Management Accounting: Decision-Making by Numbers: Business Strategy & Competitive Advantage

By Commerce Central

This publication provides a technical and theoretical understanding of planning techniques, performance management, cost classifications, cost behaviour, and organisational cost structures. Readers are guided through techniques such as variance analysis, break-even analysis, activity-based costing, and costing systems design. 

 

Readers will also gain an understanding of the strategic significance of cost structures, and the interaction between costs and demand analysis in planning, and decision-making.

 

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• Language: English
• Publisher: Commerce Central
• Release date: Sep 14, 2023
• ISBN: 9798223154358

Book preview

The Purpose of Management Accounting: Decision-Making

Management accountants and accounting students benefit from analysing activities in terms of what decisions need to be made and then considering which of the management accounting theories should be applied to reach the best possible conclusion.

Managers at different organisational levels make different types of decisions: operational, tactical, and strategic.

Decision-making involves the evaluation of different courses of action using a decision-making framework based on predetermined objectives and measurement criteria. I.e. choosing courses of action that satisfy objectives most effectively.

Next, we will consider some specific examples of decisions and introduce the example company we will use throughout the rest of the chapters. But before looking at an illustration, we need to define some terms and explain concepts used in the upcoming example.

Classification of Costs

There are two main cost classifications, element, and behaviour. An example of element classification is ‘Rent expense’ or ‘Insurance expense’. An example of behaviour classification is variable or semi-variable costs.

Classification of Costs According to Element

Classifying costs according to their element involves grouping costs based on the elements of production, e.g. materials, labour, and overheads.

Classification of costs according to behaviour

Costs can be classified into three types of behaviour: fixed costs, variable costs, and semi-variable costs.

Classification of costs according to behaviour (fixed or variable)

When classifying costs according to behaviour a distinction is made between fixed and variable costs. E.g. Direct materials and warehouse rent.

Classifying costs according to their behaviour i.e. the way costs behave, is significant to cost-based calculations used in planning and performance management.

Management reports and metrics often highlight the behaviour of costs as opposed to listing all the activities that incurred costs.

Direct cost

A direct cost is a cost that can be directly and incrementally attributable to a unit of output.

Indirect cost

An indirect cost can be incremental but cannot be directly attributable to a unit of output.

Reviews for Management Accounting

[Ronelle · Rating: 5 out of 5 stars]

Very good explanations, well put together and very helpful. I highly recommend it.