Chapter 1: Management Accounting

Question 1

Define the six purposes of management accounting

Answer 1

• Planning
• Co-ordinating
• Controlling
• Communicating
• Motivating
• Decision making

Question 2

What is the difference between data and information?

Answer 2

Data is the raw facts and statistics, once this data been processed into a useful form it can be called information

Question 3

What are the eight characteristics of good information? (Hint: ACCURATE)

Answer 3

A - Accurate
C - Complete
C - Cost beneficial
U - Understandable
R - Relevant
A - Authoritative
T - Timely
E - Easy to use

Question 4

Define cost accounting and what it is used for

Answer 4

Cost accounting is used to establish costs incurred within an organisation.

It is used to determine the cost of a product or service, value inventory, prepare budgets and forecasts, determine a selling price, etc.

Question 5

What is a composite cost unit and how does it differ from a cost unit?

Answer 5

A composite cost unit is used if a service has two variables e.g how many patients are treated for how many days in a hospital.

A cost unit will be an individual unit of a product or service.

Question 6

Define a cost centre and give an example

Answer 6

A cost centre is a production or service location whose costs are identified and recorded e.g. the restaurant of a hotel.