Financial Management
Contents
Financial Management.....................................................................................1
CHAPTER 1: MANAGERIAL ACCOUNTING......................................................3
Management Accounting...........................................................................3
Financial Accounting vs Management Accounting.....................................3
Main Functions of Management.................................................................4
Organizational Chart..................................................................................4
Managerial Cost Concepts.........................................................................5
Exercises...................................................................................................6
CHAPTER 3: PROCESS COSTING...................................................................6
Process Costing vs Job Order Costing........................................................6
Process Cost Flow......................................................................................7
Materials Costs..........................................................................................7
Factory Labour Costs.................................................................................7
Manufacturing Overhead Costs.................................................................7
Assigning / Allocating Overhead Costs......................................................8
Equivalent Units.........................................................................................8
Work in Progress........................................................................................8
Production Cost Report..............................................................................9
CHAPTER 4: ACTIVITY-BASED COSTING........................................................9
Direct and Indirect costs..........................................................................10
Types of Costing Systems........................................................................10
Cost Object..............................................................................................10
Unallocated Costs....................................................................................11
Traditional Costing System......................................................................11
ABC Costing System................................................................................12
Cost Pool..................................................................................................12
1
, ABC Method in Steps...............................................................................13
CHAPTER 5: COST-VOLUME-PROFIT............................................................14
Terminology.............................................................................................14
Variable and Fixed Costs.........................................................................14
Contribution Margin: Price-Variable, Costs per Unit.................................14
Cost-Volume Profit Graph........................................................................15
CHAPTER 8: PRICING DECISIONS................................................................16
Pricing Goals............................................................................................16
Variable and Fixed Costs.........................................................................17
Price Takers vs Price Makers...................................................................18
Target Costing.........................................................................................18
Cost-Plus Pricing......................................................................................18
Cost-Plus Pricing and ROI........................................................................18
Internal Pricing: Transfer Prices...............................................................19
CHAPTER 9: BUDGETARY PLANNING...........................................................20
Additional Benefits of Budgeting.............................................................20
Essentials of Effective Budgeting............................................................20
The Budgeting Process............................................................................20
Budgeting and Human Behaviour............................................................21
The Master Budget..................................................................................22
Budget Terminology................................................................................22
Budgeted Income Statement...................................................................22
Budgeting for Service Companies...........................................................23
CHAPTER 10: BUDGETARY CONTROL AND RESPONSIBILITY ACCOUNTING.23
Static Budget Reports..............................................................................23
Budgetary Control Activities (Budget Control Cycle)...............................23
Favourable and Unfavourable Variances.................................................24
Use and Limitations of Static Budget Reports.........................................24
Flexible Budget Reports...........................................................................24
Flexible Budget Variances: Price and Quantity........................................24
2
, Principle of Performance Evaluation........................................................25
Types of Responsibility Centres...............................................................25
CHAPTER 1: MANAGERIAL ACCOUNTING
Management Accounting
- Gives managers economic and financial information to take good
business decisions
- Helps managers see and understand how the business is doing
- Goal is to give managers advice, so they can grow -> that the
company can make more money -> increase the profitability of the
company
o HR manager from ZARA (firing people) -> the company was
making lessons and the manager had to decide
Financial Accounting vs Management Accounting
They have similarities and differences between each other.
Financial Accounting: produces financial information for external users
(investors, government agencies, shareholders)
o Limited by rules like IFRS and GAAP
o Types and frequency of reports: external financial statements +
quarterly and annually
o Purpose of reports: general purpose
o Content of reports: relates to the entire business, very simplified,
only includes accrual accounting and cost information
Management Accounting: produces financial and other information for
managers
o Refers to having less external control and fewer regulations to
follow
o Types of frequency of reports: internal reports + as frequently as
needed
o Purpose of reports: for specific decisions
3
Contents
Financial Management.....................................................................................1
CHAPTER 1: MANAGERIAL ACCOUNTING......................................................3
Management Accounting...........................................................................3
Financial Accounting vs Management Accounting.....................................3
Main Functions of Management.................................................................4
Organizational Chart..................................................................................4
Managerial Cost Concepts.........................................................................5
Exercises...................................................................................................6
CHAPTER 3: PROCESS COSTING...................................................................6
Process Costing vs Job Order Costing........................................................6
Process Cost Flow......................................................................................7
Materials Costs..........................................................................................7
Factory Labour Costs.................................................................................7
Manufacturing Overhead Costs.................................................................7
Assigning / Allocating Overhead Costs......................................................8
Equivalent Units.........................................................................................8
Work in Progress........................................................................................8
Production Cost Report..............................................................................9
CHAPTER 4: ACTIVITY-BASED COSTING........................................................9
Direct and Indirect costs..........................................................................10
Types of Costing Systems........................................................................10
Cost Object..............................................................................................10
Unallocated Costs....................................................................................11
Traditional Costing System......................................................................11
ABC Costing System................................................................................12
Cost Pool..................................................................................................12
1
, ABC Method in Steps...............................................................................13
CHAPTER 5: COST-VOLUME-PROFIT............................................................14
Terminology.............................................................................................14
Variable and Fixed Costs.........................................................................14
Contribution Margin: Price-Variable, Costs per Unit.................................14
Cost-Volume Profit Graph........................................................................15
CHAPTER 8: PRICING DECISIONS................................................................16
Pricing Goals............................................................................................16
Variable and Fixed Costs.........................................................................17
Price Takers vs Price Makers...................................................................18
Target Costing.........................................................................................18
Cost-Plus Pricing......................................................................................18
Cost-Plus Pricing and ROI........................................................................18
Internal Pricing: Transfer Prices...............................................................19
CHAPTER 9: BUDGETARY PLANNING...........................................................20
Additional Benefits of Budgeting.............................................................20
Essentials of Effective Budgeting............................................................20
The Budgeting Process............................................................................20
Budgeting and Human Behaviour............................................................21
The Master Budget..................................................................................22
Budget Terminology................................................................................22
Budgeted Income Statement...................................................................22
Budgeting for Service Companies...........................................................23
CHAPTER 10: BUDGETARY CONTROL AND RESPONSIBILITY ACCOUNTING.23
Static Budget Reports..............................................................................23
Budgetary Control Activities (Budget Control Cycle)...............................23
Favourable and Unfavourable Variances.................................................24
Use and Limitations of Static Budget Reports.........................................24
Flexible Budget Reports...........................................................................24
Flexible Budget Variances: Price and Quantity........................................24
2
, Principle of Performance Evaluation........................................................25
Types of Responsibility Centres...............................................................25
CHAPTER 1: MANAGERIAL ACCOUNTING
Management Accounting
- Gives managers economic and financial information to take good
business decisions
- Helps managers see and understand how the business is doing
- Goal is to give managers advice, so they can grow -> that the
company can make more money -> increase the profitability of the
company
o HR manager from ZARA (firing people) -> the company was
making lessons and the manager had to decide
Financial Accounting vs Management Accounting
They have similarities and differences between each other.
Financial Accounting: produces financial information for external users
(investors, government agencies, shareholders)
o Limited by rules like IFRS and GAAP
o Types and frequency of reports: external financial statements +
quarterly and annually
o Purpose of reports: general purpose
o Content of reports: relates to the entire business, very simplified,
only includes accrual accounting and cost information
Management Accounting: produces financial and other information for
managers
o Refers to having less external control and fewer regulations to
follow
o Types of frequency of reports: internal reports + as frequently as
needed
o Purpose of reports: for specific decisions
3
