Management Accounting Functions

Management Accounting

• Management accounting provides financial data and advice to a company for use in the organization and development of its business.
• It is concerned with the provision of information to people within the organization to help them make better decisions and improve the efficiency and effectiveness of existing operations.

Functions of Management Accounting

• Planning: deciding in the present about the future objectives and the courses of action for their achievement.
• Controlling: ensuring that the divisional, departmental, sectional, and individual performances are consistent with the predetermined objectives and goals.
• Decision-making: allocating resources effectively in the best possible manner to maximize returns or profit.

Cost Management

• Cost classification includes material cost, labor cost, and overhead cost.
• Cost accounting methods include traditional method (direct method, step method, reciprocal method), and activity-based costing.

Cost Terminology

• Cost: utilization of assets' resources in order to obtain another asset (usually cash).
• Prime cost: cost made up of all direct costs, including direct material cost and direct labor cost.
• Conversion costs: costs used to convert raw materials into finished goods.
• Overhead costs: costs other than raw material and direct labor used to determine the value of the product and inventories.

Cost Classification

According to Behaviour

• Fixed cost: costs that remain fixed or constant despite changes in output in a given relevant range.
• Variable cost: costs that vary according to the variation in unit of output.
• Semi-variable cost: a combination of variable costs and fixed costs.

According to Tracing and Allocation

• Direct cost: costs that can be traced to a business activity, such as direct materials cost and direct labor cost.
• Examples of direct and indirect costs: flour, water, sugar, eggs, utensils, labor, and expenses like halal certification, rent, telephone, and electricity bills.

Accounting for Materials

• Management of material involves ordering, delivering, and receiving material from suppliers; storing material in the warehouse; and withdrawing material when requested by the production department.
• Each activity needs documentation to ensure the effectiveness of internal controls in an organization.

Material Valuation

• Raw materials need to be evaluated for product costing and inventory assessment.
• Methods of material valuation include First-In-First-Out (FIFO), Weighted Average Cost Method, and Last-In-First-Out (LIFO).
• Example of material valuation: calculating the cost of MAD3 material using FIFO, Weighted Average Cost Method, and LIFO methods.