Master Financial Management with this concise summary! Ideal for students and professionals, this document simplifies key concepts from Chapters 15, 20, and 21 of Financial Management textbooks. From managerial accounting to budgeting and cash flow management, it covers everything you need to know....
Table of Contents
CHAPTER 15 - INTRODUCTION TO MANAGERIAL ACCOUNTING...........................2
MANAGEMENT ACCOUNTING = A SYSTEM THAT PROVIDES INFORMATION TO MANAGEMENT FOR BUSINESS
DECISION-MAKING............................................................................................................... 2
DIFFERENCES BETWEEN FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING............................2
THE MANAGEMENT PROCESSES.............................................................................................. 2
COST CLASSIFICATION.......................................................................................................... 2
MANUFACTURING COSTS....................................................................................................... 2
Direct and indirect costs............................................................................................. 4
Product and period costs............................................................................................4
Prime and conversion costs........................................................................................ 4
COST OF GOODS SOLD / INCOME STATEMENT............................................................................4
BALANCE SHEETS................................................................................................................ 4
EXAMPLE INCOME STATEMENT:............................................................................................... 5
CHAPTER 19 - COST-VOLUME-PROFIT ANALYSIS..............................................6
COST BEHAVIOR................................................................................................................. 6
High-low method, mixed cost.....................................................................................6
COST-VOLUME-PROFIT ANALYSIS............................................................................................. 6
Contribution margin and operating income................................................................6
Break-even point........................................................................................................ 7
SALES MIX......................................................................................................................... 7
THE WEIGHTED AVERAGE CONTRIBUTION MARGIN......................................................................7
OPERATING LEVERAGE......................................................................................................... 7
MARGIN OF SAFETY............................................................................................................. 8
CHAPTER 21 – BUDGETING..............................................................................9
HUMAN BEHAVIOR AND BUDGETING........................................................................................9
BUDGETING SYSTEMS........................................................................................................... 9
MASTER BUDGET................................................................................................................ 9
OPERATING BUDGET.......................................................................................................... 10
Sales budget............................................................................................................ 10
Production budget.................................................................................................... 10
Direct materials purchases budget...........................................................................10
Direct labor budget.................................................................................................. 11
Factory overhead budget......................................................................................... 11
Selling and administrative budget............................................................................11
FINANCIAL BUDGET............................................................................................................ 12
Cash budget............................................................................................................. 12
FORMULAS:................................................................................................. 13
CHAPTER 15.................................................................................................................... 13
CHAPTER 20.................................................................................................................... 13
High-low:.................................................................................................................. 13
Contribution margin:................................................................................................ 13
Break-even:.............................................................................................................. 13
Operating leverage:................................................................................................. 13
Margin of safety:...................................................................................................... 13
CHAPTER 21.................................................................................................................... 13
, Chapter 15 - Introduction to managerial
accounting
Management accounting = a system that provides information to
management for business decision-making.
Differences between financial accounting and management
accounting
Financial accounting Management accounting
Users: external users and Management
management
Nature of information: objective Can be subjective; can be focused on past
and verifiable; focused on past but also future
performance
Prepared according to GAAP Format and rules based on management
needs
Prepared at fixed periods Periodical or incidental
Focusses on company as a whole Focusses on whole company or relevant
segments or aspects of the business
The management processes
The management process has four steps:
1. Planning = management uses planning to develop the company’s
objectives (goals) and translating these objectives into courses of action.
Planning may be classified as follows:
- Strategic planning = long-term action to achieve business goals. 5 to
10 years.
- Operational planning = short-term planning. Also, tactical planning.
2. Directing = the process by which managers, given their assigned level of
responsibilities, run day-to-day operations.
3. Controlling = in concerned with monitoring employees’ activities,
keeping the organization on track towards meeting its goals, and making
corrections as necessary.
4. Improving/continuous process improvement = is the philosophy of
continually improving employees, business processes, and products.
Decision-making = a crucial part of planning, directing, controlling, and
improving management.
Cost classification
Manufacturing costs
1. Direct material costs = cost of direct materials that are used in the
finished product. traceable
2. Direct labor costs = wages of factory workers who are directly involved
in turning materials into a finished product.
3. Factory overhead costs = all the costs of producing a product except
for direct materials and direct labor.
For example:
- Indirect labor
- Heating and lighting the factory
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