MECN 7032 – Management and cost accounting
Class notes – 15/05/2019
Chapter 1:
Accounting can be divided in 4 areas:
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Bookkeeping
o Bean counting – records transactions, journal entries, ledgers
o May even go to income statement and balance sheet
o Capturing transactions and recording
Financial accounting
o Putting financial statements together
o Analyzing and interpreting them
o Income statement, Balance sheet, Cash flow statement
Cost accounting
o Large portion of this course
o How we capture costs and methodologies we use in different situations
o E.g. paint factory – process costing – continuous process
o E.g. Nissan factory – Split in production line – joint product costing
o 3 costs – material, labour and overhead (challenge in all methodologies, how to
measure and allocate properly)
o Way in which we apply costing methodology to the environment in which we operate in
o Bean counting – week 1
Management accounting
o Applies to financial accounting and cost accounting
o Having proper information to make decisions
o Used internally for planning, directing, motivating and controlling operation
o Analysis and interpretation and case studies – week 2
Cost and management accounting – internal use
Financial accounting – external use
Planning
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Strategic – long term planning by top management
Managerial – short to medium term planning done by middle management
Operational – short term planning for daily operations
Control
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Variance analysis – what we estimate vs. what has happened?
Do we keep a product line going? Do we make or buy?
Chapter 2 – Fundamental aspects of cost accounting
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Cost – resource we use to achieve a particular objective
Purpose
Direct costs
Direct material – actual materials that go into making the item
Direct labour – People who are hands on – involved in making the item – e.g. machinist in clothing
factory, not foreman
Direct material + Direct labour + Direct expenses (overheads) = Prime costs/Direct costs
Behaviour
Fixed – quantity is irrelevant – not activity based
Variable costs – changes with level of output, can be theoretically removed if not producing
Semi – variable – e.g. Telephone line
Stepped fixed
Chapter 5: Manufacturing overheads
All indirect costs accumulated within the manufacturing process that cannot be traced to single product
Allocation and apportionment
Internally