MANAGERIAL ACCOUNTING

L E C T U RE R : D R . B U I P H UONG C H I , P H D
F A C U L TY O F A C C O U NTI NG & A U D I T I NG
VNU - UEB
Dr. Bui Phuong Chi Email: [email protected]
Mobile: +84 88 656 9988
Office: Friday 10:00-13:00, E705

• PhD in Finance
• 7 years stay aboard as a lecturer in EBBA, MBA program
• Worked in banking, service industry
• Financial consultant for Vietnam’s companies
• Mentor for teams attending international competition
CIMA, IMA, ICAEW and they got top 4 Global, First
runner-up, etc.
• Beta Gamma Sigma member, Hanoi Outstanding
teacher 2021, VNU Outstanding teacher 2022, etc.
What is Accounting?
Accounting is…
◦ The process of recording, summarizing, and analyzing financial transactions
◦ To help people make economic decisions

Financial Accounting Managerial Accounting

 Designed primarily for decision  Designed primarily for decision
makers outside of the company makers within the
company

©2020 CAMBRIDGE BUSINESS PUBLISHERS 3

Who Uses Accounting Information?
Current
Shareholders

Potential
Management
Shareholders

Government
Customers
Demand for Agencies
Information

Suppliers Directors

Financial
Creditors
Analysts

©2020 CAMBRIDGE BUSINESS PUBLISHERS 4

Information Needs of
Decision Makers
Financial Accounting Managerial Accounting
Who are the Decision Makers?
Investors and analysts  Top management
Creditors  Marketing Teams
Suppliers and customers  Production and operations

What Decisions are Made?

 Buy and sell stock?  Develop new strategy?
 Lend or not?  Launch a new product or not?
 Purchase/sell goods or not?  Manage operations

What Information is Needed?

 Sales and costs  Product sales and costs
 Cash in and cash out  Department performance
 Assets and liabilities  Budgets and quality reports

©2020 CAMBRIDGE BUSINESS PUBLISHERS 5

Main Contents
Costing and pricing

Budgeting and forecasting

Performance management

Management decision making

6
Assessment format
Specifications grid

Weighting
Syllabus area
(%)
Costing and pricing 25
Budgeting and forecasting 25
Performance management 25
Management decision making 25
100

7
Assessment format

Assessment Weighting (%)

Assignments 20
Case Analysis 40
Final Exam 40
100

8
 Chapter 1
The fundamentals of costing
Chapter 1. The fundamentals of costing
What is cost accounting?
Basic cost accounting concepts
Cost classification for various purposes

10
What is cost accounting?
Cost accountant should be able to provide answers to questions about cost and
revenue, enable management:
◦ Assess the profitability
◦ Determine appropriate selling prices
◦ Put a value on inventory
• The cost accountant also needs to provide information to help provide forecasts or estimates
for the future.

11
What is cost accounting?
Costing system provides the foundations for an organisation’s internal financial
information system for managers.
Cost accounting is concerned with providing information to assist the following:
◦ Establishing inventory valuations, profits or losses and balance sheet items
◦ Planning
◦ Control
◦ Decision-making

12
What is cost accounting
Management Accounting vs. Financial Accounting
Management Accounting Financial Accounting
Information mainly Internal users, e.g. Managers and External users e.g. Shareholders,
produced for employees creditors, lenders, banks,
government
Purpose of information To aid planning, control and To record financial performance and
decision making position in a period
Legal requirements No Yes (limited companies)
Formats No set format – managers decide Limited companies must produce
on content & presentation financial accounts

Nature of information Financial & non-financial Mostly financial

Time period Historical & forward-looking Mainly an historical record

13
Basic cost accounting concepts
Functions and departments
Example of Chocolate cakes production:
Board of directors

Production Administration Marketing

Mixing Baking Stores

14
Basic cost accounting concepts
Definition
Cost object: A cost object is anything for which we are trying to ascertain the cost
Cost unit: is the basic measure of product or service for which costs are determined
Composite cost units if more than one cost units are used. Normally, they are used in service
organisations.
E.g: page 7 (Study Manual 2020).

15
Cost classification

The classification
of cost

Types of Direct or
Indirect Behavior Control
Function expense

16
Cost classification Production costs
According to function
Finance costs

Administration costs

Function
Selling costs

Distribution costs

Research costs

17
Cost classification
According to function

Production costs are

those incurred when raw
materials are converted Non-Production costs (Period
into finished and part- costs) are costs not directly
finished goods. associated with the
production processes in a
manufacturing organisation.

18
Cost classification
Direct/Indirect

Total cost

Direct (Prime) Cost

Indirect
(Overhead) Cost

Direct Direct Direct Indirect Indirect Indirect

Material Labour Expense Material Labour Expense

19
Cost classification
Direct/Indirect
Direct cost: A direct cost is a cost that can be traced in full to the cost unit.

Indirect cost: A cost that is incurred which cannot be traced directly and in full to the cost unit.

20
Cost classification
Direct RM
Those materials that become an integral part of the product and that can be conveniently
traced directly to it.

Example: Rubber/Metal for car production

21
Cost classification
Direct labor
Those labor costs that can be easily traced to individual units of product.

Example: Wages paid to automobile assembly workers

22
Cost classification
Direct expenses
Expenses are incurred on a specific product other than direct material cost and direct wages
Example:
◦ The cost of special designs, drawings or layouts
◦ The hire of tools or equipments or a particular job
◦ Maintenance cost of tools fixtures …

23
Cost classification
Indirect cost
Production overhead: incur in the factory from receipt of the order until its completion
- Indirect material
- Indirect wages
- Indirect expenses

Administration overhead
Selling overhead
Distribution overhead

24
Cost classification
Summary Direct/indirect cost

Materials cost = Direct materials cost + Indirect materials cost

+ + +
Labour cost = Direct labour cost + Indirect labour cost
+ + +
Expenses = Direct expenses + Indirect expenses
Total cost = Direct cost/prime cost + Indirect cost/overhead

Total expenditure may therefore be analysed as follows.

 Product cost are costs identified with goods produced or purchased for
resales.
 Period cost are costs deducted as expenses during a particular period

25
Cost classification

A Cost behaviour is
Fixed cost the way in which
costs are affected
by changes in
B volume of output
Variable cost
C
Semi- Variable cost

D
Stepped- fixed cost

26
Cost classification

Variable cost: cost are changed in direct proportion to the level of activity such as direct
material, direct labor
Variable cost in total: changes at the same rate as the level of activity

27
Cost classification
Fixed Costs: Costs are not affected in total by the level of activity

Fixed cost in total

Fixed cost per unit

28
Cost classification
Semi-variable cost Stepped cost

29
Cost classification
Relevant range
◦ The relevant range is the range of activity levels within which assumed cost
behaviour patterns occur.
◦ The relevant range also broadly represents the activity levels at which an
organisation has had experience of operating in the past and for which cost
information is available.
◦ It can therefore be dangerous to attempt to predict costs at activity levels
that are outside the relevant range.

30
Cost classification
For control purpose
◦ For control purposes the most effective classification of costs is by
responsibility.
Responsibility accounting: Responsibility accounting is a system of
accounting that segregates revenue and costs into areas of personal
responsibility in order to monitor and assess the performance of
each part of an organisation.
A responsibility centre: A responsibility centre is a department or
function whose performance is the direct responsibility of a specific
manager.

31
Cost classification
For control purpose

Controllable cost: A controllable cost is a cost that can be influenced by

management decisions and actions.

Uncontrollable cost: An uncontrollable cost is a cost that cannot be affected by

management within a given time span.

32
Cost classification
For control purpose

◦ A cost that is not controllable by a manager in one department may be

controllable by a manager in another department.

◦ Costs are controllable, but in the long term rather than the short term

33