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Management accounting techniques > Introduction to management accounting > Flashcards

Introduction to management accounting Flashcards

1
Q

What is the purpose of management accounting ? P3

A

managers: costs of firm’s output (product/ service)
revenues from sales

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2
Q

What can managers use management accounting info to assist them with ? P3

A
  • Decision making
  • planning for future
  • control of expenditure
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3
Q

What do businesses need to do with their costs ? P3

A
  • Costs under review
  • accurate costs info needed
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4
Q

What are the two types of accounting ? P4

A
  • Management accounting
  • financial accounting
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5
Q

What is financial accounting ? P4

A
  • Use of financial data - transactions carried over time
  • info = accounting software process & extracted in financial statements
  • P&L & SOFP
  • legal requirement
  • external users
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6
Q

What are the characteristics of management accounting when comparing it to financial accounting ? P4

A
  • Same info source as financial - Reports - containing financial info on recent past - for future
  • internal users and maybe third parties ( banks)
  • no legal requirement
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7
Q

How often is management info prepared and what must this be in line with ? - p4

A
  • frequently / as required
  • integrity - straightforward and honest in busines relationships
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8
Q

What are cost units ? P5

A
  • Units of output - costs can be charged
  • units of production
  • unit of service
    *
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9
Q

What are composit units? P5

A
  • Two variables
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10
Q

What are responsibility centres? P5

A

segements - managers accountable

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11
Q

What are examples of responsibility centes? P5

A
  • Cost centres
  • profit centres
  • revenue centres
  • investment centres
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12
Q

What are costs centes ? P5

A
  • segements of business- costs charged
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13
Q

What do costs centres allow? P6

A
  • segment costs - identified to a particular centrre
  • control of business
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14
Q

What are profit centres ? P6

A
  • step further from costs centres - analysis of sales revenue
  • sefements of business - costs charged, revenue identififed , and profits calculated
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15
Q

What is the responsibility of a manager within a profit centre ? P6

A
  • 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
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16
Q

Why are many costs centres not considered to be profit centres ? P6

A
  • provide support services
  • do not have significant revenue
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17
Q

What is a revenue centre ? P7

A
  • Segements of business - sales revenue is measured
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18
Q

What is the manager of a revenue centre responsible for ? P6

A
  • Generating Sales only
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19
Q

What are investment centres? P7

A
  • Segements - profit compared money invested in centre
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20
Q

What is the manager of the investment centre in control of ? P7

A

costs - variable and fixed
revenues
assets and liabilities

21
Q

What does the investment centre manager need to calculate? P7

A
  • return on investment
  • comparisons - current, previos, targets , other investment centres
  • profit / investment * 100 = retiurn on investment
22
Q

Example how would costs be classified in a manufacturing company? P10

A
  • Factory - materials, labour, expenses , production overheads
  • warehooue and office - non production overheads- selling and distribution, administration, finance
23
Q

What must costs be to prepare info for management of a business ? P10

A
  • Classified
24
Q

What are the four ways of classifying costs ? P10

A
  • Elements
  • nature
  • function
  • behaviour
25
Q

How is costs classified by element? P10

A
  • Expendutire type
  • material - physical items - raw materials , components
  • labour - wages and salaries
  • expenses - not materials / la
  • bour
26
Q

How are costs classified by nature ? P11

A
  • direct costs - identified directly each unit of output
  • indirect costs - cannot be identified each unit of output
27
Q

How is costs classified by function ? P12

A
  • Type of work being done
28
Q

When classifying costs by nature , what type of costs expenditure is it concerned with ? P11

A
  • Revenue expenditure
  • e.g. depreciation of non current asset - not purhcase of non current asset
29
Q

What are the main function headings ? P12

A

Production
Administration
Selling and distribution
Finance

Administration , selling & distribution , finance = non productiob costs

30
Q

How would non manufacturing organisations use function headings ? P12

A
  • work - section of organisation carries out
31
Q

What are the three types of behavioural costs ? P13

A
  • fixed
  • variable
  • semi-variable
32
Q

What are fixed costs ? Page13

A
  • Constant - range of output levels
  • Cost per unit falls = output increases
33
Q

What cann fixed costs be described as and why ? P14

A
  • stepped fixed costs
  • Increase by large amount - at once
  • decision = double productio = increase in stepped fixed costs
34
Q

What are semi variable costs ? P15

A
  • combine fixed and variable
35
Q

What are variable costs ? P15

A
  • change directly with activity level
36
Q

How long do fixed and variable costs hold for ? P16

A
  • Short term
  • long term = all costs variable
37
Q

What are the steps of calculating the costs of goods and services ? P16

A
  • 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
38
Q

How do you identify the number of units of output for a particular time period ? P16

A
  • Workout how many - produced/provided - time period
  • car manufacturer - cars in a year
  • mechanics time
39
Q

Why do costs need to be classified in foyr different ways ? P16

A
  • 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
40
Q

How can the total costs of a unit of output be calculated ? P18

A
  • Direct costs + indirect costs (overheads) / number of units of output = total costs of a unit of output
41
Q

What costs would a service business still incurr ? P19

A
  • Material
  • Labour
  • expenses
  • output or overheads
42
Q

What does the total costs statement bring together and how can it be prepared ? P20

A
  • costs involved - producing output of a business
  • single costs unit
  • a batch
  • costs of whole factory - all of factory’s output given time period
43
Q

What can the total costs of a unit of output also be referred to as ? P18

A
  • Absorption costs
  • absorbs - direct costs and indirect costs
44
Q

What is to be remebered about indirect costs in the total costs calculations ? P18

A
  • Inventory valuation purposes
  • indirect costs - related to production only - included
45
Q

What should a total costs statement look like ? P20

A
  • 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
46
Q

What is a “product costs” in a total costs statement ? P21

A
  • Part of manufactured product
  • direct - material, labour, expenses , production overheads
  • in closing inventory
  • next financial year
47
Q

What are “ period costs” in the total costs statement ? P21

A
  • not part of manufactured products
  • not assigned - products/ closing inventory
  • incurred in period of time
  • expense - P/L - accounting period incurred
48
Q

What would be an exmaple of a product costs ? P20

A

Production costs (prime costs + production overheads)

49
Q

What would be an example of period costs ? p20

A

Non production overhead costs

Management accounting techniques (9 decks)

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