Introduction to Managerial Accounting

Managerial accounting focuses on providing information for internal decision-making, unlike financial accounting, which focuses on external reporting.
It emphasizes flexibility and relevance, adapting to the specific needs of different departments or projects.
Key users include managers, employees, and stakeholders involved in the operational decisions of the company.
Data collected can be used to design and improve cost-control systems, project pricing, and assess efficiency in various business operations.

Cost Behavior: Understanding how costs change with changes in activity levels.
- Variable Costs: Remain constant per unit of output but fluctuate in total.
- Fixed Costs: Remain constant in total but fluctuate per unit of output.
- Mixed Costs (Semi-variable Costs): Contain both variable and fixed components.
Cost Classification: Categorizing costs for decision-making purposes.
- Direct Costs: Can be traced directly to a specific product or department.
- Indirect Costs: Cannot be traced directly to a specific product or department and are allocated.
- Product Costs: Costs directly tied to producing goods or services, including direct materials, direct labor, and manufacturing overhead.
- Period Costs: Costs that are not directly tied to production and are expensed in the period they are incurred, including selling, general, and administrative expenses.
Cost Allocation: Assigning indirect costs to specific products or departments.
- Methods: Methods include direct method, step method, and activity based costing (ABC).
- Drivers: Activities that cause costs to change, which are often used in ABC costing.

CVP analysis examines how changes in costs and volume affect profits.
Key components: Sales revenue, variable costs, fixed costs, and profit.
Break-even Point: The level of sales where total revenue equals total costs, resulting in zero profit.
Margin of safety: The difference between actual or projected sales and the break-even point in sales.
Impact of changes: This analysis helps managers understand the effects of changes in sales volume, pricing, or costs on profitability.

Budgeting Process: A formal planning tool to establish goals and ensure resources are allocated efficiently.
Types of Budgets: Master budgets, operating budgets, capital budgets.
Importance: Improves coordination, promotes responsibility, enhances communication, provides a benchmark for performance evaluation, and facilitates planning.
Key Considerations: Forecasting revenue, controlling costs, and motivating performance through budget targets.

Variance Analysis: Identifying and analyzing differences between planned and actual results.
Responsibility Accounting: Assigning performance responsibility to specific individuals or departments.
Key Performance Indicators (KPIs): Metrics used to assess and compare performance across various aspects of a business.
Performance Measurement Systems: Structures designed to evaluate and align individual and organizational efforts with objectives.
Financial and Non-financial Performance Metrics: Measuring profitability, efficiency, and other relevant performance factors.

Pricing Decisions: Analyzing costs and market conditions to establish optimal prices.
Make-or-Buy Decisions: Examining whether to produce a product internally or outsource it.
Special Order Decisions: Evaluating whether to accept an order that differs from normal operations.
Product Mix Decisions: Determining which products to emphasize based on profitability and resource availability.
Closing a Department: Assessing the impact on the company as a whole before closing.
Other decisions: Many managerial decisions hinge on good cost analysis.

Relevant Costs: Costs that differ between two decision alternatives.
Irrelevant Costs: Costs that remain constant between the decision alternatives.
Opportunity Costs: The lost potential profit from choosing one option over another.
Sunk Costs: Costs that have already been incurred and cannot be recovered.
Differential Costs: Difference in costs between two options.

Historical Costs: Not always useful for decision making.
Future Costs: Crucial for evaluating strategic decisions and future outcomes.
Reliable and Accurate Data: Important for effective accounting practices and analysis.
Predictive Factors: Used for planning future periods.