Introduction

12/07/2021 Chandrakant@KSRM,KIIT University 1

 Ground Questions:
• What is Accounting?
• Why shall I (We) read MA ?
• Was reading of FA not sufficient?
• What’s new in MA?
• Importance of MA
• Uses of MA

12/07/2021 Chandrakant@KSRM,KIIT University 2

 - The Language of business
- An Information System which provides
Accounting Information to its users: both external
And internal parties.

Cost Management
Financial
Accounting Accounting
Accounting

12/07/2021 Chandrakant@KSRM,KIIT University 3

Financial Accounting- Fundamentals
meaning & limitations

FA is concerned with Journal

RECORDING,
CLASSIFYING AND
SUMMARISING
Ledger

Financial transactions in accordance Trial Balance

with the Generally Accepted
Accounting Principles (GAAP)
Final Statements

12/07/2021 Chandrakant@KSRM,KIIT University 4

 Financial Statements Fundamentals

PROFIT & LOSS

BALANCE-SHEET
ACCOUNT

STATEMENT OF
SOURCES &
APPLICATIONS OF
FUNDS

12/07/2021 Chandrakant@KSRM,KIIT University 5

 Fundamentals
Case-1
• Orissa Garments Ltd has three retail outlets:
Bhubaneswar, Cuttack and Balasore. The
following information were extracted from its
financial statement:
Bhubaneswar Cuttack Balasore
Materials 48000 37000 65000
Wages 15000 25000 30000
Other Exp 15000 18000 17000
Total Cost 78000 80000 112000
Sales 102400 108000 89600

12/07/2021 Chandrakant@KSRM,KIIT University 6

 Fundamentals
Financial Accounting
• Under Financial Accounting:
– Materials 150000
– Wages 70000
– Other exp 50000
– Total Cost 270000
– Sales 300000
– Profit 30000 (10% on sales)

12/07/2021 Chandrakant@KSRM,KIIT University 7

Financial Accounting- Limitations Fundamentals

HISTORICAL ONLY NET RESULTS No Analysis of

LOSSES

NO CONTROL NO DISTINCTION
ON COST Direct & Indirect

Inadequate Information
NO COMPARISON OF
For
PRICE FIXATION COSTS

NO STANDARDS TO
Assess Performance
12/07/2021 Chandrakant@KSRM,KIIT University 8
 Think!!! What
is MA?

Why
MA???

12/07/2021 Chandrakant@KSRM,KIIT University 9

 Corporate Practice in 1960 vs. Current Practice
Description 1960s Current Practice

1. Corporate Mission Profit Survival, Growth and

Development
2. Corporate Goal Profitability Effectiveness

3. Business Environment Mass-production, Export Globalization, Flexible

promotion industrialization production, Computerization

4. Business Model Planning & Control Strategic

5. Organizational Structure Functional Cross-Functional

6. Areas that use Production & Marketing R&D, Planning & Design,
Management Accounting Production, Marketing,
Maintenance & Disposal
7. Techniques used Standard Costing, Budgeting, Target Costing, ABC, Quality
Variable costing, OR, etc Costing, Life Cycle Costing,
TQC, JIT, VE, etc

12/07/2021 Chandrakant@KSRM,KIIT University 10

 Emerging Concepts In Cost Accounting…

Traditional New
Approach Approach

Cost + Profit Sales - Profit

Business Process
-A Paradigm Shift

SALES COST

Continuous Innovation for Cost Reduction to

survive in the competitive environment
12/07/2021 Chandrakant@KSRM,KIIT University 11
 Focus on customer satisfaction and new
management approaches
1. Key success factors

 Cost efficiency –increased emphasis on accurate product costs

and cost management.

 Quality –TQM, quality measures.

 Time – educed cycle time, focus on non-value-added activities.

 Innovation – responsiveness in meeting customer requirements.

Product comparisons.
Feedback on customer satisfaction.

12/07/2021 Chandrakant@KSRM,KIIT University 12

 Cont…
2. Continuous improvement
 Static historical standards no longer appropriate.
Benchmarking.

3. Employee empowerment
 Delegate more responsibility to people closest to operating
processes and customers.

4. Value chain analysis

 Suppliers, R &D, design,production, marketing, distribution,
customer service, customers.
Internal customer perspective.

5. Social responsibility and corporate ethics

12/07/2021 Chandrakant@KSRM,KIIT University 13
 Let’s explore MA…

Management

Accounting

12/07/2021 Chandrakant@KSRM,KIIT University 14

COST ACCOUNTING- introduction Fundamentals

The Process of accounting for costs from the point at which expenditure
is incurred or committed to the establishment of its ultimate relationship
with cost centers and cost units. It provides information for MA and FA.
It measures, analyzes and reports financial and non-financial information
relating to the costs of acquiring or using resources in an organization

Books Cost Centers

Of Cost Accounts

12/07/2021 Chandrakant@KSRM,KIIT University 15

 Objectives

Ascertaining Setting Cost Cost

cost Price Control Review

Operating
Decisions

12/07/2021 Chandrakant@KSRM,KIIT University 16

 Cost/Financial Accounting- differences Fundamentals

Factor FA CA
Need Compulsory Obligatory

Final Results to stake

Purpose Holders Cost Information

Recording Subjective Recording Objective Recording

Profit Product wise

Analysis
Total Profit/Loss

Contents External Transactions Internal

12/07/2021 Chandrakant@KSRM,KIIT University 17

 Cost/Financial Accounting- differences Fundamentals

Factor FA CA
Periodicity Once/twice Daily/weekly/monthly

Control Inadequate System at Place

Nature Historical Historical/Predetermined

Valuation Cost or market Cost Price

12/07/2021 Chandrakant@KSRM,KIIT University 18

 Fundamentals
FA vs. CA
• Under Cost Accounting:
Bhubaneswar Cuttack Balasore Total
Materials 48000 37000 65000 150000
Wages 15000 25000 30000 70000
Other Exp 15000 18000 17000 50000
Total Cost 78000 80000 112000 270000
Sales 102400 108000 89600 300000
Profit 24400 28000 (-) 22400 30000
Profit (%) 24% 26% --- 10%

12/07/2021 Chandrakant@KSRM,KIIT University 19

 Fundamentals
Methods

Job Costing
Batch Costing
Contract Costing
Process Costing
Unit Costing
Operation Costing
Operating Costing
Multiple Costing
12/07/2021 Chandrakant@KSRM,KIIT University 20
 Techniques Fundamentals

Historical Costing
Standard Costing
Marginal Costing
Absorption Costing
Direct Costing
Uniform Costing

12/07/2021 Chandrakant@KSRM,KIIT University 21

Management Accounting
• A field of accounting that provides
economic and financial information for
managers and other internal users.
• It measures, analyzes and reports
financial and non-financial information
that help the managers make decisions
to fulfill the goals of an organization.
• Managers use the information to choose,
communicate and implement strategy.
12/07/2021 Chandrakant@KSRM,KIIT University 22
 MANAGEMENT ACCOUNTING
BASICS
Activities include (continued):
• Assisting management in profit planning
and budgeting.
• Providing a basis for controlling costs and
expenses by comparing actual results with
planned objectives and standard costs.
• Accumulating and presenting relevant data
for management decision making.

12/07/2021 Chandrakant@KSRM,KIIT University 23

 COMPARING MANAGEMENT
AND FINANCIAL ACCOUNTING

FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING

Internal Users: Managers

External Users;
Directors
Stockholders, Creditors Primary users
Regulators Of Reports

Financial Statements Types & Frequency Internal Reports

Quarterly & Annually As Frequently Required
Of Reports
General Purpose
Purpose of Reports Special Purpose for
Specific Decisions
Pertains to Business as Whole
Limited to Double Entry Acct, Contents of Reports Pertains To some sub unit of
Cost Data Business
GAAP/IAS Very Detailed
Extend beyond DE Accounting
Standard is relevance to Decision
Audit By CA
Verification Process No independent Audits

12/07/2021 Chandrakant@KSRM,KIIT University 24

Decision Making Fundamentals

MAKE OR
BUY SALES
CAPACITY VOLUME

PROFIT
PRICE

OPERATE
EXPORT
NEW OR
PRICE
MODEL SHUT
12/07/2021 Chandrakant@KSRM,KIIT University 25