MA Week 1

Question 1

5 main differences between FA and MA

Answer 1

1. FA helps users monitor managerial stewardship vs MA helps managers make decisions & create, preserve and increase VALUE for the stakeholders
2. External users (investors, creditors,…) vs Internal managers of organisation
3. FA mostly historical timing w/ some predictive value vs MA forward-looking, future emphasis, based on historical data
4. Financial statements produced regularly (annual/quarterly) according to acct. standards & formats, publicly available, less details vs MA reports (covering both financial and non-financial info) don’t have to follow standards, produced as often as required, based on COST-BENEFIT analysis, confidential, more detailed
5. Primary focus on verifiability vs relevance & timeliness

Question 2

Cost object

Cost driver

Answer 2

1. Cost object is any item for which cost measurement is required.
2. Cost driver is any factor that causes a change in the cost of an activity.

Question 3

4 types of cost classification (+ give details)

Answer 3

1. By cost Function
   - product costs (=COGS), including inventory for manufacturers
   (total cost of purchasing or producing goods / delivering services to customers)
   - period costs (all other costs, after gross profit)
2. By cost Behaviour
   - variable, fixed, stepped, semi-variable
3. By cost Nature
   - direct materials, directly traced back to an individual unit of product
   - direct labour
   - manufacturing overheads = INDIRECT costs
4. By cost Traceability
   - direct, indirect
   > Prime cost = direct materials + direct labour
   > Conversion cost = direct labour + manufacturing overheads

Question 4

How to calculate the cost of goods sold (& cost of goods manufactured) for a manufacturing business?

Answer 4

1. COGS = opening inventory/finished goods + Cost of goods manufactured - closing finished goods/inventory

2. Cost of goods manufactured 
= Raw materials used (opening RM + RM purchases - closing)
\+ direct labour
\+ direct expenses
> Manufacturing cost
\+ Manufacturing overheads
\+ Opening Work in progress
- Closing WiP

Question 5

Period costs

Answer 5

Costs not included in the inventory valuation of goods & which are treated as expenses for the period in which they are incurred

Question 6

Why do practitioners argue that the dividing line between management accounting and financial reporting is becoming increasingly blurred?

Answer 6

In increasingly “value oriented” environments financial reporting and managerial accounting have come to share concerns with

• long-term wealth creation, including information on
• strategic objectives,
• business models,
• financial and non-financial performance indicators,
• risks, etc.

Question 7

From the management and cost accounting perspective, how is competitive advantage established?

Answer 7

By providing greater customer value for less cost than competitors