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Amity Business SchoolMANAGEMENT ACCOUNTING The Chartered Institute of Management Accounting (CIMA) of UK has defned Management Accounting asManagementAccountingisanintegralpartof managementconcernedwithidentifyingpresenting and interpreting information used for !ormulating strategy "lanning and controlling acti#ities $ecision ma%ing &ptimising the use of resources $isclosurestoshareholdersandothere'ternaltothe entity $isclosure to employeesAmity Business SchoolTOOLS and TECHNIQUES USED IN MANAGEMENT ACCOUNTING (ome of the tools used in Management Accounting are)a) *atio Analysis+) Comparati#e !inancial (tatementsc) !unds !low (tatementd) Cash !low (tatemente) (tandard costing and #ariance Analysisf) Marginal costing and C," Analysisg) -udgetingh) *esponsi+ility Accountingetc.Amity Business SchoolMARGINAL COSTINGTherearetwotechni/uesofproductcostingandincome determination0a) A+sorption costing+) Marginal CostingAbsorptioncostingisatotalcosttechni/ueunder which total cost (f'ed cost and #aria+le cost) is charged as production cost.UnderMarginalCostingonly#aria+lecostsare chargedasproductcostsandincludedinin#entory #aluation.!i'edmanufacturingcostsarenotallottedtoproducts +utareconsideredasperiodcostsandthuscharged directly to "roft and loss Account.
Amity Business SchoolMARGINAL COSTINGTheaccountingsysteminwhich#aria+lecostsare chargedtocostunitsandf'edcostsoftheperiodare writteno1infullagainstaggregatecontri+ution.Its special #alue is in decision ma%ing.2CIMA 3ondonAmity Business SchoolASSUMPTIONS OF MARGINAL COSTING4 All costs can +e separated into f'ed and #aria+le cost4 ,aria+lecostperunitremainsconstantandtotal #aria+le cost #aries in direct proportion to the #olume of production4 Total f'ed costs remain constant4 (elling price does not change as #olume changes4 There is synchroni5ation +etween production and sales. Thisimpliesthat#olumeofproductionand#olumeof salesAmity Business SchoolCVP ANALYSISC,"Analysisisane'tensionoftheprinciplesofMarginal costing.C," analysis studies the relationship +etween cost #olume and proft.0 Cost of production0 ,olume of production 6 sales0 "roftCIMA3ondonhasdefnedC,"Analysisasthestudyof thee1ectsonfutureproftsofchangesinf'edcosts #aria+le cost sales price /uantity and mi'2Amity Business SchoolContributionContri+utionisthedi1erence+etweensalesandthe #aria+le cost.Contri+ution 7 (ales 8 ,aria+le CostContri+ution 7 !i'ed cost 9 "roft!or e'ample) (ales 7*s :;