Introduction, Cost Terms & Concepts Flashcards
What is Management Accounting?
The processes and techniques that focus on the effective and efficient use of organisational resources, to support managers in their tasks of enhancing both customer value and shareholder value.
Management accounting information provides information for control by comparing actual performance with plans, targets or budgets.
What is Customer Value?
The value that a customer places on particular features of a product.
What is Shareholder Value?
The value that shareholders, or owners, place on a business
What is a Management Accounting System?
It is an information system that produces the information required by managers to create value and manage resources.
What is an Operational Manager?
Operational managers have responsibility for manufacturing activities in manufacturing firms, or for service delivery areas in service firms.
What is Financial Accounting?
The practice of preparing and reporting accounting information for parties outside the organisation.
What Are The Differences Between Financial and Management Accounting?
Management Accounting:
Users - Internal; Managers and Employees
Regulations - None, Information generated to satisfy needs.
Sources of Data - Financial and non-financial, physical and operational data, customer and economic data.
Nature of Data - Past, Current and Future.
Subjective; relevant and timely.
Financial Accounting:
Users - External; Shareholders, banks, government agencies etc
Regulations - Accounting Standards and Corporations Law
Sources of Data - Financial Data
Nature of Data - Past; Reliable; Verifiable. Not always timely or relevant.
What is a Costing System (or Cost Accounting System)?
It is a system that estimates the cost of goods and services, as well as the cost of organisational units, such as departments.
What is a Company “Vision”?
The desired future state or aspiration of an organisation.
What is a Company “Mission Statement”?
A statement that defines the purpose and boundaries of the organisation.
What Are Objectives (or Goals)?
Specific statements of what the organisation aims to achieve, often quantified and relating to a specific period of time.
Define Stratagies?
The direction that the organisation intends to take over the long term, to meet its mission and achieve its objectives.
What is Corporate Strategy?
The decisions about the types of businesses in which to operate, which businesses to acquire and divest, and how best to structure and finance the organisation.
What is Business (or Competitive) Strategy?
The way a business competes within its chosen market.
What is Competitive Advantage?
The advantages that a business may have over another, which are difficult to imitate.
What is Cost Leadership?
A business strategy where a firm is a low-cost producer, which allows the business to sell its goods or services at a lower price than competitors.
This can be done by superior process technology, economies of scale in production or just tight cost control.
Describe Product Differentiation?
A business strategy whereby a firm derives competitive advantage from offering goods or services that have characteristics different from those offered by its competitors.
I.e. Superior quality, customer service or delivery performance.
What is Strategic Planning?
Long-term planning to achieve the organisations objectives, usually undertaken by senior managers.
What is Planning?
Planning is a broad concept that is concerned with formulating the direction for future operations.
What is a Budget?
A budget is a detailed plan summarising the financial consequences of an organisations operating activities for a specific future time period usually 1 year.
What is Control?
Control is putting mechanisms in place to ensure that operations proceed according to plan and that objectives are achieved.
What is a Control System?
These are the systems and procedures that provide regular information to assist in control.
What is Contingency Theory?
Assumes that the design of an organisations management accounting system may be influenced by (is “contingent” on) a range of factors including the external environment, technology, organisational structure, organisation size, strategy and organisational and national culture.
What is Institutional Theory?
States that the design of an organisation’s management accounting system may be influenced by the need for legitimacy and the tendency for firms to imitate the ‘good practice’ from other organisations.
Describe Strategy Implementation?
Putting plans into place to implement and support a chosen business strategy.
What is a Budget System
A system used to prepare a detailed plan, summarising the financial consequences of an organisations operating activities for a specific future time period.
What is a Performance Management System?
A system that measures performance by comparing actual results with some target.
What is a Cost Management System?
A system that focuses on improving cost effectiveness through understanding and managing the real causes of costs.
What are Critical Success Factors?
Factors that derive from the competitive strategy, and are critical to the survival of the business.
Define Cost?
The resources given up to achieve a particular objective.
Define Asset?
A measure of the cost of future benefits .
Define Expense?
A cost used up in the generation of revenue.
What is meant by Level of Activity?
The level of work performed in the organisation.
What is a Cost Driver?
A factor or activity that causes a cost to be incurred.
What is a Variable Cost?
A cost that changes, in total, in direct proportion to a change in the level of activity.
I.e Electricity used to manufacture a product.
What is a Fixed Cost?
A cost that remains unchanged in total despite changes in the level of activity.
I.e Rent
What is a Cost Object?
An item that is assigned a separated measure of cost.
I.e Products, Projects, Contracts or Departments are cost objects.
What is a Direct Cost?
A cost that can be identified with, or traced to, a particular cost object in economic manner.
I.e Paper is a direct cost of producing a book.
What is a Indirect Cost?
A cost that cannot be identified with, or traced to, a cost object in an economic manner.
I.e The salary of the managing editor of the printing firm that produced the book.
Describe a Responsibility Centre?
A unit in an organisation (e.g a department or division) where the manager is held accountable for activities and performance within the unit.
What is Responsibility Accounting?
The practice of holding managers responsible for the activities and performance of their area of the business
What is a Direct Product Cost?
A manufacturing cost that can be traced to products in an economic manner.
I.e Direct Materials (sugar in a soft drink)
and Direct Labour (production worker on soft drink line)
What is an Indirect Product Cost?
A manufacturing cost that cannot be traced to products in an economic manner.
I.e Manufacturing Overheads (receiving dock workers)
What is a Controllable Cost?
A cost that a specific manager can control or significantly influence.
What is a Uncontrollable Cost?
A cost that a manager cannot control or significantly influence.
What is The Value Chain?
A set of linked processes or activities that begins with acquiring resources and ends with providing (and supporting) products that customers value.
What are Research and Development (or RnD) Costs?
All the costs incurred in the development of new products and processes.
I.e Running costs, building prototypes and testing.
This is a Upstream Cost.
What is a Design Cost?
All the costs associated with the design of a product and of the processes that will produce the product.
This is a Upstream Cost.
What are Supply Costs?
The costs of sourcing and managing incoming parts, assemblies and supplies.
This is a Upstream Cost.
What are Production Costs?
The costs incurred during the production process.
In a manufacturing business they can also be called Manufacturing or Factory Costs.
What are Marketing Costs?
The overall costs of selling goods and services.
I.e Salaries, commissions and travel expenses of sales staff.
This is a Downstream Cost.
Define Distribution Costs?
The costs of storing, handling and shipping finished products.
This is a Downstream Cost.
What are Customer Service Costs?
The costs incurred in servicing customers, including customer inquiries, after-sales support and warranty claims.
This is a Downstream Cost.
Explain Manufacturing (or Production) Costs?
All costs incurred within the manufacturing -
The cost of direct material, direct labour and manufacturing overheads.
DM+DL+MO=Manufacturing Costs
Explain Non-Manufacturing Costs?
All costs incurred outside the manufacturing - That is, the cost of Upstream and Downstream activities.
Some businesses may call this “Overhead Costs”
What is Direct Material?
The cost of materials consumed in the manufacturing process to produce a product, physically incorporated in the product and able to be traced to the product in an economic manner.
I.e Hoses in a dishwasher or Paper in magazines
What is Direct Labour?
The costs of salary, wages and labour on-costs for personnel who work directly on the manufactured product.
I.e Assembly staff of said product.
This is generally a variable cost as it changes with the level of production.
What is a Labour On-Cost?
These are the additional costs that are incurred to employ personnel.
I.e Payroll tax, workers compensation and the employer’s superannuation contributions.
Explain Manufacturing Overhead?
Sometimes called Indirect Manufacturing Costs or Factory Burden Costs
All manufacturing costs other than direct material and direct labour costs.
I.e Factory cleaners, electricity or depreciation and insurance of factory equipment.
What is a Indirect Material Cost?
The costs of materials used in production that cannot be directly assigned to individual products in an economic manner.
I.e Parts for machinery used for production.
What is a Indirect Labour Cost?
The costs of any labour used in the production that cannot be directly traced to individual products in an economic manner.
I.e Factory cleaners.
What is the Support (or Service) Department?
A manufacturing department that does not work directly on the producing products but is necessary for the manufacturing process to occur.
I.e Equipment maintenance team
Define Overtime Premium?
The extra wages paid to an employee who works beyond normal working hours.
Recorded as a manufacturing overhead.
I.e Worker works 48 hours (8 hours Extra x 1.5)
DL = 48 x $30 (Wage)
MO = 8 x $15 (Overtime Premium)
Define Idle Time?
The cost of employee’s non-productive time, arising from events such as equipment breakdown or new setups of production runs.
This is classified as a manufacturing overhead.
What are Conversion Costs?
The costs of direct labour and manufacturing overhead incurred to convert raw material to a finished product.
DL + MO = Conversion Cost
What are Prime Costs?
The costs of direct material and direct labour incurred to produce a product.
DM + DL = Prime Costs
What are Product Costs?
The cost assigned to goods that were either manufactured or purchased for resale.
Explain the Cost of Goods Sold Expense?
The costs of products transferred from the inventory (asset) account when they are sold.
What is Inventorial (or Inventoried) Cost?
It is another term for product cost, derived from from the process of ‘storing’ the cost of inventory until the goods are sold.
What are Period Costs?
Costs that are expensed in the accounting period in which they occurred.
I.e Salaries of sales staff and top management, advertising expenses and depreciation of office equipment (not manufacturing equipment).
What are Selling Expenses?
The costs of selling and distributing the firm’s goods or services.
Explain what Administrative Expenses are?
The cost of running a business as a whole, including the cost of senior management and administrative support departments.
What Is The Raw Material Inventory Account?
An account which records the cost of the major materials that will be used in production.
What Is The Work In Progress Inventory Account?
An account which records the costs of the products on which manufacture has begun but is only partially complete at balance date.
What Is The Finished Goods Inventory Account?
An account which records the cost of the manufactured goods that are complete and ready for sale.
What is the Schedule of Cost of Goods Manufactured?
The schedule detailing the cost of direct materials, direct labour and manufacturing overheads applied to ‘work in progress’ during the period, and showing changes to the work in progress inventory.
What is the Schedule of Cost of Goods Sold?
A report showing the cost of goods sold, which is equal to the cost of goods manufactured adjusted for changes in finished goods inventory.
How Do You Work Out The Cost of Goods Manufactured?
Cost of Goods Manufactured = Work In Progress + Total Manufacturing Costs - Ending Work In Progress.
COGM = WIP + TMC - EWIP
How Do You Work Out The Cost of Goods Sold?
Cost of Goods Sold = Beginning Finished Goods + Cost of Goods Manufactured - Ending Finished Goods.
COGS = BFG + COGM - EFG
Define Efficiency-Measuring Outputs.
Focuses managers on achieving the objective with the least possible consumption of resources.
Define Effectiveness-Measuring Outcomes.
Focuses managers on the successful achievement of an objective.
What is a Outcome Defined by the Aus National Audit Office?
The results or impacts on the community or the environment that the government intends to achieve.
What is a Output Defined by the Aus National Audit Office?
The actual deliverables agencies produce to generate the desired outcomes specified by the government.
