1. Behavioral aspects of Management Accounting Submitted by: Florian Huesmann Mahima Anita Bakkar Moeen Akhtar Ankit Singh Date: 03.11.09

4. Aims of management accounting Planning Feedback Controlling Acting

7. Differences between Financial Acc. and Management Accounting Primary Users Financial Accounting Management Accounting External Internal Investors, Creditors, Government authorities Mangers of the business

8. Differences between Financial Acc. and Management Accounting Purpose of Information Financial Accounting Management Accounting Help investors, creditors, and others make investment, credit, and other decisions Help managers plan and control business operations

9. Differences between Financial Acc. and Management Accounting Behavioral Implications Financial Accounting Management Accounting Concern about adequacy of disclosure Concern about how reports will affect employees behavior

11. Behavioral aspects of Management Accounting Behavioral aspect of management accounting is that which influences the decision of the people concerned with decision making in the accounting system.

19. COST BEHAVIOUR ANALYSIS

20. Types of Cost Behavior Patterns

21. The Activity Base A measure of the event that causes the incurrence of a variable cost – a cost driver Units produced Miles driven Labor hours Machine hours

24. Step-Variable Costs Activity Cost Total cost remains constant within a narrow range of activity.

25. Step-Variable Costs Activity Cost Total cost increases to a new higher cost for the next higher range of activity.

26. The Linearity Assumption and the Relevant Range Activity Total Cost Economist’s Curvilinear Cost Function Relevant Range A straight line closely approximates a curvilinear variable cost line within the relevant range. Accountant’s Straight-Line Approximation (constant unit variable cost)

27. Cost Behavior Merchandisers Cost of Goods Sold Manufacturers Direct Material, Direct Labor, and Variable Manufacturing Overhead Merchandisers and Manufacturers Sales commissions and shipping costs Service Organizations Supplies and travel Examples of normally variable costs Examples of normally fixed costs Merchandisers, manufacturers, and service organizations PBB taxes, Insurance, Sales salaries Depreciation, Advertising

28. Types of Fixed Costs Examples Advertising and Research and Development Examples Depreciation on Buildings and Equipment Discretionary May be altered in the short-term by current managerial decisions Committed Long-term, cannot be reduced in the short term.

29. Fixed Costs and Relevant Range Rent Cost in Thousands of Dollars 0 1,000 2,000 3,000 Rented Area (Square Feet) 0 30 60 90 Relevant Range Total cost doesn’t change for a wide range of activity, and then jumps to a new higher cost for the next higher range of activity.

30. Semivariable Costs Fixed Monthly Utility Charge Variable Cost per KW Activity (Kilowatt Hours) Total Utility Cost A semivariable cost has both fixed and variable components. Consider the example of utility cost. Total semivariable cost X Y

31. Semivariable Costs Fixed Monthly Utility Charge Variable Cost per KW Activity (Kilowatt Hours) Total Utility Cost Total semivariable cost Y = a + bX X Y

32. The Analysis of Semivariable Costs 1. High-Low Method 3. Least-Square Regression Method 2. Scattergraph Method

33. The Scattergraph Method Plot the data points on a graph (total cost vs. activity). 0 1 2 3 4 * Total Cost in 1,000’s of Rs 10 20 0 * * * * * * * * * Activity, 1,000’s of Units Produced X Y

34. The Scattergraph Method (2) 0 1 2 3 4 * Total Cost in 1,000’s of Rs 10 20 0 * * * * * * * * * Activity, 1,000’s of Units Produced X Y Intercept is the estimated fixed cost (a) = Rs10,000 Draw a line through the data points with about an equal numbers of points above and below the line.

35. The Scattergraph Method (3) 0 1 2 3 4 * Total Cost in 1,000’s of Rs 10 20 0 * * * * * * * * * Activity, 1,000’s of Units Produced X Y The slope is the estimated variable cost per unit. Slope = Change in cost ÷ Change in units Vertical distance is the change in cost. Horizontal distance is the change in activity.

42. Least-Squares Regression Method 0 1 2 3 4 Total Cost 10 20 0 Activity * * * * * * * * * * R 2 is the percentage of the variation in total cost explained by the activity. R 2 for this relationship is near 100% since the data points are very close to the regression line. X Y

44. Simple Regression Analysis Example Fasco wants to know its average fixed cost and variable cost per unit. Using the data to the right, let’s see how to do a regression using Excel.

47. Behavioral implications ~ Behavior is a mirror in which every one displays his own image. ~ J. Wolfgang von Goethe

51. Ethics With Conclusion ~ Ethics is the activity of man directed to secure the inner perfection of his own personality. ~ Albert Schweizer