Spectrum of Cost & Management Accountancy

Hi Friends,

A lot has been spoken & debated about the role of Cost & Management Accountants (CMA) in businesses. Here is the experience from myself a CMA who has worked in various industries in Cost & Management Accountancy field.

Based on my own experience, I sincerely feel that for a CMA even sky cannot be a limit. In the world where Financial Accounting occupies a centre stage many of the times, the role played by CMA is like that of a backstage artist without whom the show just cannot get over. CMA is to the business what engine oil is to the car. It keeps the car running all the time though one notices its importance only when something goes wrong!

You name any business area & you will realise how important the CMA is in that function. New Product Pricing, Profitability analysis, Indirect Taxation audit, Cost Audit, Internal Audit, Stock taking, Analysis around key matrices or cost drivers, Regular MIS & analysis around the same, Business Finance, Evaluation of Business Potential especially during M&A activities, Make or Buy decisions, Strategic Cost Management such as Value Analysis or Value Engineering or Business Process Re-engineering, Inter-Firm comparisons of Operations Levers….. The list is endless. I truly enjoyed being part of this profession all the time.

What I like more about this profession is that a CMA is always in an enviable position wherein he possesses a combination of business knowledge & finance acumen. I see no other profession or professional being in this kind of a commanding position.

Normally people from other finance fields know only finance related aspects & have no clue as to what is happening in the battle ground of business. People who are into operations don’t understand head or tail of finance. Here comes CMA who is Mr. Dependable for CFO because he provides perfect information about the business levers which helps CFO keep a proper watch on the necessary & important cost drivers & for Operations folks CMA is the man to reach out to as he provides financial acumen to them for taking various business decisions.

So my dear aspiring CMA students & my professional colleagues, please do not restrict yourselves by only those typical traditional areas such as Cost Audit, Excise Audit etc. Just throw yourself out in the ocean & enjoy the ride. You are the rarest of those who know in & out of the business of your organisation. Make full use of your knowledge & ensure that you contribute towards the overall development of mankind. I guess there cannot be anything nobler than that!

Please keep visiting www.commercefunda.com wherein I will keep presenting webinars on the important aspects of this profession for students as well as professionals.

Your comments on the blog are always welcome & encouraging…


Anil Joshi

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Sunk Cost & Decision Making..

The requirement of knowledge of sunk cost in decision making should never be underestimated. The absence of its knowledge can land you in a completely wrong decision which may prove to be detrimental to your organisation over a long period of time.
Let us see an example of the same.

Panorama Ltd. has purchased few kg. of Raw Material X worth Rs. 1,000 for manufacturing a finished product P. After purchasing the raw material X, suddenly government brought a law making the production of P illegal in the country. Now the company has 2 options. A) Either throw away the raw material X at a scrap value of Rs. 300 or B) use it to manufacture a different product Q the cost structure of which is as follows.

For 1 unit of Product Q:
Raw Material X: Rs. 1,000
Raw Material Y: Rs. 450
Labour Cost: Rs. Rs.200
Overheads: Rs. 100
Total Cost: Rs. 1,750
Selling Price: Rs. 1,600

Now if you are a manager & you do not know what is sunk cost & its significance, you are most likely to decide going for option A which will give you at least Rs. 300 vs Option B which shows that Product Q is a loss making product (Loss of Rs. 150 per unit).

However one must remember that the cost of Raw Material X in this case is a sunk cost because it is a history. If you go for option A there is no incremental cost. But your incremental revenue will be Rs. 300 resulting in incremental profit of Rs. 300.
If you go for option B your incremental cost is going to be not Rs. 1,750 but only Rs. 750 (because cost of X is already incurred). And incremental revenue is going to be Rs. 1,600. Hence you will in fact earn an incremental profit of Rs. 850 (1600-750).

So now tell me which one is a better option? A or B? Obviously B. Thus one error of not applying the appropriate principle of Cost Accounting may put the organisation into trouble the losses of which might be irreversible.

After all Sunk Cost is a matter of common sense which can be made applicable in our day to day life as well. Many times we undertake some activity & spend lot of efforts on it after which we realise that it is not going to bear fruits. But instead of stopping the efforts there itself, we continue pursuing it just because we do not want to leave it half the way & thus we end up spending more efforts & at the end achieve nothing except a solace that we completed our efforts! But that is actually a foolishness. The better thing would have been to stop the efforts half the way (because it is like a sunk cost) so that our efforts would have been minimized resulting in restricting our losses & in fact we could have focused on some other fruitful activity.

Cost Accounting is indeed a very interesting subject which should not be looked at merely as an audit formality. I will be elaborating on the subject more in my webinars. So keep visiting www.commercefunda.com & keep an eye on the courses announced..

Happy Cost Accounting!


Prof. Anil Joshi

Book Keeping & Spirituality!

Hi all! Welcome to commercefunda blog! Glad to release my first blog!

Interestingly I find lot of similarity between double entry book keeping system & spirituality! No I am not insane. This may sound funny but yes I do sincerely think there is a strong relationship between the two in terms of the logic!

Here is why…

1) Double Entry Book Keeping System (used as an acronym BK henceforth) says that there are two parts of every transaction: Source of Funds & Application of Funds.

Spirituality also says that for every action there is a reaction!


2) BK says that the moment anything accrues we need to immediately show it in the books no matter whether we settle it in cash or not!

Spirituality says that the effects of our actions (Karma) get immediately booked against our name no matter whether we actually settle the same or not!


3) In BK when we pay cash we either consume some benefits (e.g. electricity, telephone, salaries etc) or we create assets for future use.

Spirituality says that each sacrifice either reaps instant benefits which we consume (expenses) or creates long term fortunes (assets).


4) In BK when the business makes profit it ultimately belongs to the owner & hence is added to the capital. Business & the owner are two different things.

In spirituality whatever good work happens (similar to profit) in our life, it ultimately belongs to the creator of our life! You may name it as GOD! If we perform badly (similar to losses) it is a drain on the energy of that creator. So the body (similar to business) & its soul (similar to the owner of business) are 2 different things. Hence it is all the more necessary that we observe the highest ethical standards in our behaviour because whatever we do in our life (business), ultimately GOD (owner) gets affected.


5) In BK debit is equal to credit.

In Spirituality also the life always tries to create balance. Hence in ancient times Rishis used to perform ‘Yadnya’ which was meant for making sacrifice so that in turn we would get equal benefits in return for the mankind!


6) In BK the true value of business lies in its net worth.

Isn’t that true in our life as well? After all what matters is the change that has happened within. Rest everything is simply ‘Borrowing’!


7) We have a Going Concern concept in BK. It means we assume that the business will go on forever even if it might so happen that it may get wound up due to any unforeseen circumstances.

Don’t we live our life as a Going Concern as if we are immortals even though the fact is that any unforeseen situation may wind up our life!


Subject of Book Keeping is thus truly fascinating! The more you delve into it the more exciting it becomes! Enrol for my webinar through www.commercefunda.com on ‘Book Keeping Simplified Like Never Before’ scheduled for 11th July & explore the subject more!

Keep revisiting my blog!


Anil Joshi