Summary
Summary - Management Accounting (HBA17)
- Course
- Institution
A summary of all the theory and slides seen in the course + my extra notes.
[Show more]
Seller
Follow
elinedemunster2001
Content preview
MANAGEMENT ACCOUNTINGIntroduction & costs classifications
1.1 Introduction
Cost is a sacrificed or forgone resource to achieve a specific objective
- Actual cost is a cost that has occurred
- Budgeted cost is a predicted cost
Cost object is anything for which cost measurement is desired
a) Accumulation; collection of cost data in some organized way by means of an
accounting system
b) Assignment; encompasses tracing direct costs to a cost object and allocating indirect
costs to a cost object
Usefulness to managers:
- Making decisions
- Implementing decisions
Different types of firms
Manufacturing-sector companies purchase materials and components and convert them
into various finished goods
<Eg. Apple
Merchandising-sector companies purchase and then sell tangible products without
changing their basic form
<Eg. Supermarket chain, Delhaize
Service- sector companies provide services (intangible products) like legal advice or audits
<Eg. KULeuven, service of education
1.2 Cost classification
The need for cost classification
Goal; grouping costs according to their common characteristics;
3 most commonly used types of cost classification:
o By behaviour: fixed, variable, semi-variable
o By association with cost object: direct costs and indirect costs
o By function: product and period costs
, Variable costs and fixed costs
Classification based on cost behaviour (=how a cost will
react to changes in the levels of business activities)
- Variable cost= expenses that fluctuate
proportionally with the quantity of output, over a defined period of time
- Fixed cost= one which is not affected by changes in the level of activity, over a
defined period of time, for a specific capacity
- Semi-variable cost is one which is partly fixed and partly varies with changes in the
level of activity, over a defined period of time. In this case, if activity levels increase;
cost per unit will reduce but not in proportion to the activity level
Eg. Waterbill, electricity
- Step cost is a fixed cost that increases in steps
<When higher than certain amount, higher cost
Eg. Restaurant and wages of waiters
,REMARK
For product mix & pricing decisions
Based on total costs rather than unit costs
Direct costs and indirect costs
Classification based on association with cost object
- Direct costs; directly traceable to an identifiable unit
- Indirect costs= overhead; no traceable, must be allocated, spread over a number of
identifiable units of the business
Direct materials: cost of raw material that is used to make a product and can be
conveniently traced to the finished product
Eg. Wood in furniture, leather in shoes
Direct labour: cost of salaries, wages and fringe benefits for personnel who work directly on
manufactured products
Eg. Wages paid to an automobile assembly worker
Indirect costs: all other costs
- Indirect materials; materials used to support the production process
Eg. Printing and stationary materials, consumables for maintenance of plant
and machinery
- Indirect labour: cost of personnel who don’t work directly on the product
Eg. Maintenance workers, director’s and supervisors’ salary and security
guards
- Other costs
Eg. Depreciation on plant and equipment, property taxes, insurance
Product costs and period costs
Classification based on function
Product costs: costs assigned to goods that were either purchased or manufactured for
resale
Eg. Materials, labour, transportation, depreciation of machines used in production
Period costs: costs that are treated as expenses in the period in which they are incurred
Eg. Administration costs, selling costs, R&D, depreciation of computers in accounting
department
, Production process & cost flow – Manufacturing company
Material purchases + direct labor +
manufacturing overhead = Cost of
goods manufactured (COGM)
Manufacturing cost flow – Income Statement Cost of goods manufactured
Product costs; not directly related to cost object
Direct; directly related or can be directly traced
through cost object
Indirect; needs to be divided across cost object
with allocation key
Period costs; immediate expenses that are taken
into account in a period where they are incurred
– not directly related to the production
Variable; commission
Full & variable costing
Introduction
A costing system is a framework used by companies to estimate the cost of their
products for profitability analysis, inventory valuation and cost control
Estimating the accurate cost of products is critical for profitable operations
- Full/absorption costing
- Variable/direct costing
Inventory-costing choice
Different costs for different purposes
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller elinedemunster2001. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $11.97. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
64438 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now