Chapter 1 - Rationales for costing

Question 1

What is management accounting?

Answer 1

Application of principles to create, protect, preserve and increase value for stakeholders

Question 2

What is cost accounting?

Answer 2

• Gathering of cost info
• Attachment to cost objects
  Establishment of budgets - Standard costs and actual costs of operations
• Analysis of variances, profitability or social use of funds

Question 3

What is cost accounting useful for?

Answer 3

Operational and tactical decisions

Question 4

What is management accounting useful for?

Answer 4

Strategic decisions

Question 5

What are operational decisions?

Answer 5

Decisions mainly made by
low down managers that focus on day to day resource management

Question 6

What is an example of an operational decision?

Answer 6

Staff needed and raw material purchases

Question 7

What are tactical decisions?

Answer 7

Decisions made by manager at mid-level and medium term in scope

Question 8

What is an example of a tactical decision?

Answer 8

Staff training and recruitment

Question 9

What are strategic decisions?

Answer 9

Decisions made by managers at the highest level

Question 10

What is an example of a strategic decision?

Answer 10

Launching a new product

Question 11

What sorts of data do cost and management accounting focus on?

Answer 11

Cost - quantitative
Management - qualitative

Question 12

What is financial accounting?

Answer 12

Classification and recording of monetary transactions in form of SPL, SOFP and cash flow

Question 13

What are the 3 main purposes of management accounting?

Answer 13

• Planning
• Control
• Decision making

Question 14

How are costs recorded in financial accounting?

Answer 14

All costs recorded for profit calc and presented in financial statements

Question 15

How is an understanding of cost used in management accounting?

Answer 15

• Record costs
• Value inventory
• Inform decisions
• Determining what products and services should be supplied
• Benchmark for future performance

Question 16

What are cost units?

Answer 16

Unit of product or service in relation to which costs are ascertained

Question 17

What are costs centres?

Answer 17

Location where costs are accumulated

Question 18

What are the 4 ways to classify costs?

Answer 18

• Behaviour
• Element
• Function
• Nature

Question 19

In cost accounting, what are the 3 types of behaviour?

Answer 19

• Fixed costs
• Variable costs
• Semi-variable costs

Question 20

What are the steps of the high low method?

Answer 20

1. VC = Increase in cost/Increase in activity
2. FC = Total semi VC - Total VC
3. Total expected future costs = total FC + (units forecast x VC per unit)

Question 21

What are the 3 cost elements?

Answer 21

• Material
• Labour
• Expense

Question 22

In financial accounting, how are costs classified by function?

Answer 22

• Production costs
• Non-production costs

Question 23

What are the sub-categories for non-production costs?

Answer 23

• Admin
• Finance costs
• Selling and distro

Question 24

How are costs classified by nature?

Answer 24

Direct and indirect

Question 25

What is prime cost?

Answer 25

Total of all direct costs

Question 26

How can indirect costs be classified further?

Answer 26

• Production overheads
• Non-production overheads

Question 27

What are the 6 changes suggested by the CGMA cost transformation model?

Answer 27

• Creating a cost conscious culture
• Understanding cost drivers
• Managing risks
• Connect products with profitability
• Maximising value from new products
• Environmental impact

Question 28

What is the main purpose of financial accounting?

Answer 28

Reporting

Question 29

What are the main purposes of management accounting?

Answer 29

• Planning
• Control
• Decision making