Management Accounting

Transcription

1 Management Accounting Course Text Professiona, Practica, Proven

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3 Tabe of Contents FOREWORD...v SYLLABUS: MANAGEMENT ACCOUNTING...vii PART 1 INTRODUCTION Chapter 1: Introduction to Management Accounting...3 PART 2 COST CLASSIFICATION Chapter 2: Cassifying Costs...19 Chapter 3: Anaysing and Predicting Mixed Costs...31 PART 3 LABOUR COSTS Chapter 4: Labour Costs...43 PART 4 MATERIALS COSTS Chapter 5: Materias-Reated Administration...53 Chapter 6: Managing Inventory Leves...59 Chapter 7: Vauing Inventory PART 5 OvERhEAD COSTS Chapter 8: The Traditiona Approach to Overheads...85 Chapter 9: The Activity-Based Approach to Overheads Chapter 10: Comparing the Two Different Approaches iii

4 Tabe of Contents Management Accounting PART 6 COST MEASUREMENT SYSTEMS Chapter 11: Overview of Cost Measurement Systems Chapter 12: Job Costing Cacuations Chapter 13: Recording Job Costs in the Accounting Records Chapter 14: Batch Costing Chapter 15: Process Costing PART 7 BUDGETING AND STANDARD COSTING Chapter 16: Introduction to Budgeting Chapter 17: Introduction to Standard Costing Chapter 18: Operationa Budgets Chapter 19: Budgeted Financia Statements Chapter 20: Cash Budgets Chapter 21: Fexibe Budgeting & Limitations of Budgeting PART 8 MARGINAL COSTING FOR DECISION-MAkING Chapter 22: Margina Costing and Contribution Chapter 23: Singe-Product Cost-Voume-Profit Anaysis Chapter 24: Muti-Product Cost-Voume-Profit Anaysis PART 9 RELEvANT COSTS FOR DECISION-MAkING Chapter 25: Introduction to Reevant Costs Chapter 26: Specia Pricing Decisions Chapter 27: Product Continuation / Discontinuation Decisions Chapter 28: Make-or-Buy Decisions Chapter 29: Limiting Factor Decisions PART 10 STANDARD COSTING variance ANALYSIS Chapter 30: Introduction to Variance Anaysis Chapter 31: Cost Variances Cacuations and Causes Chapter 32: Revenue Variances - Cacuations and Causes Chapter 33: Reconciing Budgeted Profit to Actua Profit INDEX iv

5 FOREWORD Foreword This text has been deveoped by Accounting Technicians Ireand for use by students participating in our programme of study and preparing for our examinations. Whie every effort is made to ensure that the information outined in this text is accurate, Accounting Technicians Ireand and the Author cannot accept the responsibiity for ack of, or perceived ack of, information contained herein. The text is intended to be a sufficienty detaied synopsis of the current syabus materia (and knowedge eve required thereof) in reation to this modue. Students shoud take particuar note of the weighting attaching to this modue, as ceary outined in the syabus. It is on the basis of this weighting that students shoud prepare their own timetabe for study. On the competion of each chapter, students shoud refer to the reevant questions deaing with that chapter. Ideay, students shoud not continue with subsequent chapters unti they have competed the questions attaching to the chapter currenty under review. The soutions to the questions are provided under separate cover and athough they are the suggested soutions, tutors and students shoud recognise and appreciate that there might very we be different approaches which woud, under examination conditions, be perfecty acceptabe. We recommend that, in order to get the fu benefit of the question and answer concept, students shoud not refer to the soution unti they have made a fu and genuine attempt at each question. We aso recommend that when students have attained an understanding of each chapter studied, in addition to the questions provided, they shoud access the Accounting Technicians Ireand website ( for past papers and sit them under exam conditions. This wi aow students to improve their time management skis and their approach to each type of question. v

6 Copyright This text is issued by Accounting Technicians Ireand to students taking its examinations. It may not be used in whoe, or in part, for any course of study and/or examination of any other body whatsoever without prior permission in writing from Accounting Technicians Ireand. This pubication, or any part thereof, may not be made avaiabe in any ibrary, and it may not be reproduced, in whoe or in part, stored in a retrieva system or transmitted in any form or by any means photocopying, eectronic, eectrostatic, magnetic, pdf, mechanica, recording or otherwise, without prior permission in writing from Accounting Technicians Ireand, Pearse Street, Dubin 2. Acknowedgement The edition was prepared by Mr. Tommy Robinson. Tommy is an experienced accounting ecturer and business management software consutant. He currenty works with the business soutions company Simpy Dynamics and ectures accounting at the Institute of Technoogy Banchardstown (ITB). Tommy can be contacted at trobinson@simpydynamics.ie Referencing For the purposes of consistency, a references to he or she wi be referred to as he in this pubication. No other impication whatsoever is impied from this poicy. For the purposes of presentation, a references to euro or stering wi be referred to as euro is this pubication. No other impication whatsoever is impied from this poicy. vi

7 SYLLABUS: MANAGEMENT ACCOUNTING SyabuS Management accounting Mandatory Modue vii

8 Syabus : Mandatory Modue Management Accounting Management accounting Subject Status Mandatory Termina Exam 100% Modue Pass Mark 50% earning Modes Pre-requisite: Direct Lectures, Workshops, Tutorias, Sef Directed Learning Financia Accounting, Taxation and either Law & Ethics or Business Management Key Learning Outcome The key earning outcome of this modue is to provide earners with knowedge and technica competency in the area of management accounting to support business functions, activities and decision-making. Key Syabus Eements and Weightings 1. Nature and Purpose of Management Accounting...10% 2. Management Accounting Systems...30% 3. Standard Costing, Budgetary Panning & Contro...30% 4. Margina Costing & Decision Making...30% viii

9 Management Accounting Syabus : Mandatory Modue earning Outcomes inked to Syabus Eements Nature and Purpose of Management Accounting On competion of this aspect of the modue, earners wi have acquired the foowing knowedge, competencies and know-how: - (a) (b) (c) (d) A knowedge of the roe of management accounting in a business organization An appreciation of business and stakehoder objectives and goas An abiity to contribute to business panning and contro exercises through the use of management accounting An understanding of principes and techniques used in management accounting Management Accounting Systems On competion of this aspect of the courses, participants wi have acquired the foowing knowedge, competencies and know-how:- (a) (b) (c) (d) The abiity to utiise a variety of costing techniques in a range of practica business situations; An understanding of costing system terminoogy and the abiity to cacuate and discuss various eements of a costing system; The abiity to generate appropriate product and service costs using traditiona and modern approaches, notaby activity based and absorption costing; To be abe to cacuate appropriate costs for an integrated cost accounting system, incuding materias, abour and particuary overheads (utiising overhead apportionment and adsorption techniques). Standard Costing, Budgetary Panning & Contro On competion of this aspect of the modue, earners wi have acquired the foowing knowedge, competencies and know-how:- (a) (b) (c) An understanding of the standard setting process and the abiity to cacuate, interpret and anayse appropriate variances. An understanding of and an abiity to criticay anayse on budget administration procedures and the behavioura aspects of the budgetary process. The abiity to demonstrate an understanding of the processes and principes of budgetary panning and contro and to be abe to prepare budgets. ix

10 Syabus : Mandatory Modue Management Accounting Margina Costing & Decision Making On competion of this aspect of the modue, earners wi have acquired the foowing knowedge, competencies and know-how:- (a) (b) (c) The abiity to recognise, understand, expain and use margina and reevant costing techniques in decision making and performance evauation Utiisation of diagnostic and creative skis to support decision making in practica integrated business situations, incuding the use of contribution and breakeven anaysis An abiity to communicate effectivey through the preparation of reevant management accounting statements using reevant media x

11 Management Accounting Syabus : Mandatory Modue Management accounting Specific Functiona Knowedge and Competencies understanding appication anaysis NaTurE and PurPOSE OF MaNagEMENT accounting (10%) roe of Management accounting The roe of management accounting in support of business decision making Comparison and inter-reationship with financia accounting business and stakehoder objectives and goas Definition of terms incuding panning, objectives, strategy, contro Describe different objectives for different organisations business Panning and Contro The process and roe of panning Leves at which panning occurs Management by objectives Group and individua decision making processes. Organisationa contro and performance measurement MaNagEMENT accounting SySTEMS (30%) Costing Systems Terminoogy Concepts of cost accumuation Cost centres and drivers Cost cassification and coding systems Benefits and probems of traditiona and modern costing systems Types of costing systems Theory of process costing incuding equivaent units, norma and abnorma gains and osses, by products and joint products Costing of materias Stores routines xi

12 Syabus : Mandatory Modue Management Accounting Specific Functiona Knowedge and Competencies understanding appication anaysis Materias handing Pricing of store issues Purchasing procedures Inventory contro ratios Stockhoding cacuations abour costing Understanding and cacuation of abour remuneration systems Remuneration and incentive schemes Overhead Costing Cost centre and cost units Overhead apportionment and absorption cacuations Service Department Costing Under and Over absorption of overheads Administrative, seing and distribution overheads activity based Costing Key principes and terminoogy of Activity Based Costing (ABC) Cassification of costs using ABC Transaction based cost drivers Overhead absorption cacuations using ABC Advantages and disadvantages of ABC Job, Batch and Service costing cacuations Appication of equivaent units concept STaNdard COSTiNg, budgetary PaNNiNg and CONTrO (30%) Standard Costing - Theoretica aspects Concept of Standard Costing - incuding definition, types of standards, standard setting, reationship with budgets Advantages and disadvantages of standard costing xii

13 Management Accounting Syabus : Mandatory Modue Specific Functiona Knowedge and Competencies understanding appication anaysis Standard Costing Practica appication Standard cost per unit cacuations using absorption and margina costing Cacuation of variances, incuding Materias price and usage Labour rate and efficiency Variabe overhead expenditure and efficiency Fixed overhead expenditure and voume Saes voume and price Preparation and expanation of variance anaysis reports budgetary Panning & Contro Processes Theoretica aspects Theory of budgetary panning and contro Budgetary factors Budgetary processes Budgetary techniques, benefits and probems Behavioura and motivationa aspects of budgeting budgetary Panning & Contro Practica appication Preparation of operationa budgets, incuding saes production materias abour overhead Preparation of projected Income Statements and Statements of Financia Position Detaied Cash Budgeting and fexibe budgeting xiii

14 Syabus : Mandatory Modue Management Accounting Specific Functiona Knowedge and Competencies understanding appication anaysis MargiNa COSTiNg & decision MaKiNg (30%) Margina Costing Techniques Cost behaviour - incuding fixed, variabe, semi-variabe, stepped costs and infation. Comparison of margina and absorption costing Contribution and margina costing cacuations and costing statements. Margina costing in management decision making Management accounting for decision Making Cost-Voume Profit and Breakeven Anaysis, incuding margin of safety target profit contribution/saes ratio Breakeven charts and formuae Appication of cost-voume-profit anaysis to muti-product scenarios reevant Costing in decision making Preparation of cost estimates for decision making incuding reevant, opportunity and sunk costs Short term decision making cacuations, incuding product eimination consideration of imiting factors make or buy Pricing decisions, incuding mark-up margin fu price Preparation of management accounting statements appropriate to typica decision making situations xiv

15 Management Accounting Syabus : Mandatory Modue assessment Criteria assessment Techniques Format of Examination Paper 100% Assessment based on the fina exam. The Paper Consists of SIX Questions which wi examine a key syabus eements to ensure that earning outcomes are achieved SECTiON a THREE Compusory Questions SECTiON b THREE Questions - Answer TWO A Questions carry equa marks Sampe Paper Each of the 3 sampe papers wi examine appropriate parts of this syabus. Essentia reading Management Accounting (Second Year) author: Accounting Technicians Ireand Web resources Other resources Cost and Management Journa xv

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17 Part 1 Introduction In first year, you studied financia accounting which is argey concerned with recording transactions that have happened in the past and presenting a summary of those transactions in the form of financia statements. However, as running a business requires managers to continuay make decisions that wi improve the future of their businesses, a different kind of information management accounting information - is required. This part of the course wi focus mainy on what kinds of information managers require, how management accounting differs from financia accounting and the job of management accountants / financia managers. 1

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19 Chapter 1: Introduction to Management Accounting ChaPter 1 Introduction to Management accounting ChaPter OvervIew Accounting is the anguage used by businesses to communicate both financia information and non-financia information to individuas and groups who have an interest in how the business is performing. This chapter considers how management accounting information is communicated and why managers need this information. LEARNING OUTCOMES FOR THIS CHAPTER After studying this chapter, you shoud be abe to: 1. Identify users of accounting information and their information needs 2. Understand the difference between management accounting and financia accounting 3. Appreciate the nature, purpose and uses of management accounting 3

20 Chapter 1 : Introduction to Management Accounting Management Accounting USerS OF accounting INFOrMatION and their INFOrMatION NeeDS Users Of accounting Information Users of accounting information can be broady cassified into two categories: Users who are externa to the organisation (dark-shaded circes beow). Users who are interna to the organisation (ight-shaded circes beow). Each user / user group has its own information requirements. Access to accounting information differs according to the reationship between the business and the user / user group. 4

21 Management Accounting Chapter 1 : Introduction to Management Accounting USerS INFOrMatION requirements An organisation s stakehoders, and their respective information requirements, incude the foowing: Stakehoder Equity Investors Managers Empoyees Suppiers & Lenders Governments & Reguators Specia-interest groups (such as environmenta groups, community groups and obby groups) Information required Information on investment vaues and the potentia return to be earned from their investments Information for decision-making, panning and contro purposes Information about the organisation s abiity to provide secure empoyment and pay market-rate wages / saaries Information about the organisation s abiity to meet current and future financia obigations Information to assess tax iabiities, for economic projections, and for enforcement of egisation Information reated to their specific interests MaNaGeMeNt accounting versus FINaNCIaL accounting Two branches of accounting have evoved to dea with the information needs of user groups - both interna and externa: 1. Financia accounting is primariy concerned with providing information to externa users. 2. Management accounting is concerned with providing information to users within the organisation to assist with effective and efficient management of the business. Athough there are many differences between management accounting and financia accounting, the primary information used for the preparation of both management accounting reports and financia accounting reports stems from the same source costs incurred by the organisation and revenues earned by the organisation. The major differences between management accounting and financia accounting can be summarised as foows: 5

22 Chapter 1 : Introduction to Management Accounting Management Accounting Management accounting Financia accounting Lega Requirements No ega requirements. No audit requirement. Lega and accounting reguations requirements. Statutory audit requirement (for certain types and sizes of businesses). Frequency Of Reports As required (normay monthy). Annuay, semi-annuay, Quartery. Primary Users Interna management. Externa users. Time Focus Present and future. Historic. Format & Content Of Reports Detaied information in a format to suit management requirements. Summary information in a format prescribed by accounting reguations and aw. The above differences are discussed in more detai beow: Lega requirements Businesses have a ega obigation to produce financia statements every year. These financia statements must be prepared in accordance with pubished accounting principes and, depending on certain criteria, are subject to statutory audit. Athough there is no ega requirement or obigation to prepare management accounts, it is good business practice to reguary produce accounting information as a usefu too to assist management in carrying out their duties in a proper manner. There is no requirement to audit management accounts. Frequency of reporting Financia statements must be prepared annuay. There are sometimes reguatory requirements to present ess-detaied accounting reports on a semi-annua or Quartery basis. Where there is benefit to be gained from producing management accounts, the frequency of production is at management s discretion, typicay ranging from daiy, to weeky, to monthy, or ad-hoc, to suit management needs. Primary Users Financia accounting presents accounting information for use by a wide variety of externa users, as we as interna managers. Management accounts are soey for the use of the interna management of the organisation. time Focus Financia accounting reports focus on what has happened in the past. Management accounting uses accounting information to project future trends and contro, or attempt to contro, current and future business performance. 6

23 Management Accounting Chapter 1 : Introduction to Management Accounting Format & Content of reports Both the aw and accounting reguations provide tempates for the presentation of financia statements and instruction on minimum information discosure. As financia accounting information is in the pubic arena, there is an inherent acknowedgment by reguators of the sensitivity surrounding the discosure of certain information and the main focus of these discosure requirements is on summarised financia data. Financia statements focus on the business in its entirety. Management accounting operates on the basis of meeting the needs of interna management. The format and content of management accounts depend upon the specific requirements of management. Different businesses wi have different information requirements and their individua management accounts wi refect this. As interna reports, management accounts wi often contain business-sensitive information for a restricted audience and can focus on both financia information and non-financia information, such as critica success factors (measures of factors or aspects of an organisation s performance deemed to be critica, or essentia, to its competitive advantage and thereby its success). In addition, management accounts wi often present very detaied information at a department eve or product-ine eve. the NatUre, PUrPOSe and USeS OF MaNaGeMeNt accounting Management accounting invoves appying accounting and financia management principes to the provision of information to managers within an organisation to hep them pan and contro the organisation s activities and to make business decisions. Management accounting information for managers When you seect an item to buy, you wi have to pay the seing price of the product. How has this price been arrived at? When you decide to renovate your house, you wi compare quotes from different buiders. How have the quotes been cacuated? Why are they different? When you undertake a coege course, you have to pay fees. What basis has been used to set these fees? When you buy supermarket own brand products, do you wonder who produces them and why the manufacturer has chosen not to market them under their own brand? As a consumer, you may not pay much attention to these questions, but as a manager of a business, you must pay attention to the factors, both financia and non-financia, that underpin these decisions. Faiure to do so may resut in the faiure of the business. Business Management Systems Some of you may be famiiar with basic accounting software which generates invoices, records transactions in the Genera Ledger, produces a Tria Baance and financia statements. However, business management software goes way beyond that. Comprehensive business management software - often known as ERP (Enterprise Resource Panning) software heps to manage inventory, marketing campaigns, HR functions, manufacturing operations, non-current assets, cash fow management and much, much more. A menu from one such system (Microsoft Dynamics NAV 2013) is shown beow to iustrate this. 7

24 Chapter 1 : Introduction to Management Accounting Management Accounting Business Inteigence Software Business Inteigence (BI) software goes even further than ERP software in terms of providing information to hep managers run their businesses. Whie ERP systems automate the processing of data and streamine business functions, business inteigence software deivers the information processed by the ERP system in a form that is very usefu to management. A screenshot from one such business inteigence software product (BI4Dynamics which is designed to work with the Microsoft Dynamics ERP system) is shown beow to iustrate this. 8

25 Management Accounting Chapter 1 : Introduction to Management Accounting PLaNNING, CONtrOL and DeCISION-MaKING Every organisation has managers. These managers have a responsibiity to the organisation s stakehoders to manage the organisation in the most-effective and most-efficient way, to maximise the organisation s potentia. This invoves the managers undertaking adequate panning for the short-term and ong-term future of the business, ensuring that the business is being propery controed to ensure pans succeed, and making decisions that wi enabe the business to survive and grow in the future. Management accounting equips managers with information required to carry out these tasks. PLaNNING The fundamenta objective of panning is to assist management in deciding how to aocate an organisation s resources. There are 4 main types of panning: 1 - Strategic Panning This estabishes, for management, the shape and direction to be taken by the organisation. This type of panning is normay ad-hoc and is driven by the recognition of a need for the revision / change of priorities. This normay resuts from seeing actua resuts achieved and / or projected outcomes under a variety of proposed strategies. 2 - Long-range Panning This covers periods of anything from 2-10 years which pans for the proper gearing of the organisation to achieve its goas / objectives. 3 - Project and Situation Panning This is normay to do with panning the short-term use of a segment of the organisation s resources, such as the investment of surpus cash or, if spare capacity was identified, how best to use it (say for a once-off order). 4 - Short-range Periodic Panning This type of panning is concerned with deciding how resources wi be used in the short-term and predicting the financia outcome of these decisions (i.e. budgeting). Budgeting is a quantitative expression of a pan. It shows the expected financia impications of decisions taken and proposed decisions and heps identify the resources required to achieve goas set. 9

26 Chapter 1 : Introduction to Management Accounting Management Accounting CONtrOL Contro is a key feature of management accounting and foows on from panning. Contro can be exercised at a strategic and / or an operationa eve. Strategicay, the business pan of an organisation wi be reviewed in ight of deveopments to assess if the objectives of the pan can be achieved. Operationay, the performance of the organisation is reviewed in the context of detaied pans (incuding budgets) so that corrective action can be taken, if necessary. Contro is not practica without initia panning and panning, without contro, is somewhat pointess. types Of Contros There are 3 main types of contros 1 - action Contros / Behavioura Contros These invove observing the actions of individuas as they go about their daiy work (eg: work studies: quaity and quantity contros) to assess whether both quantity targets and quaity targets are being met, and, if not, to inform corrective action. EXAMPLE If a supervisor observes the workers on an assemby ine and ensures that the work is done exacty as prescribed, then the expected quaity and quantity of the work shoud ensue. 2 - Personne and Cutura Contros Personne and cutura contros invove estabishing expected vaues, behaviours and norms which are used to support the achievement of targets. These are contros which hep empoyees do a good job, by buiding on their natura tendencies. Cutura contros represent a set of vaues, socia norms and beiefs that are shared by members of the organisation and that infuence their performance. 3 - resuts / Output Contros These invove coecting, anaysing and reporting information about the outcomes of work effort. This type of contro is focused on quantitative information and can be most-cosey reated to management accounting information produced. Such information may incude variance anaysis and other key target statistics. Resuts contros require performance targets to be set, estabishment of actua resuts, measurement of performance and taking action accordingy. Management accounting contros are mosty defined in mandatory terms such as revenues, costs, profits, or ratios. Organisations shoud have a system of management reporting that produces contro information in a specified format at reguar intervas. harmfu Side-effects Of Contro When contros motivate behaviour that is organisationay desirabe, they are described as encouraging goa congruence. However, when contros motivate empoyees to engage in behaviour that s not organisationay desirabe, they can ead to a ack of goa congruence. It is by achieving goa congruence that desired objectives are achieved. 10

27 Management Accounting Chapter 1 : Introduction to Management Accounting DeCISION-MaKING The first stage in the decision-making process shoud be to specify the goas or objectives of the organisation. These goas / objectives wi vary depending on the type of organisation. It is simpistic to say that the ony objective of a business is to earn profit - and ceary this woud not be the case in a not-for-profit, or charitabe, organisation. In private-sector businesses, some managers might seek to estabish a power base, buid an empire, or ensure security. However, a commony-hed view, supporting the profit objective is that profit maximisation eads to the maximisation of overa economic wefare. In a not-for-profit, or charitabe, organisation, the driver is socia / wefare principes, not profit. In the pubic-sector, the primary goa / objective might be to provide a quaity service to the pubic. Athough the driver in these organisations is not profit, it woud be desirabe that they woud at east be sef-financing and not require government subvention. Management-by-Objectives Management-by-Objectives (MBO) is a management technique designed to hep achieve goas / objectives. The principe behind MBO is to create empowered empoyees who are cear about the roes and responsibiities expected from them, understand the objectives to be achieved and thus hep in the achievement of organisationa, as we as persona, goas. the panning, decision-making, and contro process 11

28 Chapter 1 : Introduction to Management Accounting Management Accounting PerFOrMaNCe MaNaGeMeNt Performance management is a term used to describe the various activities carried out to ensure that an organisation s goas and objectives are being met in an effective and efficient manner. Performance management normay operates at 3 eves: 1. for the organisation as a whoe 2. within departments or sections 3. in teams or for individuas. Performance management is used both in businesses and, increasingy, in not-for-profit organisations (eg: pubic service departments). Performance management can invove a range of quaitative and quantitative activities, but a main aim is to create goa congruence within an organisation. Goa congruence entais everyone acting in the common interest of achieving the most important objectives of the organisation which can be expressed as Key Performance Indicators (KPI s). Performance management targets are ikey to incude: Financia Targets market share manufacturing efficiencies gross profit / net profit Service Targets customer satisfaction measures service output measures repeat business innovative deveopments or improvements The benefits of good contro and performance management can incude: direct financia gains improved motivation and empoyee satisfaction and improved efficiency in systems and processes Performance Management (PM) incudes activities to ensure that goas are consistenty being met in an effective and efficient manner. It can focus on performance of the organisation, performance of a department, performance of empoyees, etc. The PM approach is most-often used in the workpace, but aso appies wherever peope interact schoos, community meetings, heath organisations and government agencies, etc. Armstrong & Baron defined PM as A strategic and integrated approach to increasing the effectiveness of organisations, by improving the performance of the peope who work in them and by deveoping the capabiities of teams and individua contributors. 12

29 Management Accounting Chapter 1 : Introduction to Management Accounting Benefits of PM may incude: 1. Direct financia gains, e.g. increase saes, reduce costs 2. Create transparency in cutivating goas, thus creating confidence in the process for determining bonus payments. 3. Improved management contros Performance appraisa This appies where individua performance is formay monitored and feedback is deivered. This is done by estabishing Key Performance Indicators (KPIs) for individuas, against which performance is rated or measured and the ratings summarised. Top performance is normay rewarded. The performance appraisa process shoud be seen as part of guiding and managing career deveopment. It is aso a method of measuring an empoyee s worth to the organisation. COSt accounting Management Accounting is concerned with both costs and revenues. The part of management accounting that is concerned with costs is often known as Cost Accounting. A Cost Accounting system is generay made up of the foowing five parts: 1. an input measurement basis 2. an inventory vauation method 3. a cost accumuation method 4. a cost fow assumption 5. a capabiity of recording inventory cost fows at certain intervas These five parts, and the aternatives under each part, are presented beow. 13

30 Chapter 1 : Introduction to Management Accounting Management Accounting Many possibe cost accounting systems can be designed from the various combinations of the avaiabe aternatives, athough not a of the aternatives are compatibe. Seecting one part from each category provides a basis for deveoping an operationa definition of a specific cost accounting system. 14

31 Management Accounting Chapter 1 : Introduction to Management Accounting PraCtICe questions question 1.1 Outine the main users of accounting information and the information requirements of each user / user group. question 1.2 Outine the key differences between management accounting and financia accounting. question 1.3 Why do managers need management accounting information? question 1.4 What types of financia information and non-financia information woud the foowing peope require: 1. A buyer in a retai cothing business 2. A production manager in a toy factory 3. The managing director of a private hospita 4. Project managers in an overseas charity aid organisation question 1.5 Discuss, giving practica exampes where reevant, how management accounting can contribute to the effectiveness of an organisation. question 1.6 Describe a typica panning and contro cyce. Why is it important for businesses to impement this cyce? question 1.7 Describe different types of contro. question 1.8 Expain the basic principe of performance management and its potentia benefits to organisations. 15

32 Chapter 1 : Introduction to Management Accounting Management Accounting question 1.9 Give three exampes of ways in which a cost accounting system coud aid cost contro in a hauage business. 16