Introduction to Management Accounting and Cost Classification Flashcards
What is cost accounting?
The establishment of _______, __________ costs and _______ costs of operations, __________, activities or products; and the analysis of ___________, ______________ or the _______ use of funds. (CIMA)
The establishment of budgets, standard costs and actual costs of operations, processes, activities or products; and the analysis of variances, profitability or the social use of funds. (CIMA)
Aka cost control, budgeting and decision-making
Major Themes in Management Accounting (3/1,1,2)
- CONTROL - one of many control systems within an organisation, e.g. product, quality, stock etc.
However it is the key financial control system because it monitors the results of all activities and all other control systems.
- DECISION MAKING - cost information provides the basic information from which management decisions are made.
- PLANNING - here cost information is used in two ways;
1. to estimate future costs for planning purposes 2. to establish standards against which to compare actual costs
Financial Accounting Perspective (1)
Emphasis on (2)
Broader, overall view of the organisation,
emphasis on:
- type of transaction e.g. sales, purchases and
- type of expense e.g. salaries, material
Management Accounting Perspective
Emphasis on (6)
Note - Strategic Management Accounting also looks at ___________ __________.
Emphasis on:
- functions,
- activities,
- products,
- processes and on
- internal planning and
- control information.
Note – Strategic Management Accounting also looks at external elements.
Essential Requirements of a Management Accounting System (5)
Relevant
- Appropriate to the organisation, to cover all areas required
Timely
- To produce information at the right time (both long-term and short-term plans)
Accurate
- As far as possible
(Economically)
Flexible
- Capable of expansion or change
Relevant
- To managers
Financial and Management Accounting Comparison
Users (3,2)
Scope
Timeliness
Focus (3,2)
Nature
Rules
Users
Financial:
Outsiders:
- Investors - Bankers - government
Management:
Insiders:
- Managers - employees
Scope
Financial
- Consolidated
Management
- Segmented
Timeliness
Financial:
- Past
Management:
- Past/Present/Future
Focus
Financial:
- Define by Companies Act & Regulatory Bodies - External focus
Management:
- On specific areas for decision making - Internal focus
Nature
Financial:
- Mainly financial
Management:
- Both financial & non-financial
Rules
Financial:
Strict:
- FASB(UK) - ASB (UK) - IASB
Management:
- No legal requirement
Management Information System
A combination of:
- ___________ procedures,
- suitably designed _____,
- an appropriate _____________structure and
- managers who are capable of __________the _________which is ____________, to assist them in the ______________ and use of available ___________.
A combination of:
- planned procedures,
- suitably designed forms ,
- an appropriate organisation structure and
- managers who are capable of utilising the output which is produced, to assist them in the administration and use of available resources.
Costs
Drury definition, cost refers to?
One product may have many different costs such as it’s ______cost, _________ cost, _________ ______ cost, etc. depending on the __________ system used or required
Different costs will be required to make _________ __________, e.g. buy or make decision will require the __________ ______ info
“Cost refers to the monetary measure of resources sacrificed or foregone to make a product or provide a service” – Drury
One product may have many different costs such as it’s total cost, variable cost, activity based cost, etc. depending on the costing system used or required
Different costs will be required to make different decisions, e.g. buy or make decision will require the variable costs info
Costs and Cost Behaviour
What are direct costs?
What are indirect costs?
What are cost drivers
Direct Cost: costs that can be directly traced to a cost object (e.g. materials for manufacturing a product)
Indirect cost: costs which cannot be specifically or directly traced to a cost object (salary of the manufacturing plant’s supervisor). Therefore a cost allocation method is required
Cost driver: any factor which causes a change in cost of an activity e.g. orders received
Cost Behaviour
Definition?
A number of cost behaviour patterns are possible, ranging from __________ costs whose cost level varies directly with the level of activity, to _______ costs, where changes in output have no effect upon the cost level. (CIMA)
The variability of input costs with activity undertaken.
A number of cost behaviour patterns are possible, ranging from variable costs whose cost level varies directly with the level of activity, to fixed costs, where changes in output have no effect upon the cost level. (CIMA)
What is a fixed cost
What can it also been known as and why?
2 examples?
The cost which is incurred for an accounting period, and which, within certain output and turnover limits, tends to be unaffected by fluctuations in the levels of activity output or turnover)
(CIMA)
Also known as Period Cost to highlight the fact that a fixed cost is incurred according to the time elapsed, rather than according to activity
e.g. rent and insurance
What is a variable cost
2 examples?
What is a Semi - Variable Cost
And 2 examples
A cost which tends to vary with the level of activity (CIMA)
e.g. direct labour, direct material
A cost containing both fixed and variable components and which is thus partly affected by fluctuations in the level of activity
(CIMA)
eg. gas, electricity
Also known as semi - fixed or mixed cost
What is Stepped Fixed Cost
1 example
The cost is constant within the relevant range for each activity but when a critical level of activity is reached, the total cost incurred increases to the next step.
eg. equipment rental
Non - Linear Variable Costs
What is it sometimes called?
2 types and their description and names?
Sometimes called curvi - linear variable costs
Accelerating Bonus graph becomes steeper as activity increases, each successive unit is adding more to the costs than the previous one
Quantity discount graph becomes less steep as activity increases, each successive unit adds less than the previous one
Analysis of Semi - Variable Costs
What 3 methods can establish the separation of the fixed and variable elements?
The separation of the fixed and variable elements can be established via:
a. the high - low method
b. the scattergraph method
c. the least squares method
