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Management Accounting: Live Virtual Class - Session 1

This document provides an overview and introduction to management accounting and cost accounting concepts. It discusses: - The speaker's background and qualifications in finance, accounting, and business. - Key concepts in financial accounting like recording transactions, classifying accounts, and using financial statements for tax, investor, and valuation purposes. - How cost accounting helps determine production costs, identify inefficiencies, set prices, and aid decision making. It discusses various costing methods and classifications. - How management accounting helps management operate efficiently through measurement, control, and decision making using financial and cost accounting alongside other techniques. - Specific management accounting tools like contribution analysis, break-even point calculation, profit-volume ratios,

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Srinivasan Narasimman
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58 views16 pages

Management Accounting: Live Virtual Class - Session 1

This document provides an overview and introduction to management accounting and cost accounting concepts. It discusses: - The speaker's background and qualifications in finance, accounting, and business. - Key concepts in financial accounting like recording transactions, classifying accounts, and using financial statements for tax, investor, and valuation purposes. - How cost accounting helps determine production costs, identify inefficiencies, set prices, and aid decision making. It discusses various costing methods and classifications. - How management accounting helps management operate efficiently through measurement, control, and decision making using financial and cost accounting alongside other techniques. - Specific management accounting tools like contribution analysis, break-even point calculation, profit-volume ratios,

Uploaded by

Srinivasan Narasimman
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Management Accounting

Live Virtual Class – Session 1

Ramya Pattabiraman
A Little about Me
• B.Com from Stella Maris
• Chartered Accountant
• Cost Accountant
• 15+ yrs of corporate experience in Audit, Pricing, Corporate
Finance, Strategy, Mergers & Acquisitions, Valuations, Project
Management, Risk Management, Data Analytics and Visualization
• Executive, Consultant, Trainer, Teacher
Financial Accounting
Financial Accounting, aims at finding out profit or losses of an accounting
year as well as the assets and liabilities position, by recording various
transactions in a systematic manner

• Business Transactions
• Classification of Transactions
• Recording of Transactions
• Summary of Transactions
Financial Accounting
• Uniformity for sake of peer comparison
• Results for a particular period
• Determining Tax Liability
• Investors
• Banks
• Valuation
Cost Accounting
Cost Accounting helps the business to ascertain the cost of production /
services offered by the organization and provides valuable information for
taking various decisions and aids in cost control and cost reduction

• Cost / Costing / Cost Accounting / Cost Accountancy


• Cost of Production (per unit basis)
• Determination of Selling Price
• Identifying inefficiencies
• Aids in decision making
Cost Accounting
• Historical Costing
• Absorption Costing
• Marginal Costing

• Classify by Elements – Material, Labour, Expenses


• Classify by Nature – Direct (Prime), Indirect (Overheads)
• Classify by Behaviour – Fixed, Variable, Semi-Variable
• Classify by Functions – Production, Administrative, Selling & Distribution
• Classify by Association – Product, Period
Cost Accounting
• Classify to aid Managerial Decision Making
– Marginal Cost (Variable Cost)
– Differential Cost (Incremental Cost)
– Opportunity Cost (Alternative)
– Relevant Cost
– Replacement Cost
– Abnormal Cost
– Controllable Cost
– Shutdown Cost
– Capacity Cost (Fixed Costs)
– Urgent Cost
Sample Cost Sheet
S No Particulars Amount
A Direct Materials XX
B Direct Wages XX
C Direct Expenses XX
I = (A + B + C) Prime Cost XX
D Factory Overheads XX
II = (I + D) Factory Cost / Works Cost XX
E Office & Administrative Overheads XX
III = (II + E) Cost of Production XX
F Selling & Distribution Overheads XX
IV = (III + F) Cost of Sales XX
V Profit / (Loss) XX
VI (IV + V) Sales XX
Management Accounting
Management Accounting helps the management to conduct the business in
a more efficient manner
Management accounting can be considered as an extension of Cost
Accounting
Management Accounting utilizes the principles and practices of Financial
Accounting and Cost Accounting in addition to other modern management
techniques for efficient operation of a company

Measurement, Control, Decision Making


CVP Analysis
Contribution = Sales – Variable Cost

Net Profit = Contribution – Fixed Cost

BEP = Contribution – Fixed Cost equals Zero

BEP in units = Fixed Cost / Contribution per unit


BEP in Rs. = Fixed Cost / Profit-Volume Ratio
ABC Analysis
‘Cost attribution to cost units on the basis of benefit received from indirect
activities e.g. ordering, setting up, assuring quality.’

‘The collection of financial and operational performance information tracing


the significant activities of the firm to product costs.’
Illustration - I
XYZ Ltd. is manufacturing three products, A, B and C. All the products use
the same raw material which is available to the extent of 61,000 kg only. The
following information is available from the books and records of the
company.
Particulars Product A Product B Product C
Selling Price Per Unit Rs. 100 Rs. 140 Rs. 90
Variable Cost Per Unit Rs. 75 Rs. 110 Rs. 65
Raw Material Required Unit in Kg 5 8 6
Market Demand in Units 5000 3000 4000

Advise the Company about the most profitable product mix and also
compute the amount of profit resulting from such product mix if the Fixed
Costs are Rs. 1,50,000.
Illustration - II
A Company budgets for a production of 1,50,000 units. The variable cost per
unit is Rs.14 and fixed cost per unit is Rs.2 per unit. The company fixes the
selling price to fetch a profit of 15% on cost. Required,

What is the break- even point?


What is the profit/volume ratio?
If the selling price is reduced by 5%, how does the revised selling price affect
the Break Even Point and the Profit/Volume Ratio?
If profit increase of 10% is desired more than the budget, what should be
the sales at the reduced price?
Illustration - III
The budgeted overheads and cost driver volumes of XYZ are as follows.
Cost Pool Budgeted Overheads Cost Driver Budgeted Volume
Material Procurement 5,80,000 No. of Orders 1,100
Material Handling 2,50,000 No. of Movements 680
Set-up 4,15,000 No. of Set-ups 520
Maintenance 9,70,000 Maintenance Hours 8,400
Quality Control 1,76,000 No. of Inspection 900
Machinery 7,20,000 No. of Machine-Hours 24,000

The company has produced a batch of 2,600 components of AX-15, its material cost was
Rs. 1,30,000 and labor cost Rs. 2,45,000.
The usage activities of the said batch are as follows. Material orders – 26, maintenance hours –
690, material movements – 18, inspection – 28, set ups – 25, machine hours – 1,800 .
Calculate – cost driver rates that are used for tracing appropriate amount of overheads to the said
batch and ascertain the cost of batch of components using Activity Based Costing.
THANK YOU

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