Management accounting is concerned with providing financial and non-financial information to managers for planning, controlling and decision making purposes. It differs from financial accounting in its primary uses, time dimension and purpose of information. Cost accounting involves identifying, measuring, collecting, analyzing and communicating cost information to equip managers with financial data for decision making. Key concepts in management accounting include cost-volume-profit analysis, budgeting and decision making tools like net present value, payback period and internal rate of return.

1. Management Accounting
As A
Decision Making Tool

2. What is Managerial Accounting?
Management accounting is
concerned specifically with how
cost information and other
financial and nonfinancial
information should be used for
planning, controlling, and
decision making.

3. Differences between
Financial Accounting & Management Accounting
Financial
Financial
Primary uses
Time dimension
Purpose of
information
Management
Management
External- investors,
creditors,
Gvt.authorities
Internal managers of
the business
Reports describe what
has happened in the past
in an organization.
Reports concerned on
future information as well
as past information in an
organization.
Help investors, creditors
and others to make
investment credit and
other decisions.
Help managers to
plane and control
business operations

4. Cost Accounting
What is cost accounting?
Cost accounting consists of the identification,
measurement, collection, analysis, preparation, and
communication of financial information. Cost
accounting, sometimes also referred to as managerial
accounting, helps provide financial information used
to,
Equip managers for decision-making
Improve a manager’s ability to make decisions
Control and manage resources

5. The Need for Cost Accounting




Measuring performance
Reducing or managing costs
Determining the fees or prices for goods and services
Deciding to authorize, modify or discontinue a program or
activity
Objectives of Cost Accounting





Ascertainment of cost
Determination of selling price
Cost control and cost reduction
Ascertaining the profit of each activity
Assisting management in decision-making

6. Overhead Cost Allocation
Total cost of product constitutes Direct Material,
Direct Labor & Overheads. Direct Material and
Direct Labor are directly traceable to the
products manufactured. Accuracy of product
cost computation depends on accurate
distribution of overheads to products.
Inaccuracies would lead to incorrect decisions –
especially the pricing decisions.

7. Traditional Method Vs. Activity Based Method
1. Traditional cost accounting is obsolete whereas Activity Based
Accounting is used more by various target-oriented companies.
2. ABC methods help the company to identify the needs of keeping
or eliminating certain activities to add value to the products.
3. TCA methods focus on the structure rather than on processes
whereas ABC methods focus on the activities or processes rather
than on the structure.
4. ABC provides accurate costs whereas TCA accumulates values
arbitrarily.
5. TCA is almost obsolete whereas ABC methods are largely in use
since 1981.

8. Decision Making
Short Term
 CVP
 BEP
Long Term
Payback
Period
NVP
IRR

9. Cost-Volume-Profit (C-V-P) Relationship
Cost-Volume-Profit (CVP) analysis is a managerial
accounting technique that is concerned with the effect
of sales volume and product costs on operating profit
of a business. It deals with how operating profit is
affected by changes in variable costs, fixed costs,
selling price per unit and the sales mix of two or more
different products.

10. CVP Analysis Formula
PX = Vx + FC + Profit
The basic formula used in CVP Analysis is derived
from profit equation:
In the above formula,
•P
-is price per unit
•V
-is variable cost per unit
•X
-are total number of units produced and sold
•FC -is total fixed cost

11. Break Even Point (BEP)
Break-Even Point (BEP) is the point at which cost
or expenses and revenue are equal: there is no net
loss or gain, and one has "broken even."
Break Even Sales = Fixed Cost + Variable Cost

12. Break Even Point (BEP)

13. Net Present Value (NPV)
In finance, the net present value (NPV) of a time series of
cash flows, both incoming and outgoing, is defined as the sum
of the present values (PVs) of the individual cash flows.
NPV=present value of financial inflow- present value of financial
outflow
If the net present value is
Positive
Then the project is
Acceptable since it promises a return greater than
the required rate of return
Zero
Acceptable, since it promises a return equal to the
required rate of return.
Negative
Not acceptable, since it promises a return less than
the required rate of return

14. Net Present Value (NPV)
Advantages Of Net Present Value (NPV)
•NPV gives important to the time value of money.
•In the calculation of NPV, both after cash flow and before cash flow
over the life span of the project are considered.
•Profitability and risk of the projects are given high priority.
•NPV helps in maximizing the firm's value.
Disadvantages Of Net Present Value (NPV)
•NPV is difficult to use.
•NPV can not give accurate decision if the amount of investment of
mutually exclusive projects are not equal.
•It is difficult to calculate the appropriate discount rate.
•NPV may not give correct decision when the projects are of unequal
life.

15. The payback period (PP)
Payback period is the time in which the initial cash
outflow of an investment is expected to be
recovered from the cash inflows generated by the
investment. It is one of the simplest investment
appraisal techniques.

16. Budgeting
Budgeting is the process of preparing a detailed statement
of financial results that are likely to happen in a period in a
time to come. There are five basic concepts,
Flexible Budgeting
Material Budgeting
Productivity Budgeting
Cash Budgeting
Budgeted Financial Statements

17. Flexible Budgeting
A flexible budget is an operating budget that features alternative
estimates for various line items.
Advantages
 A flexible budget enables the management to analyse the deviation of
actual output from expected output.
 The management can compare actual costs at the actual volume with
the budgeted costs at the actual volume.
 The flexible budget provides a correct basis for comparison between
actual and expected costs for an actual activity.

18. Material Budgeting
The direct materials budget calculates the materials that
must be purchased, by time period, in order to fulfill the
requirements of the production budget, and is typically
presented in either a monthly or quarterly format in the
annual budget.
Production Budgeting
The production budget is prepared after the sales
budget. The production budget lists the number of units
that must be produced during each budget period to
meet sales needs and to provide for the desired ending
inventory.

19. Cash Budgeting
The cash budget contains an itemization of the
projected sources and uses of cash in a future period.
This budget is used to ascertain whether company
operations and other activities will provide a sufficient
amount of cash to meet projected cash requirements.
Advantages of budgeting
•Maximization of Profits
•Proper Planning, Co-ordination & Control
•To Use the Forecasting Techniques
•Effective Utilization of Company's resources
•Incentive Schemes to the Employees

20. Our Crew
 Mr: De Silva W.B.S.
 Mr: Ishan B.A.C.
 Ms: Panditha D.J.T.
 Ms: Ruwangi H.A. Tharushika
 Ms: Shashikala A.D.S.

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