Management Accounting

BBAP2103
Jumardi Singare
014-3580486
mardi_umar83@yahoo.com
mardi_umar83@oum.edu.my
 Chapter 1 :
Management
Accounting
Environment
 Introduction
Management Accounting (MA) prepare
financial information to manager that the
person whos control company operation
Role of Management Accountant
Advisor

Operation Officer

Role of Management Accounting

Prepare financial information and data to

manager
Controlling the organization

Motivate the player on the organization

Evaluate organization performance

Comparison of FA & MA
Management Financial Accounting
Accounting
User Parties outside the Parties within
organization organization
Emphasis Summary of past Focuses more on
activities and based activities that influence
on historical costs future decisions
Data More objective and More flexible and
varies relevant
Informatio Data that have been Report does not have to
n details detailed and be detailed. Report
accurately reported according to division,
product, customer &
segment
Legislation Report must be Does not have to follow
prepared according GAAP
 Features of MA
Information
Relevant
Understandable
Timely
Comparable
Reliable
With Cost-Benefit Features
 Important of MA
Information
Determent cost of unit product /
service
Carry out function of planning,
operation control and performance
evaluation
 Concept of Cost
Cost any expenses that involved in
production process either cash or
asset
Unexpired cost/asset
product/service not used and have
been economic value
 Types of Costs
Cost Object
Any item, unit or object that involved in production
Direct Cost costs directly involved in production.

Ex : direct material and direct labor

Indirect Cost Costs indirectly involved in
production.
Ex : manager salary. Manager only involved in
factory operation
Cost Driver
Any element that carry out overhead cost.

Ex : used of machine, computer etc.

When the cost driver rise, the cost object also rise
 Classification of Cost

Classification of
Cost

Behaviou Business Period Financial

r Function Statemen
t
 Cost Classification
According to Behaviour
Cost that exist because of change in
production activity
When the production level rise @ fall, the
cost would be rise @ fall also and may not
change
For planning purpose, manager must know
what will happen. If the manager expected
the cost will change the manager must
estimate the change of the cost
Type of cost fixed cost, variable cost and
mixed cost.
 Cost Classification
According to Behaviour
(cont.)
Fixed Cost
The cost will not change even thought
the production level change
Ex : factory depreciation, supervisor
salary, factory rent etc.
 Cost Classification
According to Behaviour
Cost (RM000)
(cont.)
100

50

5 10 15 20 Quantity
(Unit)
Linear function for fixed cost
y=a
Where y = Total cost
a = Total fixed cost
 Cost Classification
According to Behaviour
(cont.)
Variable Cost
Always change when the production
level change
Factors that change the production
level
Total manufacturing
Total sales

Total working hours

Length of way / number of trips

 Cost Classification
According to Behaviour
(cont.)
Cost (RM000)

150

100

50

5 10 15 Quantity
(Unit)
Linear function for variable cost
y = bx
Where y = Total cost
b = Variable cost per unit
x = production level
 Cost Classification
According to Behaviour
(cont.)
Mixed Cost
Combination cost of fixed cost and variable cost
Cost (RM000)

Linear function
for Mixed Cost
200
y = bx + a
150
Where
Total
100 Cost y = Total Cost
Variable Cost
50 b = Variable
Fixed Cost Cost

5 10 15 Quantity a = Fixed Cost

(Unit) x = Production
Level
 Cost Classification
According to Business
Function
Cost that classified according to main
activity or operation of the company
Classification cost according to
Manufacturing operation function
operation that process material to finish
good
Non-manufacturing operation function
commercial operation (buying and selling
finish good) and service operation
(provides services to customer)
 Cost Classification
According to Business
Function( cont.)
Cost
Function

Manufacturing No-Manufacturing
Operation Operation
Process
material to
finish good Commer Service
cial Operatio
Operatio n
Buynand Provide
sell service to
finished customer
good
 Cost Classification
According to Business
Function( cont.)
Manufacturing Cost
Cost that involved in produce finish good
Comprised of direct materials, direct labor
and manufacturing overhead
Manufacturing Explanation
Cost
Direct Material Cost of direct materials that used
Cost directly to produce finish good
Direct Labor The person that involved directly in
making finish good. Cost consist of
salaries, wages and bonuses
Manufacturing All cost that involved in making
Overhead Cost finish good exclude direct materials
 Cost Classification
According to Business
Function( cont.)
Manufacturing Cost (cont.)
Prime Cost : Consist of direct material and
direct labor are used in making finish good
Conversion Cost : Consist of direct labor
and overhead cost
Non-Manufacturing Cost
Cost that uninvolved in production. Ex :
Marketing cost, administration cost etc
Exist when the finish good ready to sale
 Cost Classification
According to Period
Product Cost
Cost that is provided directly to the
product
The finish good will store as an inventory

and ready to sold

When the product sold, it will recoded on

income statement as Cost of Good Sold

and the product not sold will recoded on
balance sheet as an Inventories.
 Cost Classification
According to Period
Period Cost
All costs that not included in product
cost and recorded on income statement
Classified as an expenses

For examples : Sales and admin

expenses, advertisement and etc
 Cost Classification
According to Period
Manufacturing
Cost (Product
Cost)

Direct Direct Manufacturi

Materials Labor ng Overhead

Tangible Cost of labor All

physical + directly + manufacturin
materials involved in g cost
used in making finish involved in
making finish good making
good product
exclude
Prime Cost direct
Conversion
Costmaterial and
 Cost Classification
According to Period
Non-Manufacturing
Cost
(Period Cost)

Marketing Administrati
and Sales on Cost
Cost
Cost involved in All costs related to
ensuring good reach the management of
customer. the operation
Examples : Examples :
Sales commission Clerks salary
Sample expenses Manager salary
Promotion and Depreciation pf
advertisement office
expenses equipment
 Cost Classification
According to Business
Category
Preparation financial statement
made for internal use. For examples,
for manager
There are 3 types of business
categories that is
Service Organization
Commercial Organization

Manufacturing Organization
 Cost Classification
According to Business
Category (cont.)
Proved service to customer. Also know
as intangible product
Refer page 24 to know the income
statement format for Service Company
 Cost Classification
According to Business
Category (cont.)
Syarikat ABC
Income Statement for Year Ended 31
December 2007
Revenue 2,000,0
(-) Service cost 00
(1,200,0
00)
Margin Cost 800,000
(-) Admin and marketing (290,00
expenses 0)
Net Profit 510,00
 Cost Classification
According to Business
Category (cont.)
Commercial Organization
Carry out buying and selling finish good
activity
All inventories, purchase and sales value will

record detailed on income statement

Refer page 26 for examples
 Cost Classification
According to Business
Category
Syarikat(cont.)
ABC
Income Statement for Year Ended 31
December 2007
Revenue 2,000,000
Cost Of Good Sold
Beginning inventories 200,000
(+) Purchases 630,000
Cost of Good Available for 830,000
Sale (300,000) (530,000)
(-) Ending inventories
Gross Margin 1,470,000
(-) Admin and marketing (200,000)
expenses
Net Profit 1,270,000
 Cost Classification
According to Business
Category (cont.)
Manufacturing Organization
Company that process raw materials to
finish good
Income statement consist of direct
material part, labor part and
manufacturing overhead part.
 Syarikat ABC
Income Statement for Year Ended 31 December 2007
Revenue 8,500,000
(-) COST OF GOOD SOLD
Beginning inventory of finish good 920,000
Direct raw materials, 1/1 400,000
(+) Purchase of direct material 800,000
Direct materials available so use 1,200,000
(-) Direct Material, 31/12 (150,000)
Materials used 1,050,000
(+) Direct labor 700,000
(+) Factory overhead 1,750,000
Manufacturing cost involved 3,500,000
(+) Work in process, 1/1 250,000
Total work in process throughout 3,750,000
year (300,000)
(-) Work in process, 31/12
Cost of good manufacturing 3,450,000
Cost of good available for sales 4,370,000
(-) Ending inventory of finish good (1,460,000) 2,910,000
Gross Margin 5,590,000
(-) Marketing and admin expenses (1,440,000
)