Basic Concepts in Management Accounting Reviewer

Review Materials
Prepared by:
Junior Philippine Institute of
Accountants UC-Banilad Chapter
F.Y. 2019-2020
Basic Concepts in
Management Accounting
KEY TERMS AND CONCEPTS TO REMEMBER:
Definition:
Management accounting may be simply

defined as a body of accounting knowledge
primarily consisting of concepts and techniques
(tools) useful to management in making better
decisions and evaluating performance.
3
The following concepts and tools represent the foundation of management
accounting:
Decision-making tools Concepts
1. Cost-volume-profit analysis 1. Fixed and variable costs
2. Comprehensive budgeting 2. Escapable and inescapable costs
3. Flexible budgeting 3. Relevant costs
4. Incremental Analysis 4. Incremental costs
5. Return on Investment 5. Sunk costs
6. Direct Costing 6. Opportunity costs
7. Capital budgeting 7. Common costs
8. Inventory models 8. Direct and Indirect Costs
9. Cost analysis for marketing
9. Contribution margin
production, and finance
10. Segmental income
10. Planning and Control
statements
11.Financial statement ratio
4 11. Standards
analysis
13. Organizations
Management: The Focal Point of Management

Accounting
The term management accounting obviously consists of two words each of

which represents highly developed areas of study. The term management
accounting suggests an important relationship between management and
accounting.
Management accounting is not merely the application of accounting to

management; rather it is a study of analytical techniques that result from
the combining of accounting fundamentals with the fundamental concepts
of management.
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Accounting as an Organizational Function
Management accounting techniques are useful in all

types of businesses. Managers of service, merchandising,
manufacturing, banks, insurance companies, etc. all can
benefit from the use of management accounting.
Management accounting is frequently associated with
fairly large corporate businesses; however, it is equally
useful to small businesses.
6
Financial vs Managerial Accounting
FINANCIAL MANAGERIAL
Information is reported at Information is designed to
fixed intervals as financial meet the specific needs of
statements management
Information is used by external Information includes historical
users: data, measure past operations
Shareholders and future decision making
Creditors
Government agencies
General public
Information is used by internal
users
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Diagram of the Accounting function
Board of Directors
President
Marketing Production Finance

Department Department Department
Accounting
Department
General Internal Auditing

Cost Accounting Budgeting and
Accounting - Operating
Management
- General system
- Material Acctg. Accounting
Ledger - Compliance
- Factory labor - Profit
- Receipts and - Risk
Acctg. Planning
Disbursement Assessment
- Manufacturing - Incremental
- Payroll - Fraud
Overhead Analysis
- Financial Prevention
8Statements Acctg. - C-V-P analysis
Management accounting as a body of technical knowledge is,
in fact, a synthesis of various disciplines. The conceptual
framework of management accounting, then, has building
blocks in its foundation from:
1. Management theory ( planning, control, organization)
2. Financial accounting (financial statements)
3. Finance theory (capital budgeting, working capital)
4. Economic theory (pricing, forecasting, supply, demand,
cost behavior)
5. Marketing theory (order getting, order processing, order
delivery)
6. Mathematics (algebra, calculus)
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Uses of Management Accounting
❏ cost = selling price

❏ compare cost to monitor/control direct materials, direct
labor, overhead
❏ performance reports used to identify large amounts of
scrap or employee downtime.
❏ analyze potential efficiencies and $ savings in purchasing
fixed assets to increase production process
❏ analyze number of products need to be sold to cover
operating costs/expenses
❏ set up monthly selling targets and bonuses for sales
personnel
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End of Topic
Please see complementary test bank for
practice problems and theories.
11
Dear, you.
Always be in pursuit for
the one you have not yet
become. Keep going!
Love,
Your UCB-JPIA family
12
Reference:
Foundations of management accounting.

http://www.microbuspub.com/pdfs/chapter1.pdf
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Review Materials

Management accounting may be simply

Management: The Focal Point of Management

The term management accounting obviously consists of two words each of

Management accounting is not merely the application of accounting to

Accounting as an Organizational Function

Management accounting techniques are useful in all

Marketing Production Finance

General Internal Auditing

❏ cost = selling price

Foundations of management accounting.

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