Management Accounting Cost Analysis Summary

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Summary

* Subject: MAC-4
* Course: IBMS – 1

Dear mate,
This summary provides you with a general overview of the theory covered in MAC-4. It is based on the “Cost Accounting” book by C. Horngren (Pierson International Edition, 13th Ed.). It is NOT a substitution of the book, but may be used as a complementary to it. For success on the exam, we advise you to go through the book and use this summary as a guide to make it easier for you. Good luck studying!

Sincerely,
The StudyMates team

Table of Contents

Topic 1: The accountant’s role in the Organization4
I.Management Accounting, Cost Accounting and Financial Accounting4
II.Strategic decisions and Management Accounting4
III.Organization structure and the Management Accountant6
Topic 2: Introduction to Cost Terms and Purposes8
I.Costs and Cost Terminology:8
II.Direct costs and Indirect costs8
III.Variable and Fixed Costs:9
IV.Types of Inventory, Inventoriable costs, and Period cots:9
Topic 3: Cost-Volume-Profit Analysis11
I.Essentials of CVP Analysis:11
II.Breakeven Point and target income:11
III.Sensitivity Analysis:12
IV.Sales Mixes:12
Topic 4: Job Costing13
I.Concepts of Costing Systems:13
II.Job costing – 7 steps:13
III.Budgeted Indirect costs and end-of-accounting-year adjustments14
Topic 5: Activity-Based Costing and Activity-Based Management15
I.Under- and over-costing:15
II.Simple Costing System using a Single Indirect-cost Pool:15
III.Refining a costing system:15
IV.Activity-based costing systems:16
V.Using ABC systems for improving cost management and Profitability:16
Topic 6: Master Budget and Responsibility Accounting18
I.Budgets and Budgeting Cycle:18
II.Advantages of Budgets:18
III.Steps in developing and Operating Budget:19
IV.Budgeting and Responsibility Accounting:20
V.Responsibility and controllability:20
Topic 7: Flexible Budgets, Direct-cost variances, and Management Control21
I.Use of variances:21
II.Static Budgets and Static-budget Variances:21
III.Flexible Budgets:22
Topic 8: Flexible Budgets, Overhead cost variances, and Management control25
I.Planning of Variable and Fixed Overhead costs:25
II.Variable overhead cost variances:25
III.Developing budgeted Fixed Overhead rates:26
IV.Integrated Analysis of Overhead Cost Variances:26
References:27

Topic 1: The accountant’s role in the Organization

Study Objective:
* Understand how cost accounting supports management accounting * Find out how management accounting affects strategic decisions * Look into a company’s value chain
* Understand how management accounting fits into an organization’s structure

Summary:
I. Management Accounting, Cost Accounting and Financial Accounting * Management accounting – it measures, analyses, and reports financial and nonfinancial information that helps managers make decisions to fulfil the goals of an organization. Managers use management accounting information to choose, communicate, and implement strategy.

* Financial accounting – it focuses on reporting to external parties such as investors, government agencies, banks and suppliers. It measures and records business transactions and provides financial statements that are based on generally accepted accounting principles.

* Cost accounting – it measures, analyses, and reports financial and nonfinancial information relating to the cost of acquiring or using resources in an organization.

II. Strategic...
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