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Management Accounting Tutorial Notes
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Notes from all the tutorials of Management Accounting IB
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Tutorial 1Cost = the value of any resource consumed to run a business.
Cost object = any ‘object’ for which we need information about costs.
Cost accumulation = gathering together relevant information about a cost object.
Management accounting vs Financial accounting - classification of costs
1. Financial accounting perspective → sending information to stake/shareholders
Does the information which I elaborated change the current value of assets?
2. Management accounting perspective → sending information to managers
When are resources consumed? How can I allocate them efficiently and effectively?
Inventoriability vs Traceability
Once costs have been accumulated and made meaningful to decision making, how can I treat
them to inform managers’ decisions?
Criterion 1: inventoriability of costs → distinction between manufacturing and period
costs.
Criterion 2: traceability of costs → distinction between direct and indirect costs.
Manufacturing costs Period costs Direct costs Indirect costs
● Resources which ● Resources used for ● Resources ● Resources
are physically purposes other consumed uniquely consumed by
needed to make than physically and unequivocally several cost objects
products making products by a cost object at the same time
● The related ● The related ● The main scope is ● The main scope is to
information is sent information is to compute the compute the total,
to inventory expensed in the total, final cost for final cost for the
(balance sheet) income statement the object (e.g. object (e.g.
● Main scope is to ● The main scope is manufacturing cost manufacturing cost
prepare financial to prepare financial of a product) of a product)
accounting-like accounting-like ● Traceability → ● Traceability →
reports reports economic and economic and
practical practical
convenience convenience
Accumulated costs:
Is the cost incurred to make the product?
➢ No → period costs
Is it traceable?
➢ No → indirect period costs
➢ Yes → direct period costs
Is the cost incurred to make the product?
, ➢ Yes → manufacturing costs
Is it traceable?
➢ No → indirect manufacturing costs
➢ Yes → direct manufacturing costs
Identification of cost pools
➢ Cost pool: grouping (accumulation) of indirect costs.
➢ Cost pool homogeneity: indirect costs having the same underlying cause are gathered
together.
➢ Cost driver: measure of activity (= Allocation base! → number of… e.g. labor
hours, interventions, batches) that triggers the consumption of the indirect
cost.
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