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Module V: Management
Accounting
Emergence of Management Accounting,
Marginal Costing and Cost Volume Profit Analysis,
Budgeting & Variance Analysis
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WHAT IS MANAGEMENT
ACCOUNTING?
Managerial accounting, also called management
accounting, is a method of accounting that creates
statements, reports, and documents that help
management make better decisions related to their
business performance. Managerial accounting is primarily
used for internal purposes.
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MANAGEMENT ACCOUNTING
EVOLUTION MODEL INCLUDES
FOUR PHASES:
(1) costs determination and financial control,
(2) information for management planning and control,
(3) reduction waste of resources in business processes and
(4) creation of value through effective resource use.
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MARGINAL COSTING
Marginal costing in economics and managerial accounting
refers to an increase or decrease in the total cost of
production due to a change in the quantity of the desired
output. It is variable, depending on the inclusion of
resources required to produce or deliver additional unit(s)
of a product or service.
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COST-VOLUME-PROFIT (CVP)
ANALYSIS
• Cost-volume-profit (CVP) analysis is a way to find out
how changes in variable and fixed costs affect a firm's
profit. Companies can use CVP to see how many units
they need to sell to break even (cover all costs) or reach
a certain minimum profit margin.
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WHAT IS BUDGET VARIANCE
ANALYSIS?
• Budget variance analysis is the practice of comparing
actual results to the budget values for the same period
and analyzing the variances. Since the budget is created
to act as a guide for the business to accomplish its goals
and objectives, it is important to periodically measure
how well the business was able to stick to it.
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FIVE BASIC STEPS TO
PERFORMING VARIANCE
ANALYSIS.
• Step 1: Gather Data
• Before beginning it is best to gather and aggregate all
relevant data in one centralized location. Managing
disparate excel files or data sets can produce challenges
when trying to perform the analysis on variances.
Furthermore, it streamlines the production of the report
and helps to maintain version control over various
versions of data that might be produced.
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• Step 2: Calculate Variances
• Once all of the relevant data is centralized, create the
template for calculating variances in excel. In one
column, place your budgeted values for each data point
you would like to compare. For example, gross sales,
labor costs, cost of goods sold, and fixed costs might be
presented in aggregate. Remember that you can be as
granular as the data you aggregated in step 1 allows you
to be.
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• Step 3: Analyze Variances
• It is always a best practice to implement thresholds for
materiality when performing variance analysis. Be sure
that the time spent on investigating a variance is
worthwhile and be sure to measure the cost and benefit
of time spent during analysis. Once you have identified a
materiality threshold, begin the process of analyzing
each variance.
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• Step 4: Compile Management Reports
• Finally, compile all of the results into a singular report for
management. The report should contain the identified
variances and the root causes of each variance. It should
also contain corrective actions and recommendations for
management on what to do. Analysts take ample time to
prepare for these presentations as management often
asks questions that they need to be ready to answer.
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STEP 5: ADJUST FORECASTS
• Once the actual values and emerging trends have been
identified, it is important to update any forecast and
additional financial models with the new
information. Forecast should act as a compass that helps
the business navigate towards its goals and provides a
gauge to measure whether it is headed in the right
direction.
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THANK YOU……..
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