Dr.

Hassan Ouda
 Office No. B5.329:
 Office Hours: Sunday 11:00-15:00.
 Course Assessment:
 Midterm Exam 30%
 Final Exam 40%
 Quizzes 20% (Best 2 out of 3)
 Assignments 10% (Best 2 out of 3)
 Recap and Ch. 1: Managerial accounting,
the Business Organization, and professional
Ethics.

 Ch 5: Relevant Information for Decision

making With a Focus on Pricing Decisions.

 Ch 6: Relevant Information for Decision

making With a Focus on Operational
Decisions.
 Ch 7: Introduction to Budgets and Preparing
the Master Budget.

 Ch 8: Flexible Budgets and Variance

Analysis

 Ch 9 Management Control System and

Responsibility Accounting
 Introduction to Management
Accounting,
by Horngren, Sundem, Stratton,
Burgstahler and Schatzberg;
Fourteenth Edition, Pearson-prentice
Hall, 2008.
  
 Recapand Chapter 1:
Managerial Accounting, the
Business Organization, and
Professional Ethics.
 Cost object: Anything for which a measurement
of costs is desired: for example a product or
service.
 Direct Costs are related to a particular cost object
and can be traced to that cost object in an
economically feasible way. For ex. Cans or
bottles is a direct cost of pepsi-colas.
 The term Cost tracing: is used to describe the
assignment of direct costs to a particular cost
object.
 Indirect Costs are related to a particular cost object but
cannot be traced to it in an economically feasible way.
For. Ex. Salaries of supervisors who oversee production of
different products.
 The term Cost allocation: is used to describe the
assignment of indirect costs to a particular cost
object.
 Cost-allocation base: A cost-allocation base is the
allocation basis used to allocate the costs in the
cost pool to the cost object .
 Cost allocation base can be either financial (such

as direct labor costs) or non-financial ( such as

number of machine-hours).
 A cost pool is any grouping of cost items.
 Variable Cost: Changes in total in proportion to
changes in the related of total activity or volume.
 Fixed cost: remains unchanged in total for a given
time period.
 Variable Cost: Changes in total in proportion
to changes in the related of total activity or
volume.

 Number of variable cost per total Variable cost

 Units produced Steering wheel of steering wheels
 (1) (2) (3) = (1) x (2)

 ----------------------------------------------
 1 $60 $ 60
 1,000 60 60,000
 3,000 60 180,000
9
 Fixed cost: Remains unchanged in total for a
given time period.

 Annual Total Number of Units fixed Leasing Cost

Fixed leasing Costs produced per Unit
(1) (2) (3)= (1) / (2)
 ----------------------------------------------

 100,000 10.000 10
 100,000 20,000 5
 100,000 50.000 2

10
Inventoriable cost: are all costs of a product that
are considered as assets in the balance sheet
when they are incurred and that become cost of
goods sold only when the product is sold.
Types of inventory:
1- Direct materials inventory: direct material in stock and
awaiting use in the manufacturing process.
2- Work-in-process inventory: goods partially worked on
but not yet completed.
3- finished goods inventory: Goods completed by not yet
sold.
4- Merchandise inventory: products that are held in their
original purchased form.
 Period costs are all costs in the income statement
other than cost of goods sold. They are treated
as expenses of the accounting period in which
they are incurred. For manufacturing companies,
period costs in the income statement are all non-
manufacturing costs (for example, design costs
and distribution costs).
 For merchandizing companies, period costs in

the income statement are all costs not related to

the cost of goods purchased for resale. Example,
advertising costs.
- Users of Accounting information fall into two
general categories:
1- Internal Users (internal managers): who use
the information for day-to-day operating
decisions and for long-range strategic
decisions.
2- External Users: such as investors and
government authorities, who use the information
for making decisions about the company.
 Management Accounting Financial Accounting

External Users
Internal managers
Investors: Stockholders

Creditors:
Day-to-day operating decisions Suppliers
Long-range strategic decisions Bankers

Government Authorities
1- Management Accounting: measures, analyzes,
and reports financial and non-financial
information that helps managers make decisions
to fulfill the goals of an organization.
Managers use management accounting
information to choose, communicate, and
implement strategy.

They also use management accounting

information to coordinate product design,
production and marketing decisions.

Management accounting focuses on: 1- internal

reporting; 2- internal users and 3- It is future-
oriented.
- The management accounting produces
information for managers within an organization.

2- Financial Accounting focuses on reporting to

external parties such as investors, government
agencies, banks, and creditors. It measures and
records business transactions and provides
financial statements that are based on GAAP.
It is past-directed (reports on 2008 performance
prepared in 2009).
 The financial accounting produces information

for external users.

- Why ethics are important to management
accountants? (ex. car) (you can see the quality details
of a car, but accounting information is different. You
can’t see its quality).
- (Enron, Worldcom, Xerox)

- Why is integrity so important to accountants?

- The ethical habits you develop in your personal life

will carry over into your life as a manager or
accountant.
- Accountant and business leaders must insist on high
ethical standards.
- - Integrity is hard to establish, but easy to lose.
 Reliability

Trust Integrity

No regulation can be as effective in

ensuring reliability as high ethical
standards of accountants.
 Can management accounting information
apply to service and non-profit organization?

 Service organization: are organizations that do

not make or sell tangible goods (e. g., Public
Accounting firms, law firms, management
consultants, banks, insurance companies, etc.
 Non-profit , organization, such as hospital,

school, libraries, are also service organizations.

Managers and accountant raise and spend
money. The prepare budgets and design and
implement control systems., etc.
 Service Nonprofit
organizations organizations

Accounting firms Hospitals

Law firms Schools
Real estate firms Libraries
Banks Museums
Hotels Government agencies
 Managers benefit when accounting provides
information that helps them plan and control
the organization’s operations.

 Planning: refers to setting objectives for an

organization and outlining how it will attain
them.

 Control: refers to implementing plans and using

feedback to evaluate the attainment of
objectives.
 Decision making: the purposeful choice
from among a set of alternative courses
of action designed to achieve some objective.

Planning: Setting Control: Implementing

objectives and outlining plans and using
how the objectives will feedback to evaluate
be obtained. the attainment of
objectives.
 Budget: is a quantitative expression of a plan of
action and aid to coordinating and
implementing the plan.

 Performance reports: provides feedback by

comparing actual results with plans and by
highlighting variances.
 Management accountant is becoming a internal
consultant on information-related issues– that
is, an advisor for managers about:
 - what information would be useful;
 - what information is available; and
 - how to analyze the information and use it in

decision making.
 Collects Prepares
and compiles standardized
information reports

Internal
Consultant

Interprets and Is Involved

Analyzes information In decision making

Management
 Because management accounting supports
business decisions, accounting systems must
adapt to changes in management practices.

 - Just-in-time (JIT) Philosophy.

 - Computer-integrated manufacturing (CIM).
 - Total quality management (TQM).