Chapter 1 - Introduction To Management Accoutning

Question 1

What does management accounting enable business owners to know?

Answer 1

The cost of the firms output

Question 2

What can managers within a business use the information from a management accountant for ?

Answer 2

1) Decision making
2) Planning for the future
3) Control of expenditure

Question 3

What is management accounting often referred as?

Answer 3

Cost accounting

Question 4

Is management accounting mainly for internal users or external users?

Answer 4

Internal users

Question 5

What is the difference between reports made by financial accountants and management accountants?

Answer 5

Financial accounting reports are in a set format whereas management accountant reports are more tailored to each business

Question 6

Who are management accountant financial reports usually available to?

Answer 6

Internal users such as managers, directors and owners.

Question 7

Who are management accountant financial reports usually available to?

Answer 7

Internal users such as managers, directors and owners.

Question 8

Why are management accountant reports produced frequently ?

Answer 8

Information can go out of date / change very quickly

Question 9

What is a cost unit ?

Answer 9

Cost units are units of output to which costs can be charged

Question 10

What is an example of a cost unit ?

( both service and production )

Answer 10

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

Question 11

What is a composite cost unit ?

Answer 11

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

Question 12

Are composite cost units more common in the service sector or the production sector business ?

Answer 12

Service sector business

Question 13

What are the three main areas of a manufacturing business ?

(Hint - buildings)

Answer 13

1) Factory
2) Warehouse
3) Office

Question 14

What are the four ways costs can be classified ?

Answer 14

1) By Element
2) By Nature
3) By function
4) By Behaviour

Question 15

Which three things are usually referred to as the three elements of cost ?

Answer 15

1) Materials
2 ) Labour
3 ) Expenses

Question 16

Classification of costs by element

What is an example of materials in relation to the elements of cost ?

Answer 16

They could be components to make a car or furniture

Question 17

Classification of costs by element

What is an example of labour in relation to the elements of cost ?

Answer 17

Labour could be the wages of employees

Question 18

Classification of costs by element

What is an example of expenses in relation to the elements of cost ?

Answer 18

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 …..

Question 19

What are the two classifications of costs by nature ?

Answer 19

1) Direct costs
2) Indirect costs

Question 20

What are direct costs ?

Answer 20

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

Question 21

In manufacturing, what is the total of all the direct cost called ?

Answer 21

Prime costs

Question 22

What is an indirect cost ?

Answer 22

Anything that isn’t a direct cost that cannot be identified directly with each unit of output

Question 23

What are indirect costs also known as ?

Answer 23

Overheads

Question 24

What are examples of indirect costs ?

Answer 24

Telephone and internet charges

Insurance premiums

Running costs of delivery vehicles

Question 25

What are the classifications of costs by function ?

Answer 25

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.

Question 26

Classification of costs by function

What main headings are usually used when classifying costs by function ?

Answer 26

• Production
• Administration
• Selling and distribution
• Finance

Question 27

Why do we classify costs by behaviour ?

Answer 27

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

Question 28

What are the three classification of costs by behaviour?

Answer 28

1) Fixed
2) Semi-Variable
3) Variable

Question 29

What are the characteristics of fixed costs ?

Answer 29

They remain the same even at different levels of output

Question 30

For fixed costs

What happens to the cost per unit as the output increases ?

Answer 30

The cost per unit falls

Question 31

What are the characteristics of semi variable costs ?

Answer 31

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

Question 32

What are the characteristics of variable costs ?

Answer 32

Variable costs alter directly with the changes in output levels. Examples of variable costs would be direct materials and labour and expenses