MANAGEMENT ACCOUNTING MAS Reviewer by RVP

1. MANAGEMENT CONSULTANCY
I. Advises = improve clients use of capabilities and resources.
II. Consultation (answering queries based on existing knowledge) versus Engagement (Scientific
Process).
III. Areas of Consultancy:
A. As to nature
Corrective: Provide advises to resolve past and current operations mistakes.
Progressive: Provide advises to improve current operations activities.
Opportunistic: Provide advises to future investing and financing transactions of
the client.
B. As to field (Accounting and Finance versus non-accounting and non-finance)
C. Traditional (Old) versus Emerging (New)
D. As to skills needed:
Basic or usual
Somewhat specialize (additional study or training is required) and;
Highly specialized (need help from expert such as engineers, lawyers etc.)].
IV. Analytical Process (Identifying Objectives, Definition of Problems, Gathering Data, Evaluation,
Findings and Recommendation)
V. Professional Attributes (Technical, Inter-personal, and Consulting Process Skills)
VI. Practice Standards (Personal Characteristics, Competence, Due Professional Care, Client
Benefit, Understanding with clients, Planning and Supervision, Sufficient Relevant Data, and
Communication of Results)
VII. Steps in MAS Engagement (Negotiation, Planning, Conducting, Evaluation of the
Engagement, and Post-Engagement Follow-up)

2. MANAGEMENT ACCOUNTING CONCEPTS

I. Managers Activities or Basic Functions:
Planning (Setting up of immediate and long term goals)
Organizing (Involves Directing, Motivating, Subordinating, Staffing)
Controlling (Comparing of actual performance with set plans or standards and taking
corrective actions)
II. Financial Accounting versus Managerial Accounting (Difference is based in users of information)

Financial Accounting Management Accounting

User of Information Primarily for external users Exclusively for internal users
Guiding Principles PFRS or GAAP Management Needs
Optional/Mandatory Mandatory (Public Entities) Discretionary or Optional
Type of Information Financial (Primarily Monetary) Monetary and Non-Monetary
Emphasis on Report Reliability (Precision of Data) Relevance (Timeliness of Data)
Purpose/End result Financial Reporting Compliance Decision-Making
Source of Data Company Internal Information Internal and External Information
Amount of Detail Compress and Simplified Detailed
Focus of Information Business as a whole Business and Segments as a whole
Frequency Periodic As frequent as need arises
Time Orientation Historical Future Oriented
Unifying Model Asset = Liabilities + Equity None
 MANAGEMENT ACCOUNTING MAS Reviewer by RVP

III. Controller (Financial Information) versus Treasurer (Financial Transaction)

Controller Treasurer
1.Planning and Control 1. Provision of Capital
2. Reporting and Interpreting 2. Investor Relation
3. Evaluating and Consulting 3. Short-term Financing
4. Tax Administration 4. Banking and Custody
5. Government Reporting 5. Credit and Collections
6. Protections of Assets 6. Investments
7. Economic Appraisals 7. Insurance

IV. Line (provide goods and services to customers, authority to give command or orders, exercises
direct downward authority) and Staff (supporting group, authority to advise but not to command
others, exercise laterally or upward)
V. Code of Ethics (Competence, Integrity, Confidentiality, Objectivity)
VI. Management by Objectives (agree on common goal and develop plan in accordance with
their agreement) Management by Objectives (highlighting those which vary significantly from
plans and standards in line with management principle)

3. COST CONCEPTS AND BEHAVIOR ANALYSIS

I. Cost (Monetary amount of resources given up to attain some objective such as acquiring goods
and services)
II. Cost Classification:
A. As to Purpose [Product Cost (Production of goods and services) versus Period Cost
(Not related in the production process)]
B. As to FS Presentation (Cost of Sales, Operating Expenses, Financing Costs)
C. As to Traceability (Direct versus Indirect)
D. As to effects of decisions (Controllable and Non-controllable)
E. As to role in decision making (Differential, Opportunity and Sunk)
F. As to behavior (Variable and Fixed)
III. Cost Behavior (Cost are usually classified according to their reaction to changes in activity like
production).
IV. Purpose of Cost Behavior Analysis:
Cost Estimation Preparation of Budget
Cost Control Cost, Volume and Variance Analysis
Decision Making Relevant Costing
Presentation Absorption and Variable Costing
IV. Cost Behavior Pattern:
When activity changes
Variable cost Direct
Variable cost per unit Constant
Fixed cost Constant
Fixed cost per unit Inverse
 MANAGEMENT ACCOUNTING MAS Reviewer by RVP

V. Cost Function: Y = a + bX

Y: Total Cost (Dependent Variable) b: Variable Cost per unit (Slope)

a: Total Fixed Cost (Y-Intercept) X: Activity Level (Independent)

VI. Relevant range assumption: relevant range refers to the range of activity within which the
cost behavior patterns are valid. Any level of activity outside the range may show a different cost
behavior pattern.

VII. Cost Segregation Techniques:

A. Qualitative Approach

Account Analysis
Engineering Approach

B. Quantitative Approach

High-Low Method (The fixed and variable elements of the mixed costs are
computed from two sample data points the highest and the lowest data points
as to activity level or cost driver):

(1st) Compute the Variable Cost Per Unit:

Change in cost (YH - YL)

Variable cost per unit (b) =
Change in activity (XH - XL)

Note: Choose the highest and lowest level of activity within the relevant range. In
case in XH: The higher cost should be selected while in XL: The lower cost should
be selected, for better estimation.

(2nd) Compute the Fixed Cost:

a = YL - bXL

Scatter Graph / Visual Fit Approach (Least Accurate) Based on sound judgment,
a regression line is then fitted to the plotted points to represent the line function.
Least Square Regression Method (Most Accurate) Statistical technique that
investigates the association between dependent and independent variables.
Determines the line of best fit for a set of observations.
1. Y = na + bX
2. XY = ax + bX2
 MANAGEMENT ACCOUNTING MAS Reviewer by RVP

Note: (1) Established the cost function and then substitute the computed variable
cost per unit and selected activity level (with their respective total cost), to
compute the fixed cost. (2) There can be two or more independent variables but
not for dependent variables.
VIII. Correlation analysis is used to measure the strength of linear relationship between two or
more variables. If drawn in a scatter diagram: (1) if points seem to form a straight line: high
correlation, (2) if points form a random pattern: low or no correlation at all.
IX. Coefficient of correlation (r) measure the relative strength of linear relationship:
r = -1: Perfect inverse relationship
r = 0: No relationship
r = +1: Perfect direct relationship
r > +1 or r < -1: Not part of the range of coefficient.
X. Coefficient of determination (r2) measure the goodness of fit in the regression
r2 = 0: Curve line (Lowest confidence on estimated cost formula)
r2 = 1: Straight Line (Highest confidence on estimated cost formula)

4. COST VOLUME PROFIT ANALYSIS

I. Objective: To determine the level of sales that will maximize profit with respect to current cost
structure (ratio between variable and fixed cost)
II. Assumed Constant: Selling Price, Quantity, Unit Variable Cost, Fixed Cost, Contribution Margin
Ratio and Sales Mix, any desired changes will affect the desired profit of the company.
III. Contribution Margin Approach Income Statement:

Budgeted Sales less Break-Even Sales = Margin of Safety

Sales x x x
Less: Variable Cost x x x
Contribution Margin x x x
Less: Fixed Cost x x 0
Net Profit x 0 x
IV. Contribution Margin Formula:
Per Unit = Unit Selling Price Unit Variable Cost
Ratio or % of Sales = 100% - Variable Cost Ratio
Multi-product:
Wtd. Average UCM = (UCM per product X Sales Mix based in units)
Wtd. Average CMR = (CMR per product X Sales Mix in peso sales)
V. Break-Even Point
Zero Profit, Total Revenue = Total Cost, Total CM = Total Fixed Cost
Point of Intersection between total revenue and total cost. Upper right portion of the graph
represents the profitable area while the lower left graph represents loss margins.
BEP PESO = Fixed Cost / CM Ratio
BEP UNITS = Fixed Cost / UCM
VI. Margin of Safety
Margin in which Sales can decline without incurring a loss
 MANAGEMENT ACCOUNTING MAS Reviewer by RVP

Part of Actual Sales that provides the provide since BEP answer for the fixed cost
Budgeted Sales Break Even Sales
VII. Degree of Operating Leverage the ratio between contribution margin and profit; the number of times
income will change with respect to changes in actual sales.
VIII. Target Profit:
Before Tax: (Profit + Fixed Cost) Contribution Margin Ratio
After Tax: [(Profit after Tax (100% - Tax Rate) + Fixed Cost] CMR
With Target Return on Sales: Fixed Cost (CMR ROS)
IX. Indifference Point:
(UCM x Qty) FC (Both Alternatives)
FC + (UVC x Qty)

5. PRODUCT COSTING
I. Objective: To determine the amount of product cost
II. Point of Incurrence of Cost (Production [DM, DL, VOH and FOH] versus Selling and Administrative [VSA
and FSA])
III. Types of Product Costing
Throughput (Direct Materials only)
Variable Costing (Direct Material, Direct Labor and Variable Overhead)
Absorption Costing (Direct Material, Direct Labor, Variable and Fixed Overhead)
IV. Presumptions:
Units Income Inventory
Production > Sold Absorption > Variable Ending > Beginning
Production < Sold Absorption < Variable Ending < Beginning
V. Absorption versus Variable Costing
Absorption Variable
Approval of GAAP Approved Not
Treatment of Fixed OH Product Period
Basis Incurrence Behavior

6. RELEVANT COSTING
I. Objective: To conduct cost-benefit analysis with respect a given decision
II. Type of Costs:
Relevant (Differential [Incremental versus Avoidable] and Opportunity Costs)
Irrelevant (Committed [Future Costs] and Sunk [Past])
III. Make or Buy decision or outsourcing decision (cost to make versus cost to purchase). Decision Criteria:
Lower cost should be selected
IV. Accept or Reject Special Orders (cost to make and sell versus discounted selling price). Decision Criteria: if
(+): Accept and if (-): Reject
V. Drop or Maintain (Loss CM versus Avoidable and Incremental Costs). Decision Criteria: if (+): Maintain and
if (-): Drop. Consider other factors when dropping a segment
Complimentary Products (May result to decrease of sale)
Substitutes (May result to increase of sale)
VI. Sell or Process Further (Incremental income versus Incremental Costs). Decision Criteria: if (+): Process
Further and if (-): Do not process further
 MANAGEMENT ACCOUNTING MAS Reviewer by RVP

VII. Constrained Resources (CM per constrained resources). The Highest CM will be prioritized if there is
maximum market limit and minimum required production.