5 Management Accounting Flashcards
Why are management accounts important?
to provide managers with information that allow them to make plans, control activities, monitor outcomes and revise plans. Management and cost accounting are an essential part of an organisation’s information system
What is the management accounting process within an organisation?
- determine the organisation objective
- Identify different strategies to achieve the organisation objective
- Prepare detailed plans for the selected courses of action to achieve the organisation goal
- The plans need to be monitored throughout the process to ensure they are being adhered to
- Review of organisation achievement.
- Organisations goals and strategies may need to be reviewed and revised
Why accurate cost information is required in organisations?
Decision Making - If there are alternative products, need to accurately determine cost and revenue. If tendering for a project accurate costs are essential
Planning - Need to be aware of the cash outflows in terms of amount and timing to avoid cash flow problems.
Effectiveness – Need to have a clear idea of expected costs and actual costs to ensure the organisation is operating effectively.
Preparation of financial accounts – need to accurate value inventory for the annual reports
What is cost?
Cost is often seen as expenditure.
But there is often more than one answer, more than one type of cost
Cost can also be seen in economics as is a resource sacrificed or foregone to achieve a specific objective.
What are product costs?
costs that are attached to the products and therefore included in the inventory (stock) valuation.
What are period costs?
non-manufacturing costs such as training, advertising and invoice (debt) collection. Period costs are not attached to the products and are not included in the inventory (stock) valuation. All period costs will be recorded as an expense in the current accounting period.
What is total cost?
Product cost + period cost = total cost
What is absorption costing?
The valuation of inventory at the direct cost plus indirect production overheads
How does a business cost its output?
A business will be able to obtain the production cost for its output, that is the direct costs plus indirect production overheads (Absorption costing). But it may not be particularly useful (or too expensive) to gather that information for every individual unit of output instead an organisation will gather it for : A group of finished products – Product Costing One piece of work for a customer- Job costing Per production run- Batch costing
What are direct costs of a cost object?
are those that are related to a given cost object (product, department, etc.) and that can be traced to it in an economically feasible way.
What are indirect costs?
related to the particular cost object but cannot be traced to it in an economically feasible way
