Management and cost accounting
Chapter 1. Introduction to management accounting
Accounting – the process of identifying, measuring and communicating
economic information to permit informed judgments and decisions by users of
the information.
- Help decision-makers make good decisions.
Changing business environment influences information needs (global
competition, changing product life cycles,
technological innovations).
Users of accounting information (figure )
- Managers: information to help decision-
making and control activities.
- Shareholders: information on the value of
their investment and the income that is
derived.
- Employees: information on the ability of
the firm to meet wage demands and
avoid redundancies.
- Creditors (loan providers): information on the firm’s ability to meet its
financial obligations.
- Government agencies.
The objective of accounting is to provide
sufficient information to meet the needs of the
various users at the lowest possible costs.
Management accounting – provision of
information to people within the organisation
(internal users) to help them make better
decisions and improve operations’ efficiency
and effectiveness.
- Internal reporting.
- Provide information for planning, control
and performance management.
- Costs: sacrifices of assets which are
unavoidable, measurable and
foreseeable.
- Cost price: costs per unit output.
- Long run decisions: integral cost price,
strategy.
- Short run decisions: variable costs.
Financial accounting – provision of
information to external parties (external users) outside the organisation.
- External reporting.
, The decision-making process
Control process – process of measuring and correcting actual performance to
ensure the alternatives that are chosen and the plans for implementing them are
carried out.
1. Identify objectives (organisation’s goals) usually profit maximisation.
2. Search for alternative courses of action (or strategies) to help meet the
objectives.
Developing new products for sale in existing markets (product
development).
Developing new products for new markets (product diversification).
Developing new markets for existing products (market
development).
3. Select appropriate alternative course of action data gathering about the
alternatives.
Identify which course of action best satisfies the objectives.
4. Implementation of the decisions.
Budget – financial plan for implementing the decisions that
management has made.
Master budget – all budgets merged together (budgeted profit and
cash flow statements).
5. Comparing actual and planned outcomes.
Control (management function) – measurement, reporting and
subsequent correction of performance to ensure that the objectives
are achieved.
Chapter 1. Introduction to management accounting
Accounting – the process of identifying, measuring and communicating
economic information to permit informed judgments and decisions by users of
the information.
- Help decision-makers make good decisions.
Changing business environment influences information needs (global
competition, changing product life cycles,
technological innovations).
Users of accounting information (figure )
- Managers: information to help decision-
making and control activities.
- Shareholders: information on the value of
their investment and the income that is
derived.
- Employees: information on the ability of
the firm to meet wage demands and
avoid redundancies.
- Creditors (loan providers): information on the firm’s ability to meet its
financial obligations.
- Government agencies.
The objective of accounting is to provide
sufficient information to meet the needs of the
various users at the lowest possible costs.
Management accounting – provision of
information to people within the organisation
(internal users) to help them make better
decisions and improve operations’ efficiency
and effectiveness.
- Internal reporting.
- Provide information for planning, control
and performance management.
- Costs: sacrifices of assets which are
unavoidable, measurable and
foreseeable.
- Cost price: costs per unit output.
- Long run decisions: integral cost price,
strategy.
- Short run decisions: variable costs.
Financial accounting – provision of
information to external parties (external users) outside the organisation.
- External reporting.
, The decision-making process
Control process – process of measuring and correcting actual performance to
ensure the alternatives that are chosen and the plans for implementing them are
carried out.
1. Identify objectives (organisation’s goals) usually profit maximisation.
2. Search for alternative courses of action (or strategies) to help meet the
objectives.
Developing new products for sale in existing markets (product
development).
Developing new products for new markets (product diversification).
Developing new markets for existing products (market
development).
3. Select appropriate alternative course of action data gathering about the
alternatives.
Identify which course of action best satisfies the objectives.
4. Implementation of the decisions.
Budget – financial plan for implementing the decisions that
management has made.
Master budget – all budgets merged together (budgeted profit and
cash flow statements).
5. Comparing actual and planned outcomes.
Control (management function) – measurement, reporting and
subsequent correction of performance to ensure that the objectives
are achieved.
