Introduction to management accounting Flashcards
What is the purpose of management accounting ? P3
managers: costs of firm’s output (product/ service)
revenues from sales
What can managers use management accounting info to assist them with ? P3
- Decision making
- planning for future
- control of expenditure
What do businesses need to do with their costs ? P3
- Costs under review
- accurate costs info needed
What are the two types of accounting ? P4
- Management accounting
- financial accounting
What is financial accounting ? P4
- Use of financial data - transactions carried over time
- info = accounting software process & extracted in financial statements
- P&L & SOFP
- legal requirement
- external users
What are the characteristics of management accounting when comparing it to financial accounting ? P4
- Same info source as financial - Reports - containing financial info on recent past - for future
- internal users and maybe third parties ( banks)
- no legal requirement
How often is management info prepared and what must this be in line with ? - p4
- frequently / as required
- integrity - straightforward and honest in busines relationships
What are cost units ? P5
- Units of output - costs can be charged
- units of production
- unit of service
*
What are composit units? P5
- Two variables
What are responsibility centres? P5
segements - managers accountable
What are examples of responsibility centes? P5
- Cost centres
- profit centres
- revenue centres
- investment centres
What are costs centes ? P5
- segements of business- costs charged
What do costs centres allow? P6
- segment costs - identified to a particular centrre
- control of business
What are profit centres ? P6
- step further from costs centres - analysis of sales revenue
- sefements of business - costs charged, revenue identififed , and profits calculated
What is the responsibility of a manager within a profit centre ? P6
- control of costs - fixed and variable
- control of revenue
- deducts costs from revenue - comparisons previous periods, comparison to current periods, profit targets set other profit centres
Why are many costs centres not considered to be profit centres ? P6
- provide support services
- do not have significant revenue
What is a revenue centre ? P7
- Segements of business - sales revenue is measured
What is the manager of a revenue centre responsible for ? P6
- Generating Sales only
What are investment centres? P7
- Segements - profit compared money invested in centre
What is the manager of the investment centre in control of ? P7
costs - variable and fixed
revenues
assets and liabilities
What does the investment centre manager need to calculate? P7
- return on investment
- comparisons - current, previos, targets , other investment centres
- profit / investment * 100 = retiurn on investment
Example how would costs be classified in a manufacturing company? P10
- Factory - materials, labour, expenses , production overheads
- warehooue and office - non production overheads- selling and distribution, administration, finance
What must costs be to prepare info for management of a business ? P10
- Classified
What are the four ways of classifying costs ? P10
- Elements
- nature
- function
- behaviour
How is costs classified by element? P10
- Expendutire type
- material - physical items - raw materials , components
- labour - wages and salaries
- expenses - not materials / la
- bour
How are costs classified by nature ? P11
- direct costs - identified directly each unit of output
- indirect costs - cannot be identified each unit of output
How is costs classified by function ? P12
- Type of work being done
When classifying costs by nature , what type of costs expenditure is it concerned with ? P11
- Revenue expenditure
- e.g. depreciation of non current asset - not purhcase of non current asset
What are the main function headings ? P12
Production
Administration
Selling and distribution
Finance
Administration , selling & distribution , finance = non productiob costs
How would non manufacturing organisations use function headings ? P12
- work - section of organisation carries out
What are the three types of behavioural costs ? P13
- fixed
- variable
- semi-variable
What are fixed costs ? Page13
- Constant - range of output levels
- Cost per unit falls = output increases
What cann fixed costs be described as and why ? P14
- stepped fixed costs
- Increase by large amount - at once
- decision = double productio = increase in stepped fixed costs
What are semi variable costs ? P15
- combine fixed and variable
What are variable costs ? P15
- change directly with activity level
How long do fixed and variable costs hold for ? P16
- Short term
- long term = all costs variable
What are the steps of calculating the costs of goods and services ? P16
- identify the unit of output
- calculate number for a particular time period
- calculate direct costs
- calculate indirect costs
- calculate total costs of unit of output
How do you identify the number of units of output for a particular time period ? P16
- Workout how many - produced/provided - time period
- car manufacturer - cars in a year
- mechanics time
Why do costs need to be classified in foyr different ways ? P16
- Same better ran business - four different - viewpoints
- Element - savings - identify high element costs (e.g. labour)
- Nature - savings - look at direct/indirect - e.g. reduce direct labour
- Function - savings - high spending departments
- Behaviour - savings - altering fixed and variable
How can the total costs of a unit of output be calculated ? P18
- Direct costs + indirect costs (overheads) / number of units of output = total costs of a unit of output
What costs would a service business still incurr ? P19
- Material
- Labour
- expenses
- output or overheads
What does the total costs statement bring together and how can it be prepared ? P20
- costs involved - producing output of a business
- single costs unit
- a batch
- costs of whole factory - all of factory’s output given time period
What can the total costs of a unit of output also be referred to as ? P18
- Absorption costs
- absorbs - direct costs and indirect costs
What is to be remebered about indirect costs in the total costs calculations ? P18
- Inventory valuation purposes
- indirect costs - related to production only - included
What should a total costs statement look like ? P20
- Direct materials + direct labour + direct expenses = prime costs
- prime costs + production overheads = production cost
- production costs + non production overheads (selling & distribution + administration + finance costs) = total costs
What is a “product costs” in a total costs statement ? P21
- Part of manufactured product
- direct - material, labour, expenses , production overheads
- in closing inventory
- next financial year
What are “ period costs” in the total costs statement ? P21
- not part of manufactured products
- not assigned - products/ closing inventory
- incurred in period of time
- expense - P/L - accounting period incurred
What would be an exmaple of a product costs ? P20
Production costs (prime costs + production overheads)
What would be an example of period costs ? p20
Non production overhead costs
