this new slide is for Uitm student part 4 who are taking MAF 251 .

1. 11
INTRODUCTION TO
MANAGEMENT
ACCOUNTING

2. 22
Cost Accounting
 Cost accounting is concerned with the
ascertainment of cost of manufacturing a
product or giving a service and the way in
which costs can be controlled.

3. 33
Management Accounting
 Management accounting is concerned with the
provision of information to people within the
organization to help them make better decisions and
improve the efficiency and effectiveness of existing
operations.
 It is concerned with identifying, presenting and
interpreting information to assist management in the
formulation of policies and in the planning and
control of operations of the business.

4. 44
Financial Accounting
 Financial accounting is concerned with the
provision of information to external parties
outside the organization.
 It is concerned with the classification and
recording of financial transactions in monetary
terms in accordance with the established
concepts, principles, accounting standards and
legal requirements and presents the effect of
the transactions on the performance and
financial position of the business.

5. Differences Between Management Accounting
55
And Financial Accounting
Financial Accounting Management Accounting
1. Users Provides information to the
external users such as
shareholders, creditors,
customers, tax authority,
bankers, etc.
Provides information to the
internal users such as
managers for management
purposes.
2. Legal
requirement
To produce a report in
accordance with the
companies acts and the
relevant accounting standards
is a statutory requirement.
To produce a report is
optional and in a form
suitable to a particular
situation and needs.
3. Time
dimension
Reports on past events (use
historical data).
Reports on future events
based on past and current
data to assist in planning, and
control of operations

6. 66
Differences Between Management Accounting And
Financial Accounting – cont.
Financial Accounting Management Accounting
4. Analysis
and
segments
Reports on activities of the
company as a whole and data
is analyzed in monetary
terms.
Focuses on small segments of
the company such as products
and departments and uses both
monetary and non-monetary
terms (such as standard hours,
volume, etc).
5. Precision Information must be
reasonably accurate for
external parties..
Estimates and
approximations are more
useful than accuracy for
speedy decision making
process.
6. Report Reports are published
annually or half yearly.
Reports are prepared daily,
weekly, monthly or quarterly
depending on needs.

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tthhee ssaammee ggeenneerraall aaccccoouunnttiinngg ssyysstteemm..

8. 88
Similarities between Management Accounting and
Financial Accounting
1 Decision
making
While specific decisions differ, both financial and
managerial accounting information are used to make
decisions. Involves selecting the best course of action
from a given set of alternatives.
2 Recording Concerns with classifying, quantifying and gathering of
information related to business transactions. The same
system is used to gather the data for both managerial and
financial accounting information.
3 Performance
evaluation
Measures performance and find any differences between
actual and planned performance for further improvements.
4 Accounting
aspects
Organizes procedures and guidelines that can be used
accordingly.
5 Stewardship
functions
Takes the responsibility to properly record and report
performances.

9. 99
The Role of Management Accountant
 Planning
 Helps to formulate future plans by providing information to
assists in deciding what products to sell, in what market,
etc.
 Setting goals and developing methods in achieving them.
 Control
 Aid control process by providing performance reports
which compare actual outcome with planned outcome for
each responsibility centers.
 Determining whether goals are being met, and if they are
not, what can be done (to modify or to achieve existing
goals).
 Draw manager’s attention to those specific aaccttiivviittiieess tthhaatt
ddoo nnoott ccoonnffoorrmm ttoo ppllaann..

10. The Role of Management Accountant – cont.
1100
 Organizing
 Represents the design and implementation of the
accounting system for better defining and consolidating the
relations between centers to assure effective performance.
 Motivating
 Budget and performance reports produced have an
important influence on the motivation of personnel of the
organization.
 Communication
 Aid communication function. Installing and maintaining an
effective communication and reporting system. (Eg. Who
are responsible for carrying out plans/budgets, what
expected of them during the budget period).
 To ensure coordination between managers of different
department.

11. Role of Accountants in Management Process
1111
 Financial Accountant:
 Preparation of information about an organization’s past
operations.
 Managerial Accountant:
 Provide information and recommend various courses of
alternatives/actions to assist decision making.
 Managers use to information to make decisions.
 Information needed by the managers differ from the
external users.
 Information used for planning, control and forecasting.
 Involves past, present and future information and not only
on monetary items but also on –non-monetary information.

12. Role of Accountants in Management Process
1122
– cont.
 Conclusion:
 Managerial accountant provides information
for the decision makers inside the
organization.
 Financial Accountant provides information
for decision makers outside the organization

13. Primary Functions of Cost/management Accounting
1133
System
 Inventory valuation for internal and external profit measurement:
 Allocate costs between products sold and fully and partly
completed products that are unsold.
 Provide relevant information to help managers make better
decision:
 Profitability analysis.
 Product pricing.
 Make or buy.
 Product mix and discontinuation.
 Provide information for planning, control and performance
measurement:
 Long-term and short-term planning (budgeting).
 Periodic performance reports for feedback control.
 Performance reports also widely used to evaluate managerial
performance.

14. CHARACTERISTICS OF USEFUL INFORMATION
 Relevance
 Relevance is a key factor because of the flexible nature of
managerial accounting information that can take any form
management chooses.
 In a complex financial world, an endless stream of
information is available to management so that we need to
determine which information should be considered and
which should be ignored. This choice is made on the basis
of relevance.
 Accuracy
 Even though managerial accounting is based on estimates
and projections, information must be as accurate as
possible if it is to be of value. Sound judgement and
experience should underlie any development of subjective
data.

15. CHARACTERISTIC S OF USEFUL INFORMATION –
cont.
 Timeliness
 Timeliness is crucial because management operates in
an increasingly dynamic and competitive business
environment. The concept of timeliness simply means
that information should be as current as possible
because old information will not be representative of
present or future conditions.
 Timeliness also means that information must be
available quickly when needed to enable management
to take appropriate action and make relevant decisions.
 Outdated information will have lost its value.

16. CHARACTERISTIC S OF USEFUL INFORMATION –
cont.
 Understandability.
 Information presented must focus on the users of such
information and hence should be clearly understood.
Typical users of accounting information will not be trained
accountants, so any preoccupation with technical jargon
will adversely affect the use of the information.
 The presentation of the report must accordingly to what is
required by the users.
 Reliable
■ Information made available to managers are reliable in that
they are free from error or biasness and accurately
represents the events of the organization.
 Complete
■ Information that does not omit important aspects of the
underlying events that is measures.

17. CHARACTERISTIC S OF USEFUL INFORMATION –
cont.
 Cost Effectiveness
 Managerial accounting information must be cost
effective.
■ The value of iinnffoorrmmaattiioonn mmuusstt eexxcceeeedd iittss ccoosstt..
 This means that it must pass a cost-benefit test in each
application. For example, vast quantities of
information can be developed with the computer
today. However the process of gathering information
costs money and its value must exceed its cost.
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iinnffoorrmmaattiioonn iiss tthhee qquuaalliittyy ooff tthhee ddeecciissiioonn mmaakkiinngg bbaasseedd
oonn iitt..

18.  Accountants should aim to provide information to the
right people in the right quantity at the right time.
 Better quality decisions might be made by postponing
a decision until more information or information of
greater accuracy is available (but must not overload
information).
 Decision, however, must often be made promptly if
they are to have maximum influence on future events.
 Management accounting information should be
produced only if it is considered that the benefits
from the use of information exceed the cost of
collecting it (relevant information).

19. The Decision Making Model
Identify objectives
Search for alternative courses of action
planning
Gather data about alternatives
process
Select alternative courses of action
Implement the decision
control
Compare actual and planned outcome
process
Respond to divergences from plan

20. The Decision-Making Process
 Identify objectives – specify the goals or objectives of the organization so that
it can provide a direction or some guiding aim to enable the managers to assess
the desirability of one course of action over another.
 Search for alternative courses of action – search for a range of possible
courses of action or strategies that might enable the objectives to be achieved.
 Gather data about alternatives– assess the potential growth rate of the
activities, the ability to establish adequate market share, the cash flows for each
alternative activity, etc.
 Select appropriate alternative courses of action – select alternative that best
satisfies the objectives of an organization and those showing the greatest
benefits after consideration of other qualitative factors.
 Implement the decisions – the alternative courses of action selected should be
implemented as part of the budgeting process.
 Compare actual and planned outcomes – prepare performance reports
comparing the actual outcomes (actual costs and revenues) and planned
outcomes (budgeted costs and revenues) at regular intervals.
 Respond to divergences from plan – take corrective action so that actual
outcomes conform to planned outcomes, or the plans may require modifications
if the comparison indicate that they are no longer attainable.

21. Changing Competitive Environment
 Prior to the 1980s :
 organizations operated in a protected competitive environment
 barriers of communication and geographical distance, protected
markets limit the ability of overseas companies to compete in domestic
markets
 little incentive for firms to maximize efficiency and minimize costs as
cost increases could be passed on to customers
 During the 1980s:
 Manufacturing organization began to encounter severe competition
from overseas competitors that offered high-quality products at low
prices
 By establishing global networks for acquiring materials and
distributing goods, competitors were able to gain access to domestic
markets throughout the world
 Privatization, intensive competition and an expanding product range
created the need for organizations to focus on cost management and
develop management accounting information systems that enabled
them to understand their cost base and determine the sources of
profitability for their products, customers and markets.

22. The Impact Of Changing Environment Of
Management Accounting Systems
 During the past decade the use of information technology (IT)
to support businesses activities has increased with the
development of electronic business communication
technologies (e-business, e-commerce or internet commerce)
These developments are having a big impact on business:
 Consumers are becoming more discerning when purchasing
products or services because they are able to derive more
information from the internet.
 Cost saving from streamlining business processes and
generating extra revenues from adept the use of on-line
facilities.

23. Customer Satisfaction And New Management
Approaches
 To compete in today’s competitive environment companies
need to become more ‘customer driven’ and make customer
satisfaction the top priority.
 To provide customer satisfaction organizations must
concentrate on key success factors that directly affect it.
The key success factors are cost efficiency, quality, time
and innovation.
 Organizations are also adopting new management
approaches in their quest to achieve customer satisfaction.
The new approaches are continuous improvement,
employee empowerment and total value-chain analysis.

24. Key Success Factors
 Cost efficiency – keeping costs low and being cost efficient
provides an organization with a strong competitive advantage.
 Quality – customers are demanding high quality products.
Companies are focusing on total quality management (TQM)
where all business functions are involved in a process of
continuous quality improvement. It focuses on delivering
products or services of consistently high quality in a timely
fashion.
 Time – organizations seek to increase customer satisfaction by
providing a speedier response to customer requests, ensure on-time
delivery and reduce the time taken to develop and bring
new products to market.
 Innovation – companies must develop a steady stream of
innovative products and services and to adapt to changing
customer requirements.

25. NATURE AND PURPOSE OF INTERNAL
MANAGEMENT REPORTING
 Internal Management Reporting is a financial
data or other information accumulated to be
communicated to another within the business
entity.
 The information assists others in the managerial
decision making process.
 Examples – expenses report, capital budgeting
analysis, other reports designed to guide
management rather than inform outsiders.

26. GOALS OF INTERNAL MANAGEMENT
REPORTING
 Implementing solid internal management reporting is one of
the most important steps a company can take to effectively
accomplish the following major goals:
 Manage the business day to day – creates tools that
managers can use to make good decision based on relevant
and accurate information, presented in a timely fashion.
 Align the incentives of employees with the organization as
a whole. Give employees goals that are integrated with
management reporting, so that their progress is measurable,
actionable and rewarded.
 Create and manage a solid controls environment. Help
managers become comfortable with the multitude of
signoffs that they must complete throughout the year.

27. IMPORTANCE OF INFORMATION
TECHNOLOGY
 The use of information technology to support business
activities has increased with the development of electronic
business communication technologies (e-business, e-commerce,
internet commerce).
 Consumer are becoming more selective when purchasing
products and services because they are able to derive more
information from the internet on the comparative value of
different product offered.
 E-commerce has provided the potential to develop new ways
of doing things that have enable considerable cost savings to
be made from reorganizing business processes and generating
extra revenues from the competent use of on-line facilities.
(ticketless airline bookings and internet banking)

28.  The ability to use e-commerce more
proficiently than competitors provides the
potential for companies to establish a
competitive advantage.
 Examples:
 Ticketless travel, where passengers receive e-mail
confirming their booking, cuts the cost of issuing,
distributing and processing tickets.
 Intensive use of IT in administration and
management, aiming to run a paperless office.