Types of Fixed Costs

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Committed fixed costs - relate to the investment in facilities, equipment, and the basic organizational structure of the firm.  Examples include depreciation of buildings and equipment, taxes on real estate, insurance, etc.

What is Value Chain Analysis?

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The value chain for any firm in any business is the linked set of value-creating activities all the way from basic raw material sources for component suppliers through to the ultimate end-use product delivered into the final customers’ hands.

The value-chain focus of management today is largely internal to the firm (its purchases, its processes, its functions, its products, its customers).  This perspective is too narrow if considered in a strategic context.

Strategic/competitive advantage is gained through managing the entire value chain from raw material supplier to the end user.

Definition of Management Accounting

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Management needs detailed information on different aspects to arrive at meaningful decisions. Financial accounting provides some information but these are not adequate. Management accounting removes these limitations of financial accounting. 

What is Cost Drivers

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Cost driver - any factor whose change causes a change in the total cost of a related cost object; more simply, any factor that causes costs.

We assume a causal relation exists between the use of the cost driver and the incurrence of the cost.

Functions of Management Accounting

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Functions of Management Accounting include followings:
  • Provides data
  • Modifies Data
  • Analysis and interpretation of data
  • Use of Qualitative Information also
  • To help in Planning
  • To help in Organising
  • To help in Motivation
  • To help in Co-ordination
  • Communication
  • To help in Control
  • To help in Decision Making

Objectives of Management Accounting

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  • Providing managers with information for decision making and planning.
  • Assisting managers in directing and controlling operational activities.
  • Assisting managers in motivating employees toward the organization’s goals.
  • Measuring the performance of subunits, managers, and other employees within the organization.

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