1.1 Management accounting and cost accounting

Question 1

CIMA terminology defines management accounting as

Answer 1

The application of the principles of accounting and financial management to create, protect, preserve and increase value for the stakeholders of for-profit and not-for-profit enterprises in the public and private sectors

Question 2

CIMA terminology defines cost accounting as

Answer 2

The gathering of cost info and it’s attachment to cost objects, the establishment of budgets, standard costs and actual costs of operations, processes, activities or products; and the analysis of variances, profitability or the social use of funds

Question 3

Cost accounting is focused on

Answer 3

• Calculating costs of a product or service
• Uses techniques to provide financial info about the performance of the org
• Potentially using this to control and manage this cost

Question 4

Cost accounting / Management accounting - Decision levels and time frames

Answer 4

Cost accounting:
- Short term improvements and decisions
- Tends to be more useful for operational and tactical decisions

Management accounting:
- Broader view of the org and strategic decisions
- With a longer term view

Question 5

Cost accounting / Management accounting - Type of data

Answer 5

• CA: Focuses on quantitative data such as how much material costs
• MA: Will expand this by adding qualitative data such as customer satisfaction

Question 6

Comparison of Financial accounting to Management accounting

Answer 6

FA:
- For external use
- Statutory requirement
- Production of statutory accounts
- Governed by many rules and regulations
- Deals with historical financial info

MA:
- For internal use
- At the discretion of management
- Provision of info to management to aid decision making
- Not governed by rules or regulations (any format)
- Deals with historical and future financial and non-financial info

Question 7

Main elements of the purpose of management accounting

Answer 7

Purpose is to provide info for decision making
Main elements are:
- Planning
- Control
- Decision making

Question 8

Planning involves

Answer 8

• Establishing the objectives and goals of an org (what it is trying to achieve), and formulating relevant strategies (long term actions to improve position), that can be used to achieve those objectives and goals
• Budgets will be created which explain the potential impact of different courses (these are financial plans of what will occur based on different assumptions)

Question 9

Control is the process of

Answer 9

• Monitoring, measuring, evaluating and often correcting actual results to ensure that the org plans (budgets) are being achieved
• Information relating to actual results must be gathered and compared to original budget
• The variances (differences) are calculated and reported to management
• This helps managers to determine if the org is operating in line with expected plans and take corrective action if necessary

Question 10

Decision making involves

Answer 10

• Considering information that has been provided and making informed decisions
• It often involves making a choice between two or more alternatives
• Managers therefore need reliable info to compare different courses of action available and understand what the consequences might be of choosing each option