Solutions for Introduction to Managerial
Accounting Study Guide
(DBM 223 Management Accounting and Control – DBM
223/DPL 221 – Management University Studies – 2020
Semester Complete Lecture Notes and Decision-Making
Guide)
Introduction
Description:
This document contains comprehensive lecture notes for
Management Accounting and Control, covering the nature,
objectives, scope, and functions of management accounting, as
well as its relationship with financial and cost accounting. It
also includes decision-making techniques, risk analysis, cost
behavior, cost estimation methods, regression analysis,
learning curve theory, inventory control, budgeting,
forecasting, and cost-volume-profit analysis. The material
combines theoretical concepts with worked examples and
examination-style questions designed to support academic
study and exam preparation.
,DBM223/DPL221: MANAGERIAL ACCOUNTING AND CONTROL
LECTURE 1: Introduction to Managerial Accounting
Definitions
“Managerial Accounting may be defined as the application of accounting techniques to the
provisions of information designed to assist all levels of management in planning and controlling
the activities of the firm”.
Functions (or objectives) of Managerial Accounting
Main functions of Managerial Accounting are as follows:
1. Planning - Information and data provided by management accounting helps management
to forecast and prepare short-term and long term plans for the future activities of the
business and formulate corporate strategy. For this purpose management accounting
techniques like budgeting, standard costing, marginal costing.
2. Coordinating: Management accounting techniques of planning also help in coordinating
various business activities. For example, while preparing budgets for various departments
like production, sales, purchases, etc., there should be full coordination so that there is no
contradiction. By proper financial reporting, management accounting helps in achieving
coordination in various business activities and accomplishing the set goals.
3. Controlling: Controlling is a very important function of management and management
accounting helps in controlling performance by control techniques such as standard
costing, budgetary control, control rations, internal audit, etc.
4. Communication: Management accounting system prepares reports for presentation to
various levels of management which show the performance of various sections of the
business. Such communication in the form of reports to various levels of management
helps to exercise effective control on various business activates and successfully running
the business.
5. Financial analysis and interpretation: In order to make accounting data easily
understandable, the management accounting offers various techniques of analyzing,
interpreting and presenting this data in non-accounting language so that everyone in
organization understands it. Ratio analysis, cash flow and funds flow statements trend
analysis, etc., are some of the management accounting techniques which may be used for
financial analysis and interpretation.
6. Qualitative information: Apart from monetary and quantitative data, management
accounting provides qualitative information which helps in making better decisions.
Quality of goods, customers and employees, legal judgments, opinion polls, logic, etc, are
some of qualitative information supplied and used by the management accounting system
for better management.
7. Tax policies: Management accounting system is responsible for tax policies, procedures,
supervision and coordination of the reports prepared by various authorities.
, 8. Decision – making: Correct decision making is crucial to the success of a business.
Management accounting has certain special techniques which help management in short
team and long term decisions. For example, techniques like marginal costing, differential
costing, discounted cash flow, etc., help in decisions such as pricing of products, make or
buy, discontinuance of a product line, capital expenditure, etc.
Characteristics or Nature of Management Accounting
The task of management accounting involves furnishing of accounting data to the management
for basing its decisions on it. It also helps, in improving efficiency and achieving organizational
goals. The following are the main characteristics of management accounting:
1. Providing Accounting Information: Management accounting is based on accounting
information. The collection and classification of data is the primary function of
accounting department. The information so collected is used by the management for
taking policy decisions. Management accounting involves the presentation of information
in a way that suits managerial needs. The accounting data is used for reviewing various
policy decisions. Management accounting is a service function and it provides necessary
information to different levels of management.
2. Cause and effect analysis: Financial accounting is limited to the preparation of profit and
loss account and finding out the ultimate result, i.e., profit or loss. Management
accounting goes a step further. The ‘cause and effect’ relationship is discussed in
management accounting. If there is a loss, the reasons for the loss are probed. If there is a
profit, the factors different expenditures, current assets, interest payables, share capital,
etc. So the study of cause and effect relationship is possible in management accounting.
3. Use of Special Techniques and concepts: management accounting uses special techniques
and concepts to make accounting data more useful. The techniques usually used include
financial planning and analysis, standard costing, budgetary control, marginal costing,
project appraisal, control accounting, etc. The type of technique to be used will be
determined according to the situation and necessity.
4. Taking Important Decisions: Management accounting helps in taking various important
decisions. It supplies necessary information to the management which may base its
decisions on it. The historical data is studied to see its possible impact on future
decisions. The implications of various alternative decisions are also taken into account
while taking important decisions.
5. Achieving of Objectives: In management accounting, the accounting information is used
in such a way that it helps in achieving organizational objectives. Historical data is used
for formulating plans and setting up objectives. The recording of actual performance and
comparing it with targeted figures will give an idea to the management about the
performance of various departments. In case there are deviations between the standards
set and actual performance of various departments corrective measures can be take at one.
All this is possible with the help of budgetary control and standard costing.
, 6. Increase in Efficiency: The purpose of using accounting information is to increase
efficiency of the concern. The efficiency can be achieved by setting up goals for each
department. The performance appraisal will enable the management to pin point efficient
and inefficient spots. An effort is made to take corrective measures so that efficiency is
improved. The constant review of working will make the staff cost – conscious. Everyone
will try to control cost on one’s own part.
7. Supplies Information and not decision: The management accountant supplies information
to the management. The decisions are to be taken by the top management. The
information is classified in the manner in which it is required by the management.
Management accountant is only to guide and not to supply decisions. ‘How is the data to
be utilized’ will depend upon the caliber and efficiency of the management.
8. Concerned with forecasting: The management accounting is concerned with the future. It
helps the management in planning and forecasting. The historical information is used to
plan future course of action.
Scope of Management Accounting
1. Financial Accounting: Financial Accounting deals with the historical data. The recorded
facts about an organization are useful for planning the future course of action. Though
planning is always for the future but still it has to be based on past and present data. The
control aspect too is based on financial data. The performance appraisal is based on
recorded facts and figures. So management accounting is closely related to financial
accounting.
2. Cost Accounting: Cost Accounting provides various techniques for determining cost of
manufacturing products or cost of providing service. It uses financial data for finding out
cost of various jobs, products or processes. The systems of standard costing, marginal
costing, differential costing and opportunity costing are all helpful to the management for
planning various business activities.
3. Financial Management: Financial Management is concerned with the planning and
controlling of the financial resources of the firm. It deals with raising of funds and their
effective utilization so to maxmise earnings. Finance has become so important for every
business that all managerial activities are connected with it. Financial viability of various
propositions influence decisions on them. Therefore management accounting includes
and extends to the operation of financial management also.
4. Budgeting and Forecasting: Budgeting means expressing the plans, policies and goals of
the enterprise for a definite period in future. The targets are set for different departments
and responsibility is fixed for achieving these targets. The comparison of actual
performance with budgeted figures will give an idea to the management about the
performance of different departments. Forecasting, on the other hand, is a prediction of
what will happen as a result of a given set of circumstances. Both budgeting and
forecasting are useful for management accountant in planning various activities.
Accounting Study Guide
(DBM 223 Management Accounting and Control – DBM
223/DPL 221 – Management University Studies – 2020
Semester Complete Lecture Notes and Decision-Making
Guide)
Introduction
Description:
This document contains comprehensive lecture notes for
Management Accounting and Control, covering the nature,
objectives, scope, and functions of management accounting, as
well as its relationship with financial and cost accounting. It
also includes decision-making techniques, risk analysis, cost
behavior, cost estimation methods, regression analysis,
learning curve theory, inventory control, budgeting,
forecasting, and cost-volume-profit analysis. The material
combines theoretical concepts with worked examples and
examination-style questions designed to support academic
study and exam preparation.
,DBM223/DPL221: MANAGERIAL ACCOUNTING AND CONTROL
LECTURE 1: Introduction to Managerial Accounting
Definitions
“Managerial Accounting may be defined as the application of accounting techniques to the
provisions of information designed to assist all levels of management in planning and controlling
the activities of the firm”.
Functions (or objectives) of Managerial Accounting
Main functions of Managerial Accounting are as follows:
1. Planning - Information and data provided by management accounting helps management
to forecast and prepare short-term and long term plans for the future activities of the
business and formulate corporate strategy. For this purpose management accounting
techniques like budgeting, standard costing, marginal costing.
2. Coordinating: Management accounting techniques of planning also help in coordinating
various business activities. For example, while preparing budgets for various departments
like production, sales, purchases, etc., there should be full coordination so that there is no
contradiction. By proper financial reporting, management accounting helps in achieving
coordination in various business activities and accomplishing the set goals.
3. Controlling: Controlling is a very important function of management and management
accounting helps in controlling performance by control techniques such as standard
costing, budgetary control, control rations, internal audit, etc.
4. Communication: Management accounting system prepares reports for presentation to
various levels of management which show the performance of various sections of the
business. Such communication in the form of reports to various levels of management
helps to exercise effective control on various business activates and successfully running
the business.
5. Financial analysis and interpretation: In order to make accounting data easily
understandable, the management accounting offers various techniques of analyzing,
interpreting and presenting this data in non-accounting language so that everyone in
organization understands it. Ratio analysis, cash flow and funds flow statements trend
analysis, etc., are some of the management accounting techniques which may be used for
financial analysis and interpretation.
6. Qualitative information: Apart from monetary and quantitative data, management
accounting provides qualitative information which helps in making better decisions.
Quality of goods, customers and employees, legal judgments, opinion polls, logic, etc, are
some of qualitative information supplied and used by the management accounting system
for better management.
7. Tax policies: Management accounting system is responsible for tax policies, procedures,
supervision and coordination of the reports prepared by various authorities.
, 8. Decision – making: Correct decision making is crucial to the success of a business.
Management accounting has certain special techniques which help management in short
team and long term decisions. For example, techniques like marginal costing, differential
costing, discounted cash flow, etc., help in decisions such as pricing of products, make or
buy, discontinuance of a product line, capital expenditure, etc.
Characteristics or Nature of Management Accounting
The task of management accounting involves furnishing of accounting data to the management
for basing its decisions on it. It also helps, in improving efficiency and achieving organizational
goals. The following are the main characteristics of management accounting:
1. Providing Accounting Information: Management accounting is based on accounting
information. The collection and classification of data is the primary function of
accounting department. The information so collected is used by the management for
taking policy decisions. Management accounting involves the presentation of information
in a way that suits managerial needs. The accounting data is used for reviewing various
policy decisions. Management accounting is a service function and it provides necessary
information to different levels of management.
2. Cause and effect analysis: Financial accounting is limited to the preparation of profit and
loss account and finding out the ultimate result, i.e., profit or loss. Management
accounting goes a step further. The ‘cause and effect’ relationship is discussed in
management accounting. If there is a loss, the reasons for the loss are probed. If there is a
profit, the factors different expenditures, current assets, interest payables, share capital,
etc. So the study of cause and effect relationship is possible in management accounting.
3. Use of Special Techniques and concepts: management accounting uses special techniques
and concepts to make accounting data more useful. The techniques usually used include
financial planning and analysis, standard costing, budgetary control, marginal costing,
project appraisal, control accounting, etc. The type of technique to be used will be
determined according to the situation and necessity.
4. Taking Important Decisions: Management accounting helps in taking various important
decisions. It supplies necessary information to the management which may base its
decisions on it. The historical data is studied to see its possible impact on future
decisions. The implications of various alternative decisions are also taken into account
while taking important decisions.
5. Achieving of Objectives: In management accounting, the accounting information is used
in such a way that it helps in achieving organizational objectives. Historical data is used
for formulating plans and setting up objectives. The recording of actual performance and
comparing it with targeted figures will give an idea to the management about the
performance of various departments. In case there are deviations between the standards
set and actual performance of various departments corrective measures can be take at one.
All this is possible with the help of budgetary control and standard costing.
, 6. Increase in Efficiency: The purpose of using accounting information is to increase
efficiency of the concern. The efficiency can be achieved by setting up goals for each
department. The performance appraisal will enable the management to pin point efficient
and inefficient spots. An effort is made to take corrective measures so that efficiency is
improved. The constant review of working will make the staff cost – conscious. Everyone
will try to control cost on one’s own part.
7. Supplies Information and not decision: The management accountant supplies information
to the management. The decisions are to be taken by the top management. The
information is classified in the manner in which it is required by the management.
Management accountant is only to guide and not to supply decisions. ‘How is the data to
be utilized’ will depend upon the caliber and efficiency of the management.
8. Concerned with forecasting: The management accounting is concerned with the future. It
helps the management in planning and forecasting. The historical information is used to
plan future course of action.
Scope of Management Accounting
1. Financial Accounting: Financial Accounting deals with the historical data. The recorded
facts about an organization are useful for planning the future course of action. Though
planning is always for the future but still it has to be based on past and present data. The
control aspect too is based on financial data. The performance appraisal is based on
recorded facts and figures. So management accounting is closely related to financial
accounting.
2. Cost Accounting: Cost Accounting provides various techniques for determining cost of
manufacturing products or cost of providing service. It uses financial data for finding out
cost of various jobs, products or processes. The systems of standard costing, marginal
costing, differential costing and opportunity costing are all helpful to the management for
planning various business activities.
3. Financial Management: Financial Management is concerned with the planning and
controlling of the financial resources of the firm. It deals with raising of funds and their
effective utilization so to maxmise earnings. Finance has become so important for every
business that all managerial activities are connected with it. Financial viability of various
propositions influence decisions on them. Therefore management accounting includes
and extends to the operation of financial management also.
4. Budgeting and Forecasting: Budgeting means expressing the plans, policies and goals of
the enterprise for a definite period in future. The targets are set for different departments
and responsibility is fixed for achieving these targets. The comparison of actual
performance with budgeted figures will give an idea to the management about the
performance of different departments. Forecasting, on the other hand, is a prediction of
what will happen as a result of a given set of circumstances. Both budgeting and
forecasting are useful for management accountant in planning various activities.
