Management accounting
Chapter 1: manager and management accounting
Accountancy involves:
• The collection,
• Summarization
• Reporting of financial information
Accounting as an information system:
(a) different users from management accounting have different needs
(b) financial statement = jaarrekening
Bv potential investor does a financial statement report to decide to invest or not in the company
Management versus financial accounting:
Employees in een bepaalde richting sturen bij management accounting
Accounting activities:
1) Financial accounting
• Bookkeeping: systematically register every activity of the firm
• Consolidation: different companies are linked to each other, each independent entities, but as
a shareholder you are interested in results of whole group
• Financial statement analysis: evaluate the financial health of the firm as an external
• External auditing: the task here is to check if the financial statements give a true view and all
the legal rules are correct followed
1
,2) Management accounting:
• Cost accounting: determine whats the cost of a cost object
• Cost management: do something with cost accounting, fe we saw the cost where higher than
the budget so here we want to do something about it
• Strategic long-term planning: look forward to the next 5/10 years (take strategic desicions)
• Budgeting: period in time where we translate the plans in the period
• Management control
Different accounting systems for different purposes!
Organized set of activities:
• = decision making, planning, controlling, directing,…
• BUT resources are NOT INEXHAUSTIBLY available
• SO: need for cost savings
• Crucial role of cost calculation/ accounting & cost management
• Part of management control: decision making, planning, controlling, directing
• What are the costs and how to manage them
Management accounting (MA) includes value chain analysis:
= which functions can be identified in value chain, which dependencies can be made, and what are
consequences for management accounting system?
= management accounting is everywhere
= MA in: R&D, production, marketing, distribution, customer service,…
Management accounting contributes to planning and control
= organizations need useful planning and control systems to develop and implement their strategy
2
,Role of management accountants
• Problem solving/ decision-making
→ planning: most important tool = budget (useful tool for planning)
• Scorekeeping:
→ performance measurement, are we doing good or not (fe in a balance scorecard)
• Attention directing
→ control: taking actions that implement planning decisions, deciding how to evaluate
performance, providing feedback to help future decision making
Management accounting guidelines
• Cost-benefit approach is commonly used: benefits generally must exceed costs as a basic
decision rule
• Behavioral and technical considerations: people are involved in decisions, not just dollars/
euros and cents. Impact on people’s behavior
• Different cost for different purposes
Position of management accountants within organization structure
• Line management
→ E.g. production, marketing, distribution management
→ directly responsible for attaining organizational goals
• Staff management
→ E.g. finance and accounting, IT, HRM
→ provide advice and assistance to line management
• Today: teams, line versus staff is less clear-cut
Management accountant in a typical organizational structure
Professional ethics
• Competence: you should know what you do
• Confidentiality
• Integrity
• Objectivity: provide objective info (not only show the good info to CEO)
3
, Chapter 2: Cost terms and purposes
1. General cost terms
A cost
• Is the measure of resources given up to achieve a particular purpose (e.g. to make a
product or provide service)
• Is made to benefit a product, service, process, machine, BU or department
• ‘Cost object’ = anything for which a measurement of costs is desired -> everything is
determent by the cost object
Cost is not cash outflow!
Cost that when there is booked the is no cash outflow: depreciation (when we buy a machine in the
booking its an asset, but the machine is useful for example 10 years so every year you need to lower
the value, so you book a cost but not a cash outflow because you already booked that when you
bought it)
The pay back of a lone after a year: you pay back it’s a cash outflow but not a cost
Different costing approaches
• ACTUAL COST = cost incurred (historical, past cost)
• BUDGETED COST = predicted or forecasted cost (future cost)
→ particular type of budgeted are standard costs.
Fe you organize a party so you make a little budget fe the music installation, the drinks, the
income from the drinks/entrée,…
• Difference between actual and budgeted/ standard costs = VARIANCES
Standard costs fe expected costs for a project and a time that is vastgelegd
2. Direct versus indirect costs
About cost assignment to cost object
DIRECT COSTS: are related to particular cost object and can be traced to it in an easy and
convenient way. Easy to link to cost object.
INDIRECT COST (= OVERHEAD): are related to particular cost object but cannot be traced to it in an
economically feasible (cost-effective) way
• Need to be allocated to cost object
Indirect material fe you make cars and you have glue
for the windows and you use it for the different cars so
the cost of the glue needs to be split over the different
cars
If you need to think about how to split the costs its an
indirect cost
Overtime: what if the workers needs to work extra time
Idle time fe the machine breaks and you need to wait a
long time its an costs of idle time
4
Chapter 1: manager and management accounting
Accountancy involves:
• The collection,
• Summarization
• Reporting of financial information
Accounting as an information system:
(a) different users from management accounting have different needs
(b) financial statement = jaarrekening
Bv potential investor does a financial statement report to decide to invest or not in the company
Management versus financial accounting:
Employees in een bepaalde richting sturen bij management accounting
Accounting activities:
1) Financial accounting
• Bookkeeping: systematically register every activity of the firm
• Consolidation: different companies are linked to each other, each independent entities, but as
a shareholder you are interested in results of whole group
• Financial statement analysis: evaluate the financial health of the firm as an external
• External auditing: the task here is to check if the financial statements give a true view and all
the legal rules are correct followed
1
,2) Management accounting:
• Cost accounting: determine whats the cost of a cost object
• Cost management: do something with cost accounting, fe we saw the cost where higher than
the budget so here we want to do something about it
• Strategic long-term planning: look forward to the next 5/10 years (take strategic desicions)
• Budgeting: period in time where we translate the plans in the period
• Management control
Different accounting systems for different purposes!
Organized set of activities:
• = decision making, planning, controlling, directing,…
• BUT resources are NOT INEXHAUSTIBLY available
• SO: need for cost savings
• Crucial role of cost calculation/ accounting & cost management
• Part of management control: decision making, planning, controlling, directing
• What are the costs and how to manage them
Management accounting (MA) includes value chain analysis:
= which functions can be identified in value chain, which dependencies can be made, and what are
consequences for management accounting system?
= management accounting is everywhere
= MA in: R&D, production, marketing, distribution, customer service,…
Management accounting contributes to planning and control
= organizations need useful planning and control systems to develop and implement their strategy
2
,Role of management accountants
• Problem solving/ decision-making
→ planning: most important tool = budget (useful tool for planning)
• Scorekeeping:
→ performance measurement, are we doing good or not (fe in a balance scorecard)
• Attention directing
→ control: taking actions that implement planning decisions, deciding how to evaluate
performance, providing feedback to help future decision making
Management accounting guidelines
• Cost-benefit approach is commonly used: benefits generally must exceed costs as a basic
decision rule
• Behavioral and technical considerations: people are involved in decisions, not just dollars/
euros and cents. Impact on people’s behavior
• Different cost for different purposes
Position of management accountants within organization structure
• Line management
→ E.g. production, marketing, distribution management
→ directly responsible for attaining organizational goals
• Staff management
→ E.g. finance and accounting, IT, HRM
→ provide advice and assistance to line management
• Today: teams, line versus staff is less clear-cut
Management accountant in a typical organizational structure
Professional ethics
• Competence: you should know what you do
• Confidentiality
• Integrity
• Objectivity: provide objective info (not only show the good info to CEO)
3
, Chapter 2: Cost terms and purposes
1. General cost terms
A cost
• Is the measure of resources given up to achieve a particular purpose (e.g. to make a
product or provide service)
• Is made to benefit a product, service, process, machine, BU or department
• ‘Cost object’ = anything for which a measurement of costs is desired -> everything is
determent by the cost object
Cost is not cash outflow!
Cost that when there is booked the is no cash outflow: depreciation (when we buy a machine in the
booking its an asset, but the machine is useful for example 10 years so every year you need to lower
the value, so you book a cost but not a cash outflow because you already booked that when you
bought it)
The pay back of a lone after a year: you pay back it’s a cash outflow but not a cost
Different costing approaches
• ACTUAL COST = cost incurred (historical, past cost)
• BUDGETED COST = predicted or forecasted cost (future cost)
→ particular type of budgeted are standard costs.
Fe you organize a party so you make a little budget fe the music installation, the drinks, the
income from the drinks/entrée,…
• Difference between actual and budgeted/ standard costs = VARIANCES
Standard costs fe expected costs for a project and a time that is vastgelegd
2. Direct versus indirect costs
About cost assignment to cost object
DIRECT COSTS: are related to particular cost object and can be traced to it in an easy and
convenient way. Easy to link to cost object.
INDIRECT COST (= OVERHEAD): are related to particular cost object but cannot be traced to it in an
economically feasible (cost-effective) way
• Need to be allocated to cost object
Indirect material fe you make cars and you have glue
for the windows and you use it for the different cars so
the cost of the glue needs to be split over the different
cars
If you need to think about how to split the costs its an
indirect cost
Overtime: what if the workers needs to work extra time
Idle time fe the machine breaks and you need to wait a
long time its an costs of idle time
4
