Unit 9 Assignment Example | Topics and Well Written Essays - 3750 words

Unit 9 - Assignment Example There is a basic difference between management accounting and financial accounting. While the former provides necessary information to the management so that they can make right decisions for the company, the latter provides financial data to the shareholders, creditors and other stakeholders so that they can get information about past and present conditions of the company. Management accounting provides information about future trend of the company as managers need this information to make long term decisions while financial accounting provides factual data to shareholders and creditors so that they assess the performance of the company as their funds are in stake. One major purpose of management accounting is to provide cost information about products and services. Costs are classified into five broad groups – behavior, traceability, controllability, relevance, and function. Behavior costs can be fixed, variable or mixed. Fixed costs do not change with increase in the volume of production like rent, variable costs can increase with increase in the volume of production like wages and cost of raw materials, and mixed costs are combination of both fixed and variable costs. Traceability costs can be direct costs that are incurred specifically for production like wages of factory workers, and indirect costs that cannot be specified as specific cost of production like salaries of office employees. Controllability costs can be controllable like wages of workers since number of labors can be reduced with proper management, and uncontrollable costs like house rent has to be paid irrespective of the volume of production. Costs of relevance can be sunk, out-of-pocket, and opportunity costs. Sunk costs are those expenses that have been made and cannot be recovered like costs incurred in installing a machinery which turns out to be unproductive.