Chapter 1 - Intro To Cost And Management Accounting

Question 1

What is the meaning of Financial Accounting?

Answer 1

Accounting system that focuses on the preparation of financial statement of an organization to provide the financial information to the interested parties.

Question 2

Management Accounting is in which part of process?

Answer 2

Management process

Question 3

What processes that Management Accounting do?

Answer 3

Identifying, presenting and interpreting information.

Question 4

What does the processes in Management Accounting used for?

Answer 4

Formulating strategy,
Planning,
Controlling,
Decision making, and
Optimising the use of resources.

Question 5

What is the definition of Cost Accounting?

Answer 5

Next step to Accounting.

Involves analysing relevant costing data, interpret it and present various management problems to management.

Question 6

Cost Accounting can be simplified as?

Answer 6

Recording, classifying and summarizing of cost data of an organization.

Question 7

• Information type * of Cost Accounting (CA)?

Answer 7

Quantitative

Question 8

• OBJECTIVE * of Cost Accounting (CA) ?

Answer 8

Ascertainment of cost production.

Question 9

• SCOPE * of Cost Accounting (CA)?

Answer 9

Narrow, as it is limited only up to the cost information.

Question 10

• SPECIFIC PROCEDURE * of Cost Accounting?

Answer 10

Yes

Question 11

• RECORDING * of Cost Accounting (CA)?

Answer 11

Record past and present data.

Question 12

• INFORMATION TYPE * of Management Accounting (MA)?

Answer 12

Quantitative and Qualitative

Question 13

• OBJECTIVE * of Management Accounting?

Answer 13

Providing information to managers to set goals and forecast strategies.

Question 14

• SCOPE * of Management Accounting?

Answer 14

Its area of operation in wide.

Question 15

• SPECIFIC PROCEDURE * of Management Accounting (MA)?

Answer 15

No

Question 16

• RECORDING * of Management Accounting (MA)?

Answer 16

It gives more stress on the analysis of future projections.

Question 17

Differences between FA and MA?
A. User orientation
B. Report frequency
C. Time dimension
D. Legal requirements
E. Standards requirements

Answer 17

A. User orientation
FA - Caters the need of external and internal users.
MA - Caters the needs of internal users.

B. Report frequency
FA - done in stated period ( annually, quarterly )
MA - prepared as required ( daily, weekly )

C. Time dimension
FA - past oriented/ historical
MA - current and futuristic

D. Legal requirements
FA - Public limited companies
MA - Optional

E. Standards requirements
FA - GAAP, approved accounting standards
MA - Flexible

Question 18

Lists the similarities of FA and MA.

Answer 18

1. Used for internal reporting
2. Use similar techniques such as marginal costing, budgetary controls and standard costing.
3. Used for decision making purposes.

Question 19

Cost concept

1. Cost
2. Cost unit
3. Cost centre

Answer 19

1. Amount of expenditure paid for a specific activity.
2. The quantitative units of product/ service to measure cost.
   Eg, a kilogram of flour, a dozen of can
3. How business can divide their organization into small section.
   Eg, production department, salesman (commission)

Question 20

Lists the types of Costs ?

Answer 20

1. Nature
2. Function
3. Normality
4. Behavior
5. Controllability

Question 21

What are the cost according to Nature?

Answer 21

1. Material
2. Labour
3. Expense

Question 22

What is the definition of traceability?

Answer 22

Cost can be classified to whether the cost is DIRECTLY or INDIRECTLY involved in the process of making the product or providing the service.

Question 23

What is Direct cost?

Answer 23

A cost which is incurred for the benefit of one specific product.

Question 24

What is indirect cost?

Answer 24

A cost which is incurred for the benefit of more than one cost object or which “ cannot be easily or efficiently traced “ to specific cost object.

Question 25

What is Direct materials?

Answer 25

1. Materials that can be economically attributed to a specific unit of production.
2. Directly involved in producing the finished goods.

Question 26

What is Indirect materials?

Answer 26

1. Other materials used in the production process that cannot be directly attributed to a unit of production.
2. Not involved directly in producing the finished goods, but needed to looks perfect, nice and ready for sales.

Question 27

What is Direct labour costs?

Answer 27

Wages paid to workers who directly involved in the production of goods and service.
Eg: machine operators

Question 28

What is Indirect labour costs?

Answer 28

Wages paid to workers who do not directly involved in the production of goods and services.
Eg: factory supervisor

Question 29

Explain the flow of cost according to Function?

Answer 29

1. Production –> Function

2. Non-production cost –> Selling and Distribution –> Finance –> Research & Development –> Administration

Question 30

What are the classification of cost behaviour?

Answer 30

1. Fixed costs
2. Mixed costs
3. Variable costs
4. Stepped costs

Question 31

State the definition of FIXED COSTS with example.

Answer 31

A cost that is not affected in total by the changes in activity level.

Eg, Rental payment for a shop premise.

Question 32

State the definition of VARIABLE COSTS with example.

Answer 32

A cost that changes in total in direct proportion to the level of activity.

Eg, cost of wood planks in the production of dining tables.

Question 33

State the definition of MIXED COSTS with example.

Answer 33

A cost that has both fixed element and variable element.

Eg, Salesman remuneration package.

Question 34

State the definition of STEPPED COSTS with example.

Answer 34

A cost that is constant for a range of activity levels and then change and the remain constant again for another range.

Eg, Supervisor’s salary

Question 35

What is Product cost?

Answer 35

Cost of making or buying an inventory for the purpose of resale.

Question 36

What is Period cost?

Answer 36

Cost that is charged to the Income Statement which is not directly related to production.

Question 37

What is controllable cost and example?

Answer 37

Costs that can be controlled by a manager.

Eg, cost of material used, salary of employee, certain factory overhead costs.

Question 38

What is uncontrollable cost with example?

Answer 38

Costs that beyond managers’ control.

Eg, depreciation, insurance, tariff, import duty

Question 39

What is Normal cost with example?

Answer 39

The regular costs which are incurred in the normal conditions during the normal operations of the organization.

Eg, repairs, maintenance, salaries paid to employees.

Question 40

What is Abnormal cost with example?

Answer 40

Unusual or irregular which are not incurred due to abnormal situations of the operations or productions.

Eg, destruction due to fire, shut down of machinery, lock outs, natural disaster.

Question 41

Opportunity costs

Answer 41

The benefit forgone or lost when one alternative is rejected over another.

Question 42

Conversion cost

Answer 42

Cost of changing raw material to semi finished or finished good.

Question 43

Administration cost

Answer 43

Cost incurred in general administration including directing and controlling the operations of and organizations.

Question 44

Relevant cost

Answer 44

Future cost that will make a difference in decision.

Question 45

Sunk cost

Answer 45

Past cost that has no influence in making future decision. ( Irrelevant cost )