Lecture notes
03 December 2025 10:47
Accounting Management Accounting- MA
Grants financial clarity when applied correctly: Presentation of financial info to management in a suitable format that enables them to control the business/ plan and make
• Income tracking decisions
• Expense management
• Resource allocation Activities:
• Realistic financial goals • Costing
Held within two spheres- MANAGEMENT and FINANCIAL ACCOUNTING • Planning and forecasting (budgeting)
Management Financial • Control over activities
• Evaluation of alternative options
Purpose Provide info to internal managers for decision- Preparation of financial statement for EXTERNAL users
making MA should focus on quantitative when presenting information to manage/decision-makers- but should also focus on non-
CONTROL financial info when making considerations about a business's actions.
Focus Historical + future data Historical data Thinking about the following is crucial WITH quantitative data when a business needs to take action
Users Internal management Investors, Government, Creditors • Environment impact
• Social responsibility
Regulations Not formally regulated Strictly regulated through IFRS/ IAS guidelines • Ethical consideration
Key functions Supporting INTERNAL operations- strategic Compliance/ reports on financial health to EXTERNAL parties • Brand reputation
planning + performance evaluation • Employee moral
Small + Medium Enterprises- SMEs (non-subsidiary, independent firms which employ less than a given number of employees)
Management Accounting in SMEs
• In order to compete with larger organisations and to take part in contemporary business networks- management of
SMEs resources available have to be effective
• Small business often have little to no experience in accounting
• Through SME failures- its seen more necessary than ever to adopt some of MA tools or wrong decisions can have
grave consequences
• Decisions that SMEs must take=
○ Pricing
○ Cost control
○ Product choice
○ Performance
Costing and Cost behaviours:
• Effective cost management= source of company's competitive advantage
• Increased cost for business (in the form of minimum wage/business rates/energy increases) have brought this in SME in Crisis
sharp focus • Insolvency (when liabilities exceed assets, triggering formal procedures like bankruptcy (for individuals) or administration/liquidation (for
companies) under laws like the insolvency act 1986) is almost x2 high than it was 10 years ago- due to high levels of established company failures
Cost= amount of resources- usually measure in monetary terms- sacrificed to achieve a particular objective • Cause=
○ Startups having traditionally high fixed cost bases (larger workforces/input supply costs) →
Direct Costs Indirect costs
○ Greater exposure to inflationary pressure ( increase in wage/rent/tax rates/supply costs)
In simple terms Costs which can be directly identified with a Costs which cannot be directly identified with a
specific cost/unit cost centre specific cost unit /cost centre
Materials Cloth for making shirts Materials which cannot be traced to an individual
shirt- cotton
Labour Wages of workers stitching the cloth to make the Cost of a supervisor who supervises the shirt
shirts makers
Expenses Royalties paid to a designer/ freight charges for Cost of renting the factory where the shirts are
imported special material made
Total x costs is PRIME COST OVERHEADS
known as
Cost Behaviour and time
Situations where cost behaviour is analysed for planning/ decision making are short term (3 moths- 1 year) depending on the
circumstances
Cost behaviours
• How they behave in relation to the change in the volume of activity (e.g. how much is produced/ sold by the company)
• Classified whether they: Importance of Contribution
○ Remain constant no matter the volume/ activity levels (Fixed costs) • Is the difference between sales revenue and the variable costs of the items sold
○ Vary according to the volume of activity (Variable Costs) • Contribution shows the revenue leftover to pay fixed costs and (hopefully) make a profit
• Contribution= Sales Price- Variable Costs
Fixed costs Costs that must be paid regardless of the output level of the company in sales/production • Contribution is the amount of profit that each product provides for the company
Costs that don't change irrespective of changes in production activity/revenue/expenses • Necessary when assessing if you have priced something correctly
• Used to assess the effect a change in activity level has on the total contribution (and profit) of a business
Also known as Period Cost:
• Cost that is incurred according to the time elapsed- rather than according to the activity
Contribution analysis used to:
Examples • Rent • Determine the most profitable product
• Payroll (variable depending on the contract) • Should we cease the production of any product
• Insurance • The make/ buy decisions
• Admin Costs • To seek how to maximise a company's contribution- since
Visually ○ The highest contribution per unit is most profitable and should be ranked first in profitability
3 Contribution impacts on SMEs
Stepped fixed costs Fixed to a certain activity level- where they "step up a level"
Examples Opening a new factory once production has reached a certain level → increase fixed costs
Visually
The make of buy decisions
Business can compare the cost of making decisions internally with the external cost using contribution analysis
Total variable cost= Direct Material + Direct Labour + variable overhead
B1073-Intro to finance and Accounting Page 1
The make of buy decisions
Business can compare the cost of making decisions internally with the external cost using contribution analysis
Total variable cost= Direct Material + Direct Labour + variable overhead
Variable Costs Costs which rise (and fall)directly related to the levels of production/ sales
Changes with the level of activity
Examples • Materials (cloth/coffee/bread)
• Labour (dependent on the contract)
• Energy
• Shipping
• Commissions/Bonusses
Visually
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