Module 1 Managerial Accounting Concepts and Cost Segregation
Module 1 Managerial Accounting Concepts and Cost Segregation
Module 1 Managerial Accounting Concepts and Cost Segregation
MANAGERIAL ACCOUNTING
Managerial accounting – is concerned with providing information to managers, i.e., those who are
inside an organization and who are charged with directing and controlling its operations.
Financial accounting – is concerned with providing information to shareholders, creditors, and others
who are outside an organization.
Functions of management
1. Planning
2. Organizing and directing
3. Controlling
4. Decision making
Organizational structure
2. Staff position – is one that relates only indirectly to the carrying out basic objectives. It is
supportive in nature, in that they provide service or assistance to line positions or to other parts
of the organization.
Controller – is the manager in charge of the accounting department. He is a member of the top-
management and an active participant in the planning, control, and decision making
processes.
Accounting information – is essentially financial in nature, helping the manager to do three things:
1. Plan effectively and focus attention on deviations from plans
2. Direct day-to-day operations
3. Arrive at the best solutions to the operating problems faced by the organization
Differences
1. Managerial accounting focuses on providing data for internal uses by the manager.
2. Managerial accounting places much more emphasis on the future.
3. Managerial accounting is not governed by generally accepted accounting principles.
4. Managerial accounting emphasizes the relevance and flexibility of data.
5. Managerial accounting places less emphasis on precision and more emphasis on
nonmonetary data.
6. Managerial accounting emphasizes the segments of an organization, rather than just looking at
the organization as a whole.
7. Managerial accounting draws heavily from other disciplines.
8. Managerial accounting is not mandatory.
Cost – reflects the monetary measure of resources given up to attain an objective such as
acquiring a good or service.
Cost Behavior
What will happen to fixed cost and variable costs, per total and per unit, if production and sales
are zero, 5,000 units, 10,000 units, and 15,000 units.
Production Total fixed Total variable Unit fixed Unit variable Total cost Total unit
cost cost cost cost cost
0
5,000
10,000
15,000
Relevant range assumption– is a band of activity where the behavior of costs, expenses and
revenues is valid. That is total fixed cost is constant and total variable cost changes.
Time assumption – states that the cost behavior patterns identified are true only over a specific period
of time. Beyond this, the cost may show a different behavior.
Basic formula:
Y = a + bx
HIGH-LOW METHOD – the principle used in this method resides on the assumption that any change
in total cost is attributable to the change in variable cost.
Formula:
b = Cost at High activity level – Cost at Low activity level or Change in total costs
High activity level – Low activity level Change in activity level
MAHAL Co. is analyzing the fixed and variable components of its materials handling cost in relation to
number of shipments received. The following data were taken from the historical records of the
company:
Using the scattergraph technique, compute the fixed costs and the variable cost rate
THE LEAST-SQUARES METHOD – this method extends the regression line to the other
quadrant in the wholistic quadrant analysis.
Formulas: Equation 1: Y = a + bx
Equation 2: ΣY = na + bΣx
Equation 3. ΣxY = aΣx + bΣx²
The chief finance officer of MAHAL Co. is analyzing the relationship of its electricity costs and the
number of batches produced. The following data are assembled for this purpose.
Months No. of batches Electricity cost Months No. of batches Electricity cost
January 4 P22,000 May 3 P21,500
February 7 30,000 June 6 29,000
March 5 25,000 July 8 36,000
April 2 15,000
Determine the total fixed cost and variable cost rate of electricity using the least-squares method.