Management Accounting: Plan, Decide and Control with Numbers
A free, step-by-step learning path with key concepts, formulas, worked examples and practice questions.
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What does management accounting help managers do?
Plan
Set targets and budgets for sales, costs and cash.
Decide
Compare options, such as pricing, special orders and whether to make or buy.
Control
Compare actual results with the plan and act on the differences.
Your management accounting learning path
Work through the five steps in order. Each links to a plain-English explanation with a worked example. Try the practice question before you open the answer. Comfortable with costs? The Cost Accounting hub is the natural companion.
Step 1: Know your costs
You will be able to: describe how costs behave, because every management decision starts there.
Quick practice: Rent is 2,000 a month. What is the fixed cost per unit at 100 units and at 1,000 units?
At 100 units: 2,000 ÷ 100 = 20. At 1,000 units: 2,000 ÷ 1,000 = 2. The total stays fixed while the cost per unit falls.
Step 2: Plan with budgets
You will be able to: explain what a budget is and why cash and working capital need planning.
Quick practice: Budgeted sales are 10,000 and budgeted expenses are 7,500. What is the budgeted profit?
10,000 − 7,500 = 2,500.
Step 3: Make better decisions
You will be able to: separate relevant from irrelevant costs when choosing between options.
Quick practice: A machine can do Job A (profit 6,000) or Job B (profit 4,500). The firm chooses A. What is the opportunity cost?
The profit given up from the next best option: 4,500 (Job B).
A company spent 5,000 on market research last year. Should that affect whether it launches the product now?
No. It is a sunk cost. Only future costs and benefits that differ between the options matter.
Step 4: Understand profit and risk
You will be able to: use contribution, break-even and the margin of safety to judge risk.
Quick practice: Fixed costs 24,000; contribution 12 per unit; sales 3,000 units. What is the margin of safety?
Break-even = 24,000 ÷ 12 = 2,000 units. Margin of safety = 3,000 − 2,000 = 1,000 units, or 1,000 ÷ 3,000 = 33.3%.
Step 5: Measure performance
You will be able to: compare results with plans and judge returns on investment.
Quick practice: Budgeted sales 20,000, actual sales 18,500. What is the variance?
20,000 − 18,500 = 1,500 adverse, because revenue is lower than planned.
A division earns a profit of 30,000 on capital invested of 200,000. What is its ROI?
30,000 ÷ 200,000 × 100 = 15%.
Work through 8 management accounting problems with step-by-step solutions, from budgets to NPV.
Open the problems and solutionsManagement accounting formulas at a glance
| Measure | Formula |
|---|---|
| Contribution per unit | Selling price − Variable cost per unit |
| Break-even units | Fixed costs ÷ Contribution per unit |
| Margin of safety % | (Sales − Break-even sales) ÷ Sales × 100 |
| Variance | Actual − Budget (favourable or adverse depends on revenue or cost) |
| Return on investment | Profit ÷ Investment × 100 |
| Working capital | Current assets − Current liabilities |
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Frequently asked questions
What is management accounting?
Management accounting gives a business’s managers the information they need to plan, make decisions and control performance. It is for internal use.
What is the difference between management accounting and financial accounting?
Financial accounting reports past results to outsiders and follows accounting standards. Management accounting serves internal managers, looks forward, and has no mandatory format.
What are examples of management accounting techniques?
Budgeting, variance analysis, break-even analysis, marginal costing, decision analysis using relevant costs, and performance measures such as return on investment.
This page is for general learning. Accounting rules and terminology vary by country and syllabus.