Costing An Overview of Cost and Management Accounting 1 PDF
Costing An Overview of Cost and Management Accounting 1 PDF
Costing An Overview of Cost and Management Accounting 1 PDF
Classification of Costs:
Costs can be classified on the following basis:
Management Accounting:
The primary purpose of management accounting is to help management improve efficiency as it enables
management to determine the policy and formulate plans to achieve its desired objectives. Basically, it helps
the management in planning, controlling and analyzing the performance of the organization in order to
follow the path of continuous improvement. It borrows the principles and practices of financial accounting
and cost accounting in addition to other modern management techniques for the effective operation of a
company. Though there does exist some overlapping in various areas of cost and management accounting,
management accounting does have certain distinguishing features.
1. Measurements: It focuses on the measurement of full costs, i.e. the total cost required for producing
goods or rendering services. These costs can be divided into Direct (i.e. cost that can be directly
identifiable or traceable to the products or services offered) or Indirect (i.e. those costs that are not
traceable to the products or services). Besides this, it also measures the other costs required to run
activities such as conducting a research project or running a welfare scheme.
2. Control: The Management Accounting information provides information to the management that can be
used for “Control”. Further, it is designed in such a way that the information is generated for every
“Responsibility Centre” (or the business unit/division responsible for its operations and performance). It
also helps to prepare a budget for each of the responsibility center and then compare the budgeted cost
with the actual cost.
3. Decision Making: The information generated by the management accounting information is useful in
making several decisions during the normal course of business. Those decisions can be Make vs Buy,
Accepting or rejecting of an Export Order, Fixing the selling price, Capital Expenditure decision, Product
Mix Optimization, etc. These decisions cannot be made unless the management accounting generates
the required information.
1. To implement the strategy by translating them into actions. The strategic planning and implementation
may include the followings:
a. decisions regarding the design of products,
b. services or processes,
c. research and development,
d. production,
e. marketing,
f. distribution,
g. customer services.
2. To perform supply chain analysis and efficiently perform activities in order to reduce costs and maintain
the quality and easy availability of the products.
3. Help management in taking business decisions.
4. To measure the performance of the business by comparing the budgeted with actuals.