CHAPTER 01

COST ACCOUNTING AND CONTROL | Introduction to Management

Accounting

LLOFILAN | 09232024
WHAT IS ACCOUNTING?
The process of identifying, me suring nd communic ting
economic inform tion to permit informed judgements nd
decisions by users of the inform tion.
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 WHAT IS ACCOUNTING?
— L ngu ge of business

— Helps businesses communic te their in nci l situ tion

— It’s bout telling story of where the business st nds

in nci lly, helping to guide future decisions nd keeping
everything in check.
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 KEY POINTS
1. Tr cking Money

2. M king Decisions

3. Reporting to others

4. Pl nning for the Future

5. St ying Org nized

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 Users of accounting information:
1. Extern l p rties outside the org niz tion ( in nci l
ccounting)

2. Intern l p rties within the org niz tion (m n gement

ccounting)
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Major Differences between Financial
Accounting and Management Accounting:
The Decision Making, Planning and Control
Process
 The Impact of the Changing Business
Environment on Management Accounting

1. Emergence of glob l competition

— reduction in t ri s, import nd
export duties, nd improvement in
both tr nsport tion nd
communic tion systems resulted in
m ny businesses to oper te For MAs, they re now looking into cost
e iciencies reg rding glob l tr nsport of
glob lly. their products.
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 The Impact of the Changing Business
Environment on Management Accounting

2. Ch nging product life cycles —

intense glob l competition,
technologic l innov tion nd
incre sing customer dem nds
resulted in to dr m tic decline in
the product life cycles For MAs, they re now focused on
providing info t the design st ge,
m n ging their costs t the design
ph se.
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 The Impact of the Changing Business
Environment on Management Accounting

3. Adv nces in m nuf cturing For MAs, they re now

technologies — comp nies must be focused on reducing costs,
ble to m nuf cture high qu lity incre sing e iciency nd
innov tive products t low costs. reducing w ste in
Comp nies repl ced tr dition l production by
production systems with le n implementing jist-in-time
m nuf cturing systems. (JIT) systems.
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 The Impact of the Changing Business
Environment on Management Accounting

4. The imp ct of inform tion For MAs, they tr nsition to

technology — businesses rely on IT the dviser nd intern l
to support sever l business ctivities consult nt roles. They re
which g ve them n opportunity to now more involved in
h ve th t glob l competitive interpreting d t to
dv nt ge. E-commerce businesses provide business support.
thrive more now d ys.
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 The Impact of the Changing Business
Environment on Management Accounting

5. Environment l nd sust in bility The dem nd for

issues — comp nies with positive Environment l MA h ve
response to soci l nd environment l incre sed for (1)
issues re now receiving incre sed environment l costs re
ttention nd interest from the costly; (2) huge regul tory
gener l m rket. Adherence to soci l ines; nd (3) society
ccount bility nd sust in bility. dem nd for environment lly
friendly comp nies
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 The Impact of the Changing Business
Environment on Management Accounting

6. Pressures to dopt higher As profession ls, MAs nd

st nd rds of ethic l beh viour — other ccount nts h s n
comp nies who pl ced higher oblig tion to uphold ethic l
priority to their soci l responsibilities st nd rds. Oper tion Audits
nd high ethic l st nd rds receives re now implemented to
positive m rket response. see if the employees dhere
to the comp ny’s ethic l
st nd rds.
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 The Impact of the Changing Business
Environment on Management Accounting

7. Deregul tion nd priv tiz tion — With this, MAs focus on

tr nsition from government owned cost m n gement to g in
businesses/oper tions to priv tized underst nding of their cost
government controlled comp nies. b se nd pro it bility
These GOC focused more on price source. M int ining lower
nd competitive restriction r ther cost while improving the
th n product/service qu lity. qu lity of their product/
service.
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 The Impact of the Changing Business
Environment on Management Accounting

8. Focus on v lue cre tion nd

customer s tisf ction — Comp nies
identi ied the need to become more
customer driven nd th t customers
re cruci l to their future success.
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 Focus on Customer Satisfaction and New
Management Approaches

To compete successfully in tod y’s environment comp nies should

focus on providing customer s tisf ction by concentr ting on:

1. Cost e iciency — incre sed emph sis on ccur te product costs nd

cost m n gement by improving the cost systems

2. Qu lity Control — customers dem nd for higher qu lity products

which led to businesses dopting Tot l Qu lity M n gement (TQM)
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Focus on Customer Satisfaction and New
Management Approaches

3. Time m n gement — incre sed customer s tisf ction by f ster

customer response time, on-time delivery, minimizing to completely
elimin ting non-v lue- dded ctivities

4. Innov tion nd continuous improvement — ste dy development of

innov tive products nd services
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 Functions of Management Accounting
• Inventory v lu tion for intern l nd extern l
pro it me surement — Alloc te costs between
products sold nd fully nd p rtly completed
products th t re unsold.

• Provide relev nt inform tion to help m n gers

m ke better decisions — thru (1) pro it bility
n lysis; (2) product pricing; (3)m ke or buy
(outsourcing); (4) product mix nd
discontinu tion
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 Functions of Management Accounting
• Provide inform tion for pl nning, control nd
perform nce me surement — thru (1) Long-term
nd short-term pl nning i.e. budgeting; (2)
Periodic perform nce reports for feedb ck
control; (3) Perform nce reports lso widely
used to ev lu te m n geri l perform nce; nd
(4) Note th t costs should be ssembled in
di erent w ys to meet the bove three
requirements.
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