Cost and Management
Accounting
PBS261
Costing Principles
Learning Objectives
By the end of the lesson, you will be able to understand:
● What cost and Management Accounting is;
● The difference between CMA and financial accounting;
● How CMA can assist managers in decision-making;
● The three elements of cost-material,labour and overhead;
● Basic cost behaviour patterns; and
● The difference between data and information
Cost Accounting
Cost Accounting is a business practice in which we record, examine, summarize, and study the
company’s cost spent on any process, service, product or anything else in the organization. This
helps the organization in cost controlling and making strategic planning and decision on improving
cost efficiency. Such financial statements and ledgers give the management visibility on their cost
information. Management gets the idea where they have to control the cost and where they have to
increase more, which helps in creating a vision and future plan. There are different types of cost
accounting such as marginal costing, activity-based costing, standard cost accounting, lean
accounting. In this article, we will discuss more objectives, advantages, costing and meaning of
costs
Management Accounting
Management accounting also is known as managerial accounting and can be defined as a
process of providing financial information and resources to the managers in decision
making. Management accounting is only used by the internal team of the organization, and
this is the only thing which makes it different from financial accounting. In this process,
financial information and reports such as invoice, financial balance statement is shared by
finance administration with the management team of the company. Objective of
management accounting is to use this statistical data and take a better and accurate
decision, controlling the enterprise, business activities, and development.
Cost and Management Accounting
CMA, a combination of costing and management, is a key internal information
management system. It is more detailed, management-biased and future-oriented and
provides information to help managers make the following decisions:
● Price setting
● Levels of output and resource requirements
● Whether to accept or reject a special order
● Whether to make or buy a component;
● Whether to lease or buy equipment; and
● Whether a department’s operations are efficient.
Difference between CMA and Financial Accounting
Area Cost and Management Financial Accounting
Accounting
Time Frame It deals with the future It deals with the past
Relevance for control It is relevant for control It is of little relevance as data are of the
past
Users Users are internal decision makers such Users are external decision makers such
as managers as creditors, banks and investors
Key Function It provides managers with information It fulfills stewardship functions by
for decision making,planning and reporting on past performance.
control.
Regulatory constraints It does not need to comply with It has to comply with statutory
external regulations as there is no legal requirements and other regulations eg.
requirement to set up a cost and Companies Act, accounting standards.
management accounting system. Organizations are obliged to prepare
annual accounts for external reporting
purposes.
Elements of costs
