1. MANAGEMENT ACCOUNTING
INTRODUCTION & BASIC MANAGEMENT ACCOUNTING CONCEPTS

2. What the MAIS?
An information system that produces outputs using inputs and processes needed to satisfy specific management objectives.
Three broad objectives;
1. to provide information for costing
2. to provide information for planning, controlling,
evaluation and continuous improvement
3. to provide information for decision making

3. The management process:
Planning
therefore requires setting objectives and identifying methods to achieve those objectives
Controlling
the managerial activity of monitoring a plan’s implementation and taking corrective action as needed. Feedback is information that can be used to evaluate or correct the steps being taken to implement a plan
Decision Making
the process of choosing among competing alternatives

4. The differentiate between MA & FA
Some the more important differences
Management Accounting
Financial Accounting
Targeted user
Internally focus
Externally focus
Restrictions on inputs and process
No mandatory rules
Must follow externally imposed rules
Type of information
Financial & Nonfinancial, subjective information possible
Objective financial information
Time orientation
Emphasis on the future
Historical orientation
Degree of aggregation
Internal evaluation and decision based on very detailed information
Information about the firm as a whole
Breadth
Broad, multi diciplinary
More self-contained

5. The role of Management Accounting
The role of management accounting in an organization is one support. They assist those individuals who are responsible for carrying out an organization’s basic objectives
Management accountants are responsible for identifying, collecting, measuring, analyzing, preparing, interpreting and communicating information used by management to achieve the basic objectives of the organization.

6. Cost Assignment
Cost is the cash or cash-equivalent value sacrificed for good and services that is expected to bring a current or future benefit to the organization.
Expired cost are called expenses. In each period, expenses deducted from revenues in the income statement to determine the period’s profit.
Management accounting systems are structured to measure and assign costs to entities called Cost Object. A cost object is any item such as a product, customer, department, project, activity and so on, which costs are measured and assigned.

7. Accuracy of Assignment
Assignment cost accurately to cost object is crucial. The notion of accuracy is not evaluated based on knowledge of some underlying “true” cost. Rather, it is a relative concept and has to do with the reasonableness and logic of the cost assignment methods used.
Distorted cost assignments can produce erroneous decision and bad evaluation

8. Traceability
The relationship of costs to cost object should be exploited to increase the accuracy of cost assignments. Costs direct and indirect associated with cost object.
Tracing costs to costs objects can occur in one of two way: direct tracing or driver tracing
Direct tracing is the process of identifying and assigning costs that are exclusively and physically associated with a cost object to that cost object.
Driver tracing is the use drivers to assign to cost object. In a cost assignment context, drivers are observable causal factors that measure a cost object’s resource consumption.

9. Assigning Indirect Cost
indirect costs are those costs that cannot be assigned to cost objects using either direct or driver tracing. This means that no causal relationship exists between the cost and the cost object or that tracing is not economically feasible. Assignment of indirect costs to cost objects is called allocation.

10. Cost Assignment Methods
Cost of Resources
Direct Tracing
Driver Tracing
Allocation
Physical Observation
Causal Relationship
Assumed Relationship
Cost Object

11. Type of Management Accounting System
Functional Based Management (FBM)
In an FBM accounting system, resources costs are assigned to functional units and then to products. In assigning costs, direct tracing and driver tracing are used, but in FBM system driver tracing uses only production drivers
FBM’s Operational Efficiency View: providing information for planning and control is another objective of management accounting. The FBM accounting approach to control assigns cost to organizational units and then holds the organizational unit manager responsible for controlling the assigned costs. Performance is measured by comparing actual outcome with standard or budgeted outcomes

12. FUNCTIONAL BASED MANAGEMENT MODEL Cost view
Operational View
Resources
Efficiency Analysis
Performance Analysis
Functions
Products

13. Activity Based Management (ABM)
In activity based costing (ABC) costs are traced to activities and then to product. As with FBC both direct tracing and driver tracing are used, however the role of driver tracing is significantly expanded by identifying and using drivers unrelated to the volume of product produced. Thus activity based cost assignments emphasize tracing over allocation, it could be called tracing- intensive. The use of both unit and non-unit based drivers increase the accuracy of cost assignment and the overall quality and relevant of cost information.
ABM’s Operational Efficiency View: the ABM focuses on the management activities with objective of improving the value received by customer and the profit received by the providing this value.

14. ACTIVITY BASED MANAGEMENT MODEL Cost view
Operational View
Why What? How Well?
Resources
Driver Analysis
Performance Analysis
Activities
Products & Customers

15. The difference of Cost Management System based on Functional and Activity
FUNCTIONAL BASED
ACTIVITY BASED
1. Unit based drivers
1. Unit and non-unit based drivers
2. Allocation intensive
2. Tracing intensive
3. Narrow and rigid product costing
3. Broad and flexible product costing
4. Focus on managing costs
4. Focus on managing activity
5. Sparse activity information
5. Detail activity information
6. Maximization of individual unit
performance
6. Systemwide performance maximization
7. Use of financial measures of performance
7. Use of both financial and nonfinancial
measures of performance