Management and Cost Accounting For Dummies - UK

Mark P. Holtzman, Sandy Hood

• Publisher: For Dummies
• Year: 2013
• ISBN:
  9781118650479
• Edition: 1
• Topic: Business
• Subtopic: Financial Accounting
• Index: Business

With easy-to-understand explanations and real-life examples, Management & Cost Accounting For Dummies provides students and trainees with the basic concepts, terminology and methods to identify, measure, analyse, interpret, and communicate accounting information in the context of managerial decision-making.

Major topics include:

• cost behaviour
• cost analysis
• profit planning and control measures
• accounting for decentralized operations
• budgeting decisions
• ethical challenges in management and cost accounting

Part I

Getting Started with Management and Cost Accounting

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In this part . . .

Discover what management accountants do and why they do it.

Find out what you can do to become a management accountant.

Learn how different kinds of companies operate.

Know how accountants measure profits, efficiency and productivity.

Find out how managers apply continuous improvement.

Chapter 1

Planning and Control: The Role of Management Accounting

In This Chapter

Appreciating the importance of management accounting

Costing business activities

Planning for profits and cash flow

Monitoring and evaluating company performance

Before embarking on a journey, you need a clear plan. Even if you’re driving a familiar route and know where you’re going and how you intend to get to your destination, you may well have landmarks along the way in mind. Perhaps you plan to take an hour to reach the motorway, spend another hour on it and allow 20 minutes for the final section of your trip.

When you have a plan, you can monitor it and revise your arrival time based on the times you achieve for each section. You can also check that your passengers are comfortable and happy with your driving.

These types of duties are central to management accounting: the collecting and monitoring of information about a venture to make sure that it’s on track to meeting its goals. For the journey analogy, setting up the route and arrival time, considering the level of comfort for the passengers and adhering to the speed limit are goals within the plan. Monitoring how the journey is progressing and modifying the expected arrival time is control.

This chapter explains what management accountants do (in essence, planning and control) and why they do it. We explain what costs are and investigate different ways of measuring them. We also explore management planning, budgeting, and monitoring and evaluating operations, and discern the differences between management accounting and financial accounting.

Understanding What Management Accountants Do, and Why

Management accounting is at the heart of running a business. It provides the valuable information about the business that can help managers make important decisions. As we describe in this section, the process of gathering information involves the following aspects:

Identifying different types of costs based on how they’re used to provide the products or services of the business.

Analysing costs to understand how they behave and how they’ll respond to different activities.

Planning and budgeting for the future.

Evaluating and controlling operations by comparing plans and budgets to actual results.

For much more on the benefits that management accounting brings to businesses, turn to Chapter 2.

Distinguishing management from financial accounting

We want to clarify one issue here and now, and that’s to explain the different aims and duties of management and financial accountants. In essence:

Management accounting provides internal reports tailored to the needs of managers inside the company.

Financial accounting is concerned with providing external financial statements for general use by people with a vested interest in the business.

Management accountants report the facts and figures they collect. Financial accountants need the management accountants’ cost information for financial reports on past activities produced for shareholders, tax authorities and other stakeholders. Managers need the management accountants to provide the best quality information as a basis for decisions about future activities.

Table 1-1 compares the differences between management and financial accounting based on the information prepared.

Table 1-1 Contrasting Management and Financial Accounting

Preparing Information	Management Accountants	Financial Accountants
What info?	Internal reports	Financial statements
Who uses info?	Managers who work for the company	Stakeholders, such as shareholders, suppliers and government regulators
When is it prepared?	Whenever needed	Quarterly and annually
How detailed is it?	Very detailed, to address specific decisions to be made by managers	Very general, pertaining to the whole company
How is it prepared?	In accordance with the needs of managers and officers	In accordance with accounting standards depending on where the company is based
How is it verified?	By internal controls among management accountants	By extern...

Table of contents

• Cover
• Title Page
• Table of Contents
• Introduction
• Part I: Getting Started with Management and Cost Accounting
• Part II: Understanding and Managing Costs
• Part III: Planning and Budgeting
• Part IV: Using Management Accounting for Evaluation and Control
• Part V: The Part of Tens
• About the Authors
• Cheat Sheet
• Connect with Dummies