Cost and

Manageme
nt
Account
ing Prof. Kürşad
Presentation by
Assist.
ÇAVUŞOĞLU
Objective of
Course
• Provide students with an understanding of management and cost
accounting tools and concepts and how they contribute to decision-
making process in management of firms.
Learning
Outcomes of
This Course
• Differentiate between financial accounting and
managerial accounting
• Distinguish product costs from period costs
• Explain the cost terminology and the flow of costs in
manufacturing firms
• Explain cost of raw materials and labor costs
• Measure and assign support department costs
• Understand cost estimation methods and costing
systems
• Use cost data for planning and control
• Use the cost information in managerial decision making
process
Course Contents
• Conceptual Framework of Cost and Management Accounting
• Cost of Raw Materials
• Labor Costs
• Measuring and Assigning Support Department Costs
• Cost Estimation Methods And Costing Systems
• Using Cost Data for Planning
• Using Cost Data for Control
• The Use of Cost Information in Managerial Decision Making Process
Resources
• Cost and Management Accounting, Halil Cem Sayın (Editor), Anadolu
University Publication, 2019.
You can download this book via:
https://ets.anadolu.edu.tr/storage/nfs/ISL359U/ebook/ISL359U-
19V1S1-8-0-1-SV1-ebook.pdf
• Management and Cost Accounting, Alnoor Bhimani, Charles T.
Horngren, Srikant M. Datar, Madhav Rajan, Pearson, 2015, 6th
Edition.
• Management and Cost Accounting, Colin Drury, Cengage, 2018, 10th
Edition.
• Cost Analysis for Engineers and Scientists, Fariborz (Fred) Tayyari,
CRC Press, 2022.
 SECTION 1

Conceptual Framework of Cost

and Management Accounting
Learning
Outcomes of
This Section
• Explain the meaning and scope of cost accounting.
• Explain the meaning and scope of management accounting.
Introduction
• In recent years, many organizations, especially in the manufacturing
sector, have faced significant changes in their business environment.
• These challenges can be summarized:
Ø Globalization
Ø Extensive competition from overseas companies in domestic
markets
Ø Automatization and Industry 4. Revolution
Ø Technological development
Ø A significant reduction in product life cycles
Ø Increasingly discriminating customer demand
Introduction
• Accounting is an information system that meets the users’ information
needs.
• The users of accounting information can be divided into two
categories.
• Internal parties within the organization such as managers and
external parties such as shareholders, creditors outside the
organization.
• Financial accounting produces useful financial information to external
users.
• On the other hand, cost accounting and management accounting
provide information to internal users.
• The information provided by the cost accounting and management
accounting helps management to take careful and accurate decisions
Meaning and
Scope of
Management
Accounting
• Management accounting is the process of supplying the managers
in an organization with relevant information, both financial and
nonfinancial, for making decisions, allocating resources, and
monitoring, evaluating, and rewarding performance.
• Management accounting has a much broader perspective than cost
accounting.
• Management accounting focuses on strategic planning, resource
allocation, cost planning and control, and performance measurement.
• The reported expense of an operating department, such as the
painting department of an automobile plant is one example of
management accounting information.
Meaning and
Scope of
Management
Accounting
• Other examples are the cost of producing a product and the cost of
performing an activity or business process, such as creating a
customer invoice or serving a customer.
• Nonfinancial management accounting information includes measures
related to customer satisfaction and loyalty, process quality and
timeliness, and employee motivation.
Management
Accounting as an
Information System
• Management accounting is an information system that provides
financial and non-financial data to be useful for managers to make
decisions.
• Management accounting information system has many key qualities.
These are:
Ø Relevance: Having the ability to influence decisions.
Ø Reliability: Becoming free from significant errors or bias.
Ø Comparability: Identifying changes in the business over time
or evaluating the performance of the business in relation to
other similar businesses.
Ø Understandability: Expressing as clearly as possible
 Management
Accounting as an
Information System
• The managerial accounting information system has certain
characteristics. These are:

The Preparation of The The Use of Collected

Information Information
The Areas of
Management
Accounting
Areas that the managerial accounting information system will
offer to the managers

i
The areas of
Management
Accounting
• Developing long-term plans and strategies: Managerial accounting
offers financial and non-financial data that will be useful for managers
to develop their goals and strategic plans.
• Performance evaluation and control: Controls need to be in place to
ensure that actual performance conforms to planned performance.
Actual outcomes will be compared with plans to see whether the
performance is better or worse than expected.
• Allocating resources: Resources available to a business are limited
and it is the responsibility of managers to try to ensure that they are
used efficiently and effectively.
• Determining costs and benefits: Management accounting provides
detailed cost and benefit information to managers about their decisions
such as providing a service, producing a new product, or closing a
department.
The Areas of
Management
Accounting
The Impact of The
Changing Business
Environment on
Management Accounting
Changes in the business environment:
• Global competition: Global competitive environment has increased
the demand for information relating to quality and customer
satisfaction and cost information relating to cost management and
profitability analysis by product/service lines and geographical
locations.
• Changing product life cycles: Companies must be able to manage
their costs effectively at the design stage, have the capability to adapt
to new, different and changing customer requirements and reduce the
time to market of new and modified products.
The Impact of The Changing
Business Environment on
Management Accounting
• Advances in manufacturing technologies: World-class
manufacturing companies have responded to competitive demands
by replacing traditional production systems with advanced
manufacturing technologies.
• The impact of information technology: Instead of managers asking
management accountants for information, they can access the
system on their personal computers to derive the information they
require directly and do their own analyses.
• Environmental and sustainability issues: Environmental
management accounting is becoming increasingly important in many
organizations due to large environmental costs, regulatory
requirements involving huge fines and increasing demand of society.
The Impact of The
Changing Business
Environment on
Management Accounting
• Pressures to adopt higher standards of ethical behaviour:
Management accountants have a critical part to play in the
management of ethical performance and an obligation to uphold
ethical standards.
• Deregulation and privatization: Deregulation, intensive competition
and an expanding product range create the need for organizations to
focus on cost management and develop management accounting
information systems that enable them to understand their cost base
and determine the sources of profitability for their products,
customers and markets.
The Impact of The
Changing Business
Environment on
Management Accounting
• Focus on value creation: There is now an increasing recognition that
management accounting needs to place greater emphasis on creating
value rather than an overemphasis on managing and recording costs.
• Customer orientation: In order to survive in today’s competitive
environment, companies have had to become more customer driven
and to recognize that customers are crucial to their future success. This
has resulted in companies making customer satisfaction an overriding
priority. The key success factors of providing customer satisfaction are
cost efficiency, quality, time, innovation and continuous improvement.
 Differences Between
Management Accountin
and Financial Account
Management Accounting Financial Accounting

Regulations No external regulations govern preparation of Financial accounting reports are prepared according to
management accounting reports accounting regulations and guidelines imposed by law
and the accounting profession
Generally accepted Management accountants are not required to adhere to Financial accounting statements must be prepared to
accounting generally accepted accounting principles conform with generally accepted accounting principles
principles

Users Internal users: Managers, employees… External users: Government, banks, creditors,
potential investors, shareholders, unions, consumer
groups…
Range and detail of Encompassing financial, non-financial and qualitative Usually broad-based, lacking detail and intended to
information information which may be very detailed or highly provide an overview of the position and performance
aggregated. of an organisation over a time period. Focusing on
financial information
Source of data The core accounting system, physical and operational The core accounting system
data from production systems, and market, customer,
economic data from sources external to organisation
Reporting interval Management accounting reports may be produced Financial accounting reports are generally produced
frequently – on an hourly, daily, weekly, monthly basis, annually. Some large companies also produce semi-
possibly to span several years. annual and quarterly reports.
Focus on individual Management accounting focuses on small parts of the Financial accounting reports describe the whole of the
parts or segments organization; for example, the cost and profitability of business
of the business products, services, departments, customers, cost
centers and activities.
Time period Management accounting reports may include historical Financial accounting reports provide information on
and current information but also often provide the performance and position of an organisation for the
information on expected future performance and past period. They tend to be backward-looking.
activities.
Meaning and Scope
of Cost
Accounting
• Cost accounting measures and reports financial and non-financial
information related to the organisation’s acquisition or consumption of
resources. It provides information for both management accounting
and financial accounting.
• Cost accounting is concerned with cost accumulation for inventory
valuation to meet the requirements of external reporting and internal
profit measurement.
• The information produced by a cost accounting system provides a
basis for calculating product costs, selling prices, and assisting
decision-makers in cost planning and control.
 Determining
Product Costs and
Pricing
• Cost accounting provides to calculate product costs that enable the
preparation of relevant financial statements and other reports needed
by management.
• The cost accounting information system must be designed to permit
the calculation of unit costs as well as total product costs.
• Unit cost information is also helpful in making important marketing
decisions such as:
Ø Determining the selling price of a product
Ø Meeting competition
Ø Bidding on contracts
Ø Analyzing profitability
Cost Planning
and Control
• Planning is the process of establishing clearly defined objectives of
the manufacturing operation. These objectives may be expressed in
terms of the number of units to be produced, the required quality,
the calculated unit cost, the delivery schedules, and the required
inventory levels.
• A production plan will aid and lead the company in reaching its
objectives. This detailed plan includes a description of the
manufacturing operations to be performed, a projection of human
resource needs for the period, and the coordination of the timely
purchase of materials and facilities.
• Cost accounting information supplements the planning process by
providing historical costs that serve as a basis for future projections.
Cost Planning
and Control
• Effective control is achieved as follows:
Ø Assigning Responsibility: All managers
should know fully
w h a t t h e i r
responsibilities are in
terms of efficiency,
production, and costs.
Ø Periodically Measuring and Comparing Results: Real
operating results should be reviewed periodically and in
proportion to the objectives established in the planning process.
This analysis is an important part of cost control.
Ø Taking Necessary Corrective Action: The performance reports
may identify problem areas and variances from the business plan.
Convenient corrective action should be implemented where