Chapter 1 - Introduction To Management Accoutning Flashcards
What does management accounting enable business owners to know?
The cost of the firms output
What can managers within a business use the information from a management accountant for ?
1) Decision making
2) Planning for the future
3) Control of expenditure
What is management accounting often referred as?
Cost accounting
Is management accounting mainly for internal users or external users?
Internal users
What is the difference between reports made by financial accountants and management accountants?
Financial accounting reports are in a set format whereas management accountant reports are more tailored to each business
Who are management accountant financial reports usually available to?
Internal users such as managers, directors and owners.
Why are management accountant reports produced frequently ?
Information can go out of date / change very quickly
What is a cost unit ?
Cost units are units of output to which costs can be charged
What is an example of a cost unit ?
( both service and production )
1) a unit of production from a factory such as a car, a television, an item of furniture.
2) a unit of service such as a passenger on a bus or an attendant at the swimming pool
What is a composite cost unit ?
Composite cost units are units of output which compromise two variables.
E.g - The cost of a bus passenger, per mile
The cost of a hospital patient per day
Are composite cost units more common in the service sector or the production sector business ?
Service sector business
What are the three main areas of a manufacturing business ?
(Hint - buildings)
1) Factory
2) Warehouse
3) Office
What are the four ways costs can be classified ?
1) By Element
2) By Nature
3) By function
4) By Behaviour
Which three things are usually referred to as the three elements of cost ?
1) Materials
2 ) Labour
3 ) Expenses
Classification of costs by element
What is an example of materials in relation to the elements of cost ?
They could be components to make a car or furniture
Classification of costs by element
What is an example of labour costs in relation to the elements of cost ?
Labour could be the wages of employees
Classification of costs by element
What is an example of expenses in relation to the elements of cost ?
Expenses are anything that doesn’t fit in to materials or labour but still needs to be accounted for. This can be phone bills, rent & rates and insurance …..
What are the two classifications of costs by nature ?
1) Direct costs
2) Indirect costs
What are direct costs ?
Costs that can be identified directly with each unit of output.
Example - cost of components used in making cars
Costs of screws used in making furniture
In manufacturing, what is the total of all the direct cost called ?
Prime costs
What is an indirect cost ?
Anything that isn’t a direct cost that cannot be identified directly with each unit of output
What are indirect costs also known as ?
Overheads
What are examples of indirect costs ?
Telephone and internet charges
Insurance premiums
Running costs of delivery vehicles
What are the classifications of costs by function ?
Functions are the different parts of a business that come together and make it a running business. Many businesses have different functions depending on what they sell or provide.
Classification of costs by function
What main headings are usually used when classifying costs by function ?
- Production
- Administration
- Selling and distribution
- Finance
Why do we classify costs by behaviour ?
It is important to classify costs by behaviour as not all costs increase or decrease directly in line with the increases or decreases in output
What are the three classification of costs by behaviour?
1) Fixed
2) Semi-Variable
3) Variable
What are the characteristics of fixed costs ?
They remain the same even at different levels of output
For fixed costs
What happens to the cost per unit as the output increases ?
The cost per unit falls
What are the characteristics of semi variable costs ?
These costs combine both a fixed and variable cost. An example of this would be an electricity bill comprises the fixed charge for the service together with the variable amount for each unit of electricity
What are the characteristics of variable costs ?
Variable costs alter directly with the changes in output levels. Examples of variable costs would be direct materials and labour and expenses
