Week 1: Overview Of Managment Accounting And Costing Flashcards
What is it used for?
- Provides information to managers of a business
- Improves effectiveness and efficiency
- Make informed decisions
What is management accounting?
It refers to the processes and techniques that focuses on the effective and efficient use f organizational resources, to support managers in their tasks of enhancing both costumers value and shareholder value.
What is shareholder value?
Maximizing future cash flows, generates returns for shareholders. In two ways: - Through dividends/share price.
What type of information does management accounting use?
Qualitative and Quantitative
Who is management accounting for?
Internal users
Fundamental business decisions?
Investing, financing, operating and distribution.
Strategic Plan
Process + what its made up
1) Identify where we are
2) Identify where we want to be
3) Develop an actionable plan to get from where we to get from the origin
Cost leadership
Product differentiation
Cost leadership and Product differentiation
Cost - when a business establishes a competitive advantage by having the lowest cost of operation in the industry. When a product costs less to produce, the business can offer the product to customers at a lower price than competitors.
Product differentiation - when a higher price is charged for a product for a product relative to competitors, but it’s justified by the quality of the product or the presence of a valuable feature.
How strategic plan and fundamental. Decisions. Come together?
- 1 - Strategic plan
- 2 - (Investment decision) Management decide on the assets to be acquired
- 2 - (Financing decision) Where funds are obtained
- 3 - (Operational decisions) Management decide the price of goods, number and extent of advertising =, number of employees required, incentives)
- 4 - (Distribution decisions) How much should go to the owners and how much should be retained [influenced by financing]
Examples and explanation of Short and Long Term?
Long term - Investment could be be related to the acquisition of property and the building
Short term - Could be the acquisition of additional inventory which may be required to meet an expected in demand [may be short-term overdraft or loan]
Examples of financing management decisions
1) Deciding whether to to outsource production
- Current employees may need to be retrenched
- What if quality is low and no timely
- What if prices are raised in the future
2) Deciding whether to pay bonuses
- Can they afford to in the future
- What impact would it have on morale?
- If management doesn’t pay bonuses, how will morale be affected?
Differences between management accounting and financial accounting
1) M = For internal users: Managment
F = For external users: Investors, creditors, SARS
2) M = No legal requirements
F = Statutory requirements in terms of Companies Act/IFRS
3) M = Focus on business segments, operating divisions and individual products/services
F = Focus on the whole business
4) M = No GAAP/IFRS
F = Governed by GAAP/IFRS
5) M = Forward looking
F = Historical
6) M = Produced daily, weekly or monthly
F = Produced annually
What does:
[Cost classification, Cost behavior, Relevant costing and decision making]
[Cost-volume-profit analysis (CVP), Income statement approaches]
[Budgeting]
DO?
- allocate costs for inventory valuation and internal and external reporting (costing)
- Provide relevant and useful information for decision making
- Provide information for long and short term planning, monitoring, control and performance evaluation.
What is costing? How is it useful
How expenditure is allocated
- Managers need to plan future costs, monitor current costs and manage costs by understanding and focusing on their underlying cause.
— Help plan for future
— Help make decisions
— Help evaluate the performance of services, products, divisions or employees
What is a cost and how are they allocated?
Cost - A resource sacrificed in order to achieve a certain objective.
— Category and Objective