Management
Accounting
Prof. Rachappa Shette
Indian Institute of Management Kozhikode
rachappa.s@iimk.ac.in
Phone: 0495-2809 422
Instructors:
1. Prof. Harshali Damle
2. Prof. Pankaj Kumar Baag, and
3. Prof. Rachappa Shette, Course Coordinator.
Course Learning Objectives:
1. Enables students to use financial and nonfinancial information for effective decisionmaking.
2. Equip learners with analytical skills to plan,
prepare and manage budgets.
3. Enable students to evaluate and control the
business performance.
Contents and Flow:
1. Module I: Introduction, Cost Classification
and Cost Estimation Methods
2. Module II: Cost Ascertainment
3. Module III: Marginal Costing, Cost-VolumeProfit Analysis and Relevant Costing for
Decision Making
4. Module IV: Budgeting, Budgetary Control and
Variance Analysis
5. Module V: Performance Measures and Recement
Developments in MA
Course Text Book:
• Management Accounting by Narsimhan, Cengage
Publications.
Reference Books:
1. An Introduction to Management Accounting by Horngren,
Charles T., Gary L. Sundem, and William O. Stratton,
Pearson Education.
2. Managerial Accounting for Dummies by Mark P Holtzman.
3. Cost Accounting: With Integrated Data Analytics, Karen
Congo Farmer, Amy Fredin, and Pankaj Kumar Baag.
4. Accounting Simplified by Rachappa Shette, Penguin
Publisher.
5. CAI Material of Cost Accounting:
https://www.icai.org/post/17759
6. ICMAI Material of Cost Accounting:
https://icmai.in/upload/Students/Syllabus2022/Inter_Stdy_Mt
rl/P8_Rev_Edition_Feb_24.pdf
7. ICSI Material of cost Accounting
Teaching Pedagogy:
• The teaching approach will combine
presentations, problem-solving, and case
discussions.
Tentative Evaluation:
• Quizzes
20%
• Class Participation
10%
• Group Assignments and Presentations
15%
• Mid-Term Examination
25%
• Term-End Examination
30%
Session 1 & 2: Plan
1. Meaning,
2. Principles of MA,
3. Information – Characteristics and levels
4. Purpose of MA,
5. Role of Management Accountants,
6. Limitations of Financial Accounting, &
7. Financial Vs Management Accounting
Agenda 1: Meaning of Management
Accounting
• Management Accounting defined as:
“ the application of the principles of
accounting and financial management to create,
protect, preserve an increase value for the
stakeholders of for profit and non-for-profit
enterprises in the public and private sectors”.
Key Aim:
Value
Key Activity:
Relevant information
Agenda 2: Principles of
Management Accounting
1. Relevance
2. Influence
3. Trust
4. Value
Agenda 3: Characteristics of
good Information
ACCURATE
1. Accurate
2. Complete
3. Cost beneficial
4. Understandable
5. Relevant
6. Authoritative: Reliable and trusted
7. Timely
8. Easy to use
1. Test your understanding:
M is a management accountant. One of her roles is to
provide each functional manager with a monthly
report. The production manager has complained to M
about his report, stating the following:
• The report for month 2 was not received until
month 5 making the information too out of date to be
useful.
• The report contained terminology which he did not
understand.
• The report was too long which made it difficult
for him to find the parts he really needed and
some of the important information he required was
missing.
Which elements (any five) of ACCURATE has M NOT
Agenda 3: Non-financial
information
• Financial Information
• Non-financial information:
• Non-financial information of a Stationary Shop:
• Number of items
• Number of corporate customers
• Number of orders
• Number of online orders
• Number of off line orders
• Number of average distance of delivery, etc.
Agenda 3: Purpose of Management
Accounting
1. Decision making:
• Pricing decision
• Make or buy decision
2. Planning
• Strategic level
• Tactic level
• Operational
3. Control
• Variances
• Financial/profitability measures
• Non-financial measures
Agenda 4: Information used at
different levels of Management
• Strategic Level:
• Large impact on whole organization
• Impact will be long term
• Tend to be unstructured
• Tactical Level
• Medium impact
• Impact on medium term
• Bridge between strategic and operational levels
• Operational Level
• Small impact on the whole organization
• Will be short-term
• Tend to be highly structured
•LMN is an international clothing manufacturer specializing in producing waterproof jackets.
Consider the following decisions and match each to the level of the organization where these decisions would be made.
Agenda 3: Information used at
different levels of management
- Example
Decision
Level
A decision to take over a rival
company in order to expand its
production into different markets
Strategic
A decision about the pricing of
the products
A decision on the ordering of
material for production
Tactic
Operational
2. Test your understanding
Use the following words to complete the
sentences regarding levels of information.
• Strategic • Tactical • Operational • Higher •
Lower • More • Less
1. A decision to diversify into a new market
would be taken at the _________ level.
2. Information for operational level decisions
will have a ___________ level of detail than
information for strategic level decisions.
3. Strategic level information will be
____________ subjective than operational level
information.
5. Role of Management
Accountants
• Reporting performance
• Enhancing performance
1. Scorekeeping role:
• How are we doing?
2. Attention directing role:
• What opportunities and problems should managers
focus on?
3. Problem solving role:
• Of the several alternatives available, which is the
best?
5. Role of Management
Accountants according to CIMA
1. Formulation of policy and setting of corporate
objectives
2. Formulation of strategic plans
3. Formulation of short-term operational plans
4. Acquisition and use of finance
5. Design of systems and management information
systems
6. Generation, interpretation and communication of
financial and non-financial information to
managers and other stakeholders
7. Providing relevant information for managerial
decision making
8. Setting performance measures (financial and nonfinancial)
6. Financial Accounting
Financial accounting is defined as:
“classification and recording of monetary
transactions of an entity in accordance
with established concepts, principles,
accounting standards and legal
requirements and their presentation, by
means of statements of profit and loss,
statements of financial position and cash
flow statement, during and at the end of
an accounting period”.
6. Limitations of Financial
Accounting
1.Historical information
2.Not timely (Prepared once in a year)
3.Records only quantitative information
4.Involvement of judgement and Chance of
manipulation
5.Comprehensive and Difficulty in understanding
6.No information about the value of human
resources
7.No information of a specific Brand, Product,
Branch, Department, Project, Client,
Component, Activity, Machine, Region, etc.
7. Financial Accounting Vs
Management Accounting
1. Main objective
2. Primary Users
3. Rules of Measurement and reporting
4. Report frequency
3. Test your understanding
Consider the following statements relating to
financial accounting:
(i) The main purpose of financial accounting
statements is to provide a true and fair view of the
financial position of an organization at the end of
an accounting period.
(ii) Financial information may be presented in any
format deemed suitable by management.
• Which of the above statements is/are true?
A
(i) and (ii)
B
(i) only
C
(ii) only
D
neither
Summary:
• Course outline
• Information characteristics
• Decision making levels
• Role of MA
• FA Vs MA