKING AND CONTROL
PROCESSES AND THE MANAGEMENT ACCOUNTANTS’ ROLL IN EACH
1. Planning
a. Management planning means formulating both long- and short-term goals
and plans and directing the actions to achieve the desired outcomes for
the organisation
b. Two broad strategies when planning for the future:
i. Offer quality products/services at low prices
ii. Offer product/service differentiation, often at higher prices
c. Entire budget is developed from financial reports
d. ESG factors are also considered (environmental, social, governance
responsibilities)
2. Decision-making
a. Steps:
i. Identify issue requiring a management decision and define the
objectives to be achieved
ii. Identify possible alternative courses of action
iii. Collect relevant information about the consequences of each
alternative
iv. Make a decision, by selecting the preferred alternative
v. Implement the decision and monitor to evaluate actual outcomes
3. Implementation
a. Most appropriate alternatives are taken up in Company’s operational plan
and implemented as part of budgeting process.
b. Budgets are first prepared at departmental level
c. Management accounting prepares single, master budget for company
from all department budgets:
i. Budgeted statement of comprehensive income
ii. Budgeted statement of financial position
iii. Budgeted cash flow statement
4. Control process
a. The control function is supported by performance reports and control
reports which highlights variances between planned and actual outcomes.
b. Two phases:
i. Comparing planned outcomes with achieved outcomes
ii. Taking appropriate action
,EXPLAIN HOW CHANGES IN THE BUSINESS ENVIRONMENT HAVE INFLUENCED
MANAGEMENT ACCOUNTING
1. Globalisation of trade
2. Changing product life cycles
3. Advances in manufacturing and information technology
4. Focus on environmental end ethical issued
Primary goal of company (before above changes occurred):
Generate profits
Maximise shareholder wealth
Make money
Primary goal of company (today)
Maximise profits for its owners while,
Maintaining corporate social responsibility (housing, education and healthcare)
The King IV code prescribes governing body of organisation apply inputs of:
- Ethical leadership
- Effective leadership
Based on 17 aspirational principles and 215 recommended practices and underpinned
by sustainable development philosophies of Integrated thinking about:
- The organisations as an integral part of society
- The organisation as a corporate citizen
- Stakeholder inclusivity
- Sustainable development
- Integrated reporting
To achieve outcomes of:
- Ethical culture
- Good performance
- Effective control
- Legitimacy
DISCUSS THE SPECIAL ETHICAL OBLIGATIONS OF MANAGEMENT
ACCOUNTANTS
1. Organisational ethics (core values in code of conduct)
2. Professional ethics (code of ethics)
Ethical issues that management accountants may be confronted with:
- Management decisions may have far-reaching consequences for others, this may
result in some employees being retrenched and some of those retrenched may not
be skilled enough to find alternative employment.
- Management accountants may be pressured by managers to manipulate reports to
the board of directors
- Management accountants will also have access to sensitive information about the
company
, LEARNING UNIT 2: COST CONCEPTS AND CLASSIFICATION
DEFINE TERMS AND CONCEPTS RELATING TO COSTING OF PRODUCTS
3 Types of business organisations:
1. Manufacturers
2. Merchandisers
3. Service organisations
What is a cost:
- The amount of money that must be paid to get something.
- Financial accounting – ensure all costs incurred by entity during period are
recorded
- Costs are classified as either assets or expenses
- Management accounting – ensure integrated cost system accurately identifies and
assigns all costs incurred in the manufacturing process to the cost of the products
manufactured.
Cost objects:
- Cost of things
- These things are the cost objects
Cost drivers:
- Factor/variable that causes a change in the cost of a cost object.
o Activity (used as bases for apportionment of overheads in activity-based
costing system)
o Volume (used as bases for apportionment of overheads in a traditional
costing system)
o Quantity (used as bases for apportionment of overheads in a traditional
costing system)
- The higher the activity, volume or quantity, the higher the cost that it drives
Product costs (manufacturing costs)
Period costs (non-manufacturing costs)
Relevant range:
- Refers to the range of output within which the company expects to be operating in
the short-term (budget period)
- Important for product costing when cost behaviour is considered
Cost assignment:
- All product costs are assigned to goods being manufactured (cost objects)
- Products being manufactured are referred to as units of production
- 3 ways to assign costs:
o Direct cost tracing
o Direct cost allocation
o Indirect cost apportionment
Historical and replacement cost:
LEARNING UNIT 1: MANAGEMENT ACCOUNTING
DISTINGUISH BETWEEN MANAGEMENT ACCOUNTING AND FINANCIAL
ACCOUNTING:
1. Financial accounting
a. Recording business transactions (journals and posted in summary from/to
accounts in GL)
i. TB containing balances of all GL accounts are extracted from GL
from time to time.
b. Financial reporting
i. TB is used as basis for preparation of AFS
ii. AFS must comply with IFRS
c. Focus of Financial accounting is:
i. On the whole organisations
ii. On the financial consequences of past events
iii. On accuracy, as the auditors must be able to verify
iv. In compliance with legislation and prescribed standards
v. External, i.e. presented to parties outside the organisation
2. Management accounting
a. Planning (using historical and current information to make future
projections)
b. Decision-making (preparing reports on the expected cash flows of who or
more alternatives)
c. Monitoring and control (preparing reports of actual expenditure compared
to budgeted expenditure)
d. Long-term planning of the organisation includes strategies to achieve
financial as well as social and environmental goals. Management
accounts’ focus is :
i. On the whole organisation as well as parts
ii. On the possible financial consequences of future plans
iii. On timely and relevant information used in decision making
iv. Not in compliance with legislation and reporting standards, but
ethical and sustainability standards
v. Internally focused
e. Cost accounting (sub-set of management accounting)
i. Focused on cost computation, cost control, overall cost reduction in
the organisation.
ii. Involves a process of measuring, analysing, and reporting both
financial as well as non-financial information
,BRIEFLY DESCRIBE THE PLANNING, DECISION-MAKING AND CONTROL
PROCESSES AND THE MANAGEMENT ACCOUNTANTS’ ROLL IN EACH
1. Planning
a. Management planning means formulating both long- and short-term goals
and plans and directing the actions to achieve the desired outcomes for
the organisation
b. Two broad strategies when planning for the future:
i. Offer quality products/services at low prices
ii. Offer product/service differentiation, often at higher prices
c. Entire budget is developed from financial reports
d. ESG factors are also considered (environmental, social, governance
responsibilities)
2. Decision-making
a. Steps:
i. Identify issue requiring a management decision and define the
objectives to be achieved
ii. Identify possible alternative courses of action
iii. Collect relevant information about the consequences of each
alternative
iv. Make a decision, by selecting the preferred alternative
v. Implement the decision and monitor to evaluate actual outcomes
3. Implementation
a. Most appropriate alternatives are taken up in Company’s operational plan
and implemented as part of budgeting process.
b. Budgets are first prepared at departmental level
c. Management accounting prepares single, master budget for company
from all department budgets:
i. Budgeted statement of comprehensive income
ii. Budgeted statement of financial position
iii. Budgeted cash flow statement
4. Control process
a. The control function is supported by performance reports and control
reports which highlights variances between planned and actual outcomes.
b. Two phases:
i. Comparing planned outcomes with achieved outcomes
ii. Taking appropriate action
,EXPLAIN HOW CHANGES IN THE BUSINESS ENVIRONMENT HAVE INFLUENCED
MANAGEMENT ACCOUNTING
1. Globalisation of trade
2. Changing product life cycles
3. Advances in manufacturing and information technology
4. Focus on environmental end ethical issued
Primary goal of company (before above changes occurred):
Generate profits
Maximise shareholder wealth
Make money
Primary goal of company (today)
Maximise profits for its owners while,
Maintaining corporate social responsibility (housing, education and healthcare)
The King IV code prescribes governing body of organisation apply inputs of:
- Ethical leadership
- Effective leadership
Based on 17 aspirational principles and 215 recommended practices and underpinned
by sustainable development philosophies of Integrated thinking about:
- The organisations as an integral part of society
- The organisation as a corporate citizen
- Stakeholder inclusivity
- Sustainable development
- Integrated reporting
To achieve outcomes of:
- Ethical culture
- Good performance
- Effective control
- Legitimacy
DISCUSS THE SPECIAL ETHICAL OBLIGATIONS OF MANAGEMENT
ACCOUNTANTS
1. Organisational ethics (core values in code of conduct)
2. Professional ethics (code of ethics)
Ethical issues that management accountants may be confronted with:
- Management decisions may have far-reaching consequences for others, this may
result in some employees being retrenched and some of those retrenched may not
be skilled enough to find alternative employment.
- Management accountants may be pressured by managers to manipulate reports to
the board of directors
- Management accountants will also have access to sensitive information about the
company
, LEARNING UNIT 2: COST CONCEPTS AND CLASSIFICATION
DEFINE TERMS AND CONCEPTS RELATING TO COSTING OF PRODUCTS
3 Types of business organisations:
1. Manufacturers
2. Merchandisers
3. Service organisations
What is a cost:
- The amount of money that must be paid to get something.
- Financial accounting – ensure all costs incurred by entity during period are
recorded
- Costs are classified as either assets or expenses
- Management accounting – ensure integrated cost system accurately identifies and
assigns all costs incurred in the manufacturing process to the cost of the products
manufactured.
Cost objects:
- Cost of things
- These things are the cost objects
Cost drivers:
- Factor/variable that causes a change in the cost of a cost object.
o Activity (used as bases for apportionment of overheads in activity-based
costing system)
o Volume (used as bases for apportionment of overheads in a traditional
costing system)
o Quantity (used as bases for apportionment of overheads in a traditional
costing system)
- The higher the activity, volume or quantity, the higher the cost that it drives
Product costs (manufacturing costs)
Period costs (non-manufacturing costs)
Relevant range:
- Refers to the range of output within which the company expects to be operating in
the short-term (budget period)
- Important for product costing when cost behaviour is considered
Cost assignment:
- All product costs are assigned to goods being manufactured (cost objects)
- Products being manufactured are referred to as units of production
- 3 ways to assign costs:
o Direct cost tracing
o Direct cost allocation
o Indirect cost apportionment
Historical and replacement cost:
