Chapter 1 - Rationales for costing Flashcards
What is management accounting?
Application of principles to create, protect, preserve and increase value for stakeholders
What is cost accounting?
- 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
What is cost accounting useful for?
Operational and tactical decisions
What is management accounting useful for?
Strategic decisions
What are operational decisions?
Decisions mainly made by
low down managers that focus on day to day resource management
What is an example of an operational decision?
Staff needed and raw material purchases
What are tactical decisions?
Decisions made by manager at mid-level and medium term in scope
What is an example of a tactical decision?
Staff training and recruitment
What are strategic decisions?
Decisions made by managers at the highest level
What is an example of a strategic decision?
Launching a new product
What sorts of data do cost and management accounting focus on?
Cost - quantitative
Management - qualitative
What is financial accounting?
Classification and recording of monetary transactions in form of SPL, SOFP and cash flow
What are the 3 main purposes of management accounting?
- Planning
- Control
- Decision making
How are costs recorded in financial accounting?
All costs recorded for profit calc and presented in financial statements
How is an understanding of cost used in management accounting?
- Record costs
- Value inventory
- Inform decisions
- Determining what products and services should be supplied
- Benchmark for future performance
What are cost units?
Unit of product or service in relation to which costs are ascertained
What are costs centres?
Location where costs are accumulated
What are the 4 ways to classify costs?
- Behaviour
- Element
- Function
- Nature
In cost accounting, what are the 3 types of behaviour?
- Fixed costs
- Variable costs
- Semi-variable costs
What are the steps of the high low method?
- VC = Increase in cost/Increase in activity
- FC = Total semi VC - Total VC
- Total expected future costs = total FC + (units forecast x VC per unit)
What are the 3 cost elements?
- Material
- Labour
- Expense
In financial accounting, how are costs classified by function?
- Production costs
- Non-production costs
What are the sub-categories for non-production costs?
- Admin
- Finance costs
- Selling and distro
How are costs classified by nature?
Direct and indirect
What is prime cost?
Total of all direct costs
How can indirect costs be classified further?
- Production overheads
- Non-production overheads
What are the 6 changes suggested by the CGMA cost transformation model?
- Creating a cost conscious culture
- Understanding cost drivers
- Managing risks
- Connect products with profitability
- Maximising value from new products
- Environmental impact
What is the main purpose of financial accounting?
Reporting
What are the main purposes of management accounting?
- Planning
- Control
- Decision making
