Course Title: Management Accounting

Course Code: ACC 233

Prepared by
Proma Sarker
Batch:21st
ID:21100008
Prepared for
Shabuz Mahmud
Assistant Professor

1. ‘Management accounting is concerned with providing information to

managers’-Explain.
 An essential component of accounting called management accounting is concerned with
providing data and analysis to help managers in an organization make wise decisions. The
major goal and focus of management accounting are clearly expressed by the statement
 "Management accounting is concerned with providing information to managers." Let's delve
into this concept in more detail:
 Information for Decision-Making: The core purpose of management accounting is
to provide managers with timely information that is pertinent to their choices. To
plan, strategize, and make decisions that will affect the performance of the
organization, managers require data and insights.
 Internal Audience: The data produced by management accounting is only meant to
be used internally within the company. It is made to meet the particular demands and
needs of managers at different levels, from senior executives to in-charge supervisors.
 Decision Support: Giving decision-makers timely, pertinent information is the main
goal of management accounting. To set goals, devise strategies, distribute resources,
and assess performance, managers need information. These decision-making
processes benefit from the reports and analyses that management accountants
produce.
 Planning: To make future plans, managers rely on management accounting. Setting
objectives, creating strategies, and efficiently allocating resources all fall under this
category. In this planning process, budgets, forecasts, and projections are frequently
used tools, and management accounting provides the data required to develop and
assess them.
 Control: Management accounting assists in monitoring and controlling the
organization's operations once plans are put into action. It provides feedback on how
actual performance compares to anticipated targets, allowing managers to spot
discrepancies and make necessary corrections.
 Cost Management: One of management accounting's primary tasks is to
comprehend and control costs. It involves keeping track of and studying the expenses
related to manufacturing products or providing services. For pricing choices, cost-
cutting plans, and profitability optimization, this information is essential.
 Performance Evaluation: Assessment of the effectiveness of various departments,
products, projects, or employees within the organization is another critical function of
management accounting. The generation of key performance indicators (KPIs) and
performance reports allows organizations to track their progress toward their
objectives.
 Strategic Insights: In addition to offering data, management accounting also
provides analysis and insights. This aids managers in understanding the effects of
various choices, preparing for difficulties, and spotting opportunities, all of which
contribute to the long-term success of the company.

In summary, management accounting is all about equipping managers with the information they
need to plan, control, and evaluate the organization's activities effectively. It serves as a valuable
tool in the hands of managers, enabling them to make informed decisions that contribute to the
achievement of the organization's goals and objectives.
2. Discuss the four steps in the planning and control cycle.
 The four steps in the planning and control cycle, as you've described them, provide a
comprehensive framework for managing an organization's activities effectively.

Let's discuss each step-in detail:

1. Formulating Long and Short-Term Plans (Planning):
The cycle's first step, planning, is fundamental. It entails establishing both short- and long-term
goals and selecting the approaches and techniques required to meet them.Long-term plans
frequently cover a number of years and typically outline the organization's vision, mission, and
strategic goals. These long-term goals are broken down into manageable steps in the short term,
usually within a year.
2. Implementing Plans (Directing and Motivating):
• After plans are created, they must be carried out. This entails allocating resources, delegating
tasks, and carrying out the predetermined activities.
•To ensure that workers comprehend their roles and are motivated to contribute to the
organization's goals, effective communication and leadership are essential during this phase. •
Motivation strategies can include providing incentives, training, and regular feedback to keep
employees engaged and in line with the organization's objectives.
3. Measuring Performance (Controlling):
• Measuring performance is a continuous process that takes place at the same time as a plan is
put into action. To measure how well they are doing in achieving their objectives, organizations
use a variety of metrics and KPIs.
•Data and feedback on important processes, procedures, and results are collected as part of
performance measurement. It aids in determining whether the organization is on track and, if not,
where deviations or problems may be.
4. Comparing Actual to Planned Performance (Controlling):
  In this step, performance metrics and results are compared to the planned goals and
standards established during the planning phase.
 To identify the underlying causes of deviations or variances between actual and planned
performance. While some differences might be acceptable or comprehensible, others
might call for corrective measures.
 Using this data, decision-makers can modify plans, allocate resources differently, or
change strategies to reorient the organization.
 The planning and control cycle is continuous and iterative, which is important to
remember. An organization advances through these stages by learning from its mistakes
and making adjustments for shifting conditions.

3. ‘A fixed cost is a cost that varies per unit of product, whereas a variable
cost is constant per unit of product.” Do you agree? Explain.
 The statement you provided is not accurate. In fact, it describes the characteristics of fixed
and variable costs in reverse. Let me clarify:
 Fixed Costs: Within a reasonable range of production or sales volume, fixed costs are
expenses that don't change overall. In other words, no matter how much is produced or
sold, the total fixed cost remains constant. Per unit of a product, fixed costs are constant.
Instead, regardless of whether a business produces one or a thousand units of a product,
they remain the same. Rent, permanent employee salaries, insurance premiums, and
depreciation are typical examples of fixed costs.
 Variable Costs: Costs that are directly correlated with production or sales volume are
referred to as variable costs. Variable costs rise with rising production or sales, and fall
with falling production or sales. On a per-unit basis, variable costs are fixed. As a result,
the cost per unit stays constant while the total variable cost changes according to the
number of units produced or sold. Direct labor, raw materials, and sales commissions are
typical examples of variable costs.
In conclusion, variable costs are constant per unit but change overall as production or
sales levels change, whereas fixed costs are constant overall but change on a per-unit
basis. Understanding these cost distinctions is important because businesses rely on them
to make cost analysis, budgeting, and pricing decisions.

4. Distinguish between financial accounting and management accounting.

 Here are the major differences between financial and managerial accounting:
Basis for Comparison Financial Accounting Management Accounting
Definition Financial accounting is a With the help of pertinent
potent tool that enables insights gleaned from the
 businesses to accurately accounting system,
publicize their finances and management accounting is a
offer insightful information potent tool that equips
about their operations. managers to create profitable
business strategies and plans.
Objective To create periodical reports. To aid internal managers in
the strategic planning and
decision-making process,
delivering substantial data on
a variety of matters.
Nature of Statements The statements under The statements or reports
Prepared financial accounting are under management
prepared for general-purpose. accounting are prepared for
specific-purpose.
Publishing and auditing Required to be published and It is not meant to be
audited by statutory auditors. published or audited. It is for
internal use only.
Users There are both internal There are only internal users
(employees, management, (management, etc.) of
etc.) and external (customers, management accounting.
creditors, etc.) users of
financial accounting.
Application It helps in showing a true and It helps the management in
fair picture of the financial making meaningful decisions
position of an organization. and strategizes accordingly.
Statutory Requirement It is mandatory to prepare the There is no statutory
financial statements of a requirement for management
company. accounting.
Basis of Decision-making Historical information is used Historical and estimated
as the basis of decision- (predictive) information is
making. used as the basis of decision-
making.
Format There is a specific format for There is no specific format
presenting and recording for presenting information in
information through financial management accounting.
accounting.

5. Explain the three main categories of inventories in a manufacturing

company.
 A manufacturing company's inventories are divided into three main categories according to
management accounting, each of which has a distinct function and is crucial for efficient cost
control and decision-making. These three categories are:
 Raw Materials Inventory:
 All the supplies and parts that a manufacturing business buys or acquires to use in
the manufacturing process are included in the raw materials inventory. These raw
materials are used as the building blocks for producing finished goods.
 Examples of raw materials include unprocessed metals, plastics, chemicals,
textiles, electronic components, and any other materials required for the
production of the company's goods.
 Monitoring reorder points to ensure a steady supply, keeping an eye on material
quantities and costs, and reducing waste and spoilage are all part of managing raw
material inventory.
 Work-in-Progress (WIP) Inventory:
 WIP inventory denotes items that are still being manufactured but have not yet
been finished. Sub-assemblies, partially assembled goods, and goods in various
stages of production all fall under this category.
 WIP inventory is the company's investment in ongoing projects and reflects the
value that is added to raw materials during the manufacturing process.
 In order to reduce production costs and increase throughput, managing WIP
inventory entails keeping an eye on production schedules, spotting production
bottlenecks, and ensuring that work is conducted effectively.
 Finished Goods Inventory:
 The inventory of finished goods consists of items that have been completed and
are prepared for sale or delivery to customers. These goods are in a ready-to-sell
or ready-to-use condition after undergoing all necessary manufacturing, assembly,
and quality control procedures.
 In order to satisfy customer demand, account for seasonal variations, and act as a
safety net against changes in production rates, finished goods inventories are kept.
 Forecasting demand, streamlining production, and ensuring product availability
to fulfill orders from customers while reducing storage costs are all part of
managing finished goods inventory.
The costs connected with each of these inventory categories must be tracked and analyzed for
effective management accounting in a manufacturing company. In addition to the price of buying
or making the goods, this also includes expenses for storing, insuring, and handling inventory.

6. Discuss the three major elements of product costs in a manufacturing

company.
 In a manufacturing company, product costs are the expenses associated with producing
goods. They consist of three major elements:
 Direct Materials:
 Raw materials and parts that can be directly linked to a particular product are known
as direct materials. These components are integrated into the final item.
 Metals, plastics, electronic components, textiles, and other materials used in
manufacturing are a few examples of direct materials.
 The cost of direct materials includes the purchase price, shipping and handling fees,
as well as any other costs specifically related to obtaining and delivering these
materials to the production facility.
 Direct Labor:
 Direct labor is the term used to describe the compensation and benefits given to
workers who participate in the manufacturing process and directly produce goods.
 These workers frequently perform operations like assembly, machining, welding, and
others that are directly connected to turning raw materials into finished goods.
 Based on the hours worked by these employees and their hourly wage rates or
salaries, including any applicable overtime or special incentives, direct labor costs are
calculated.
 Manufacturing Overhead:
 All manufacturing expenses that aren't directly related to a particular unit of
production but are still required for the overall manufacturing process to function are
included in manufacturing overhead.
 This category encompasses various indirect costs, such as:
1.Factory rent and utilities
2.Maintenance and repair of machinery and equipment
3.Depreciation of manufacturing equipment
4.Quality control and inspection costs
5.Indirect labor (e.g., supervisors, maintenance personnel)
6.Supplies and consumables used in production
 A predetermined overhead rate based on elements like machine hours, labor hours, or
production volume is frequently used to allocate manufacturing overhead costs to
specific products.
The total cost of producing a product is made up of these three main components: direct
materials, direct labor, and manufacturing overhead. Usually, they are added together to
determine the cost of goods manufactured (COGM) or the cost of goods sold (COGS) on the
income statement. For pricing decisions, inventory valuation, financial reporting, and overall
cost control within a manufacturing company, accurate tracking and allocation of these costs are
crucial.

7.Distinguish between a contribution approach income statement and a

traditional approach income statement
 The seven points of difference between contribution and traditional margin income statement
have been detailed below:
Contribution approach income Traditional approach income
statement statement
1.Meaning Contribution margin income Traditional income statement
statement reports the contribution reports the profitability of the entity
that the entity’s income makes at gross and net levels profitability
towards fixed costs as well as the attributed to its production related
overall profitability after recording activities as well as overall
of all fixed costs. profitability from all activities.
2.Bifurcation of The contribution margin income The traditional income statement
statement bifurcates only expenses bifurcates both incomes and
of the entity. All incomes are expenses based on their relation to
clubbed together. production activities.
3.Bifurcation basis Contribution margin income Traditional income statement
statement follows variable costing follows absorption costing basis
basis wherein expenses are wherein incomes and expenses are
bifurcated based on their variability bifurcated into direct and indirect.
their relationship with changes in
output levels.
4.Nature of reporting Contribution margin income Traditional income statement is
statement is reported internally reported externally and forms part
within the entity and does not form of published financial statements.
part of published financial
statements but part of MIS reports.
5.Reported for benefit of Contribution margin income Traditional income statement is
statement is reported primarily for reported primarily for the benefit of
the benefit of the management. external stakeholders such as
shareholders, other investors,
creditors, bankers etc.
6.Statutory requirement Contribution margin statement is Traditional income statement is
not a statutorily required report but mandatorily required to be prepared
is prepared for internal managerial and reported as per jurisdictional
use. laws.
7.Subject to audit Contribution margin income Traditional income statement, being
statement is not subject to any part of reported financial statements
external audit. is mandatorily subjected to external
audit.

8. Explain the difference between a product cost and a period cost.

 There are few differences between a product cost and period cost have been detailed below:
 Product Cost Period Cost
Product costs are those costs necessary in Period costs are not necessary part of
making products and are part of manufacturing process.
manufacturing process.
They are expensed in the financial statements They are expensed in the period in which they
when revenue from sale of products is are incurred.
realized.
Example of Product costs are Raw Material, Example of Period Costs are Advertising,
Labor and Factory overhead such Factory Sales Commissions, Office Supplies.
Depreciation, fuel Etc.