GBS 520 :FINANCIAL AND MANAGEMENT ACCOUNTING By Bryson Mumba

Management accounting Introduction to Management accounting

Management Accounting Course Outline Unit 6: Costs Costs and Cost Behavior Cost Accounting techniques  Unit 7: Information for Decision Making Cost Volume Profit Analysis Product Mix Decisions Relevant costs and Operational Decisions Relevant costs and Strategic Decisions

Management Accounting Course Outline (cont.) Unit 8: Budgeting Nature and Purpose of Budgeting Budget Preparation Flexible Budgets Behavioral Aspects of Budgeting  Unit 9: Budgetary Control and Reporting  Unit 10: Working Capital Management  Unit 11:Capital Budgeting

Management Accounting What is Management Accounting? Management accounting is the application of accounting and financial management to create, protect, preserve and increase value for the stakeholders of for-profit and not-for-profit enterprises in the public and private sectors(CIMA, Official Terminology, 2005)

Management Accounting Management Accounting v Financial Accounting COMPANIES   Management Accounting Main Users Financial Accounting Management Shareholders None Regulation Statutory Professional Non-monetary Quantitative Qualitative Data Financial Budgeted Historical Forecasted Planned

Management Accounting Main Functions Planning & Budgeting Financial management Control Cost Accounting Decision Making Auditing

Management Accounting Main Functions – Unit mapping Planning: Budgeting Unit 8 & 11 Financial management Unit 10 – working Capital Mgt Control: Unit 9 Cost Accounting: Unit 6 Decision Making: Unit 7 Auditing Not part of this course

Management Accounting Cost Accounting is at the core of management accounting

Accounting Information System Management Accounting Reports Inputs Processing Outputs Source Documents Accounting Cycle Financial Statements: Statement of Financial Position(Balance Sheet) Statement of Comprehensive Income(Income Statement) Statement of Cash Flows Statement of Owners’ Equity

Cost Information and the Management Cycle One of a company’s primary goals is to be profitable Owners expect to earn a profit Managers have a responsibility to Use resources wisely Generate revenues that will exceed the costs of the company’s operating, investing, and financing activities

Use of Cost Information in the Management Cycle During the management cycle, managers use information about costs to Plan Execute Review Report

Planning Manufacturing companies Managers use estimates of product costs to Develop budgets for production, materials, labor, and overhead Determine the selling price or sales level required to cover all costs

Executing Manufacturing companies Managers use estimated product costs to Predict the gross margin and operating income on sales Make decisions about matters such as Dropping a product line Outsourcing the manufacture of a part Bidding on a special order Negotiating a selling price

Executing (cont’d) Retail companies Managers use the estimated cost of merchandise purchases to Predict the gross margin, operating income, and the value of merchandise sold Make decisions about matters such as Reducing selling prices for clearance sales Lowering selling prices for bulk sales Dropping a product line

Executing (cont’d) Service organizations Managers use the estimated cost of services to Estimate profitability Make decisions about matters such as Bidding on future business Lowering or negotiating fees Dropping a service

Reviewing Managers want to know about significant differences between estimated costs and actual costs Identification of variances helps determine the causes of overruns Useful in order to avoid such problems in the future

Reporting Managers expect to see the following reports Performance reports that summarize the variance analyses done in the reviewing stage Product profitability reports Budgeted v actual costs Capital budgeting/investment analysis reports Working capital management reports Financial statements

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