Cost Management and Production Management

• Management accounting is exclusively for internal use.
• Internal users include management, top executives, and company directors.
• External users cannot access management accounting data due to its sensitive nature.

Cost Management

• A part of management accounting, involves analyzing costs and comparing standard costs with actual costs.
• Cost variances are analyzed to determine profitability and inform decision-making strategies.
• Cost management is important for budget preparation by gathering and organizing financial data for management decisions.

Connection between Cost and Production Management

• Cost management and production management are closely related.
• Production goes through three stages: planning, management (execution), and control (monitoring efficiency).
• Cost management tracks costs, ensures efficiency, and facilitates adjustments, playing a significant role in production-related decision-making to maximize profitability.

Financial Economics

• Deals with past transactions, as every recorded transaction requires a settlement document (receipts, invoices, or payment records) as proof.
• A sales payment serves as a settlement document, and can only be generated post payment.
• "No money movement, no document; money moves, document appears.".

Financial Accounting

• Records past transactions, adheres to strict standards and legal requirements.
• Used by external parties such as investors, banks, and the government.
• Example: "The company earned $500,000 last year.".

Management Accounting

• Provides financial insights to help managers make decisions.
• Used internally and doesn't require strict adherence to accounting rules, offering more flexibility.
• Example: "Should we expand our business next year?".

Cost Accounting

• Focuses on budgeting, cost control, and tracking expenses, helping businesses analyze their spending.
• Example: "Why did our production costs increase by 10% this year?".

Role of Cost & Management Accountants

• Planning: Utilize past data to assist companies in future planning, such as setting budgets based on previous profits.
• Control: Monitor performance to identify financial problems, such as overspending departments.
• Organizing: Structuring the company financially for efficiency through resource allocation to different business units.
• Communication: Providing financial reports to managers and employees, like monthly sales reports to department heads.
• Motivation: Using performance reports and budgets to encourage better performance, such as bonuses for meeting financial targets.

Comparison between Management and Financial Accounting

Conclusion

• Financial accounting focuses on external reporting and past transactions.
• Management accounting helps managers in making business decisions.
• Cost accounting tracks and controls business expenses.

Cost Estimation vs. Accuracy

• A cost estimation ($2,100) is not an exact amount but a price evaluation.
• For financial accountants, accuracy is crucial because their data is used for significant business decisions.
• Pricing is a major factor in competitive industries (Samsung, Apple, Oppo, Huawei).
• Overpricing can cause loss of customers, companies should compute costs to set competitive selling price.

Reporting Frequency

• Financial accounting reports are for external use and follow a fixed schedule, such as quarterly reports in Malaysia.
• Management accounting reports are for internal decision-making and can be prepared as needed.

Additional Key Points

• Cost estimation must be accurate for competitiveness.
• Financial reports follow fixed schedules (e.g., quarterly).
• Management reports are flexible and prepared as needed.