Intro to MA, cost terms, concepts & classifications (lecture 1)

Question 1

What is MA?

Answer 1

It’s the process of identifying, measuring & communicating economic info so users can make decisions through said use of financial and non financial information.

Question 2

Describe the decision making process

Answer 2

Under planning process:
1) ID Objectives
2) Search for alternatives
3) Select the best option

Under control process:
4) Implement the decision
5) Compare actual plan with planned outcome.
6) Response to divergences from the plan

Question 3

Who are the users of MA’s info and their uses

Answer 3

Users-
Internal: Directors, Managers & Employees
External: Shareholders, Governmental agencies, Creditors, Customers, Investors, Banks.

Uses-
1) Planning: What, When, How, Who
2) Directing & motivating: Motivate workers
3) Controlling: Ensure everything’s within the framework.

Question 4

MA vs FA

Answer 4

MA
1) For internal use
2) Discretional
3) For the future
4) Focuses on individual segments
5) Reports are frequent.
FA
1) For extermal users
2) Follows IFRS, IAS, GAAP
3) Statutory
4) Past
5) Focuses on the whole business
6) Reports done annually

Question 5

Meaning of cost, cost objects & cost accounting?

Answer 5

Cost: Amount of expenditure incurred on a given thing.

Cost Object: Any activity for which measurement of cost is desired.

Cost acc: Its the application of principles, methods, techniques & practice of cost and to ascertain profit while presenting info derived from the purpose of management decision-making.

Question 6

Merchandiser vs Manufacturer

Answer 6

Merchandiser: Buys finished goofd for resale.

Manufacturer: Buys raw materials to produce and sell finished goods.

Question 7

Manufacturing cost under FA vs MA state:

Answer 7

Under FA: Cost is a measure of resources used or given up to achieve a stated purpose.

Under MA: Product cost are costs a company assigns to units produced

Question 8

State the 3 manufacturing costs:

Answer 8

1) Direct Cost: Materials used to make the final product and can be easily traced back.
2) Direct labour: Labour costs that can easily be traced to individual units of production.
3) Overheads/ Indirect costs: Manufacturing costs that can’t be directly traced back to the units produced. E.g: Indirect labour/Materials.

Question 9

Manufacturing costs can be categorized as?

Answer 9

Direct Materials + Direct labour = Prime Costs

Direct labour + Manufacturing Overhead = Conversion Cost

Question 10

Name 2 non-manufacturing costs

Answer 10

1) Marketing & selling costs: For getting the order and delivering the product.
2) Admin costs: Executive, Organisational & Clerical Costs.

Question 11

Product Vs Period Costs

Answer 11

Product: Direct material & labour and manufacturing overheads.
Period: Not included in the product costs, these are admin costs. Usually expensed to the profit statement.