Introduction to management accounting

Question 1

Define managerial accounting in terms of: Reporting, financial standards, reporting frequency & report focus.

Answer 1

INTERNAL REPORTING- Managerial accounting is aimed at helping managers within the organization to make well informed decisions.
NO FINANCIAL STANDARDS- Because managerial accounting is not for external users, it can be modified to meet the needs of its intended users.
REPORTING FREQUENCY- Can report daily if required.
REPORT FOCUS- Focus on individual parts of the business

Question 2

Define financial accounting in terms of: Reporting, financial standards, reporting frequency, report focus.

Answer 2

EXTERNAL REPORTING- Financial accounting is aimed at providing financial information to parties outside of the organization
CERTAIN FINANCIAL STANDARDS- Financial accounting must conform to certain standards, such as IFRS.
REPORTING FREQUENCY- Annually/ as required.
REPORT FOCUS- On the entire business

Question 3

Name the steps in the planning process (Long term planning)

Answer 3

1. Identify objectives.
2. Identify potential strategies.
3. Evaluate strategic options.
4. Select alternative possibilities/actions

Question 4

Name the steps in the planning process (Yearly budgeting process)

Answer 4

5. Implement the long term plans in the form of an annual budget.
6. Monitor actual results.
7. Respond to deviations from the plan.

Question 5

Name & explain the code of conduct

Answer 5

INTERGRITY- Professional accountants should be straight forward, honest, fair, & truthful in professional & business relationships.
OBJECTIVITY
CONFIDENTIALITY- Professional accountants should not use confidential information to acquire as a result of a professional/business relationship to the advantage of the 3rd party.
PROFESSIONAL COMPETENCE- Professional accountants should maintain professional knowledge & skill at the level required to ensure that clients/ employers receives competent professional service
COMPLIANCE WITH RELEVENT LAWS & REGULATION

Question 6

What is it that makes a product cost?

Answer 6

Direct material cost
Direct labour cost
Manufacturing overheads

Question 7

What is primary cost made up of?

Answer 7

Direct material & Direct labour

Question 8

What is conversion cost made up of?

Answer 8

Direct labour & manufacturing overheads

Question 9

What is product cost?

Answer 9

Product cost include costs such as direct material, direct labour, & manufacturing overheads. Balance sheet & income statement

Question 10

What is period cost?

Answer 10

Period costs are not included in product costs. E.g Administrative & marketing overheads. Income statement

Question 11

What is step-fixed costs?

Answer 11

Remain fixed within specified activity levels for a given amount of time but which eventually changes by a constant amount as critical activity levels increase in jumps

Question 12

What are committed fixed costs?

Answer 12

Fixed costs that cannot be changed in the short term

Question 13

What are discretionary (manageable) fixed cost?

Answer 13

Fixed cost that can be changed/ corrected in the short-term

Question 14

What are mixed costs?

Answer 14

Costs with a fixed & variable component

Question 15

What is an activity base (cost driver)?

Answer 15

Cost driver is that factor that causes a change in the total cost of an activity

Question 16

What is a relevant range?

Answer 16

Identifying costs as fixed/variable is only valid within a specific range, thus the range where the total fixed cost and variable costs per unit do not change

Question 17

Name 3 methods used to analyze fixed costs

Answer 17

High low method
graph method
Least squares regression method

Question 18

What is opportunity cost?

Answer 18

The benefit an individual/business misses out on when choosing one alternative over the other.
FORUMAL: Return on option 1- Return on option 2

Question 19

What is differential (incremental/decremental) cost?

Answer 19

The difference between the cost/ income of 2 alternate decisions/output levels