Management Accounting

Question 1

LO2.0 - What are relevant costs?

Answer 1

Costs where future cash flows arise as a direct consequence of a decision made. Based on future costs, cash flows which reflect additional cash spend and incremental costs.

Question 2

LO2.0 - What are avoidable costs?

Answer 2

Costs that would not be incurred if the activity to which they relate did not exist. Costs that would be saved (both variable and specific) ae considered avoidable.

Question 3

LO2.0 - What are unavoidable costs?

Answer 3

Cost that would be incurred whether or not the product is discontinued.

Question 4

LO2.0 - What is the differential cost?

Answer 4

The difference between cost alternatives when compared to the next best option.

Question 5

LO2.0 - What are opportunity costs?

Answer 5

The value of the benefit lost when an alternative course of action is taken.

Question 6

LO2.0 - What are sunk costs?

Answer 6

A past cost with no relevance to the decision making process as the expense is already incurred.

Question 7

LO2.0 - What are variable costs?

Answer 7

Relevant costs constant per unit, but change as volume is increased / decreased.

Question 8

LO2.5 - What are cash flows?

Answer 8

Costs that require additional cash spent. This does not include notional accounting costs such as depreciation and other apportioned costs.

Question 9

LO1.1 - What are the 3 attributes of management accounting (as proposed by Simons)?

Answer 9

Score keeping, attention directing and

problem solving.

Question 10

LO1.1 - What is management accounting used for?

Answer 10

Making decisions, future planning, monitoring performance, measuring profits / valuing inventory, implementation processes and practice for effectiveness and efficiency.

Question 11

LO1.2 - What are the key aspects Financial Accounting?

Answer 11

Accounting for assets and liabilities, providing information on profits and financial performance. Information is used by shareholders and external stakeholders, preparation governed by law, the format determined by law and IFRS. Usually concerns the business as a whole, is monetary in nature. Historical reporting.

Question 12

LO1.2 - What are the key aspects Management Accounting?

Answer 12

Specifically for internal use by Managers, used to aid, record, plan and control DECISION Making processes, no legal requirement and format is at the discretion of users. Can focus on specific parts of the business and incorporate non-Monetary measures. Can include historical, and future data.

Question 13

LO1.2 - What are the key aspects Cost Accounting?

Answer 13

Provides source data used in Management accounting, used in preparing cost estimates, describes the process of data collection, used for measurement of inventory cost (inc. materials / WIP / finished product) and provides measurement and control.

Question 14

LO1.2 - What is Cost Accounting used to measure?

Answer 14

Costs accounting is associated with individual departments or business units. Revenue earned, profitability, determining selling prices, future costs and budgetary control

Question 15

LO1.2 - What are the key differences between Financial, Management and, Cost Accounting?

Answer 15

FINANCIAL - is historical reporting, monetary in nature, governed by law and IFRS, reporting on the business as a whole. MANAGEMENT - is historical and future reporting, can include historical and future reporting, reporting governed by used requirements, can be focused. COST - provides source data for decision making, incorporates data collection elements, includes estimates, measurement and control.

Question 16

LO1.7 - What can the Management Accountant contribute in a cross functional team?

Answer 16

Provides / maximizes financial and technical aspects, coordinates and integrates systems, increased problem solving across multiple areas, and facilitates innovation and development.

Question 17

LO1.7 - What can the Management Accountant maximize in a cross functional team?

Answer 17

FINANCIAL SKILL SET - Providing, collecting and assessing critical information. Helping to establish goals and priorities, assist problem solving and decision making. A financial contribution to the organizational perspective.

Question 18

LO1.7 - What is a Cross Functional Team?

Answer 18

A small group of individuals with different expertise.

Question 19

LO1.7 - What are the KPIs of a Management Accountant?

Answer 19

QUALITY OF INFORMATION - relevant, accurate, timely and clear. VALUE FOR MONEY - cost justified by level of service. AVAILABILITY - incorporating other functions and speed of response / delivery. MEASURE OF SERVICE - timeliness of response, contribution to overall goals of organization, involvement with the decision making process. FLEXIBILITY - the ability to provide ‘ad hoc’ reporting on demand in a timely fashion. USER SATISFACTION

Question 20

LO4.1 - What are future costs?

Answer 20

Future costs include cash flow costs and committed costs.

Question 21

LO4.1 - What is a committed cost?

Answer 21

A cost incurred, regardless of future decisions.

Question 22

LO4.1 - What are incremental costs?

Answer 22

Costs incurred due to decision or alternative course of action.

Question 23

LO1.5 - What is the hierarchy of Anthony’s management accounting theory?

Answer 23

Strategic planning -> management control -> operational control.

Question 24

LO1.5 - What is strategic planning?

Answer 24

The process of deciding on objectives of an organisation, on changes of these objectives, resources required, policies, use and disposal of resources.

Question 25

LO1.5 - What is management control?

Answer 25

The process of assurance that resources are obtained, and used effectively and efficiently to achieve strategic objectives. Also known as tactical planning.

Question 26

LO1.5 - What is operational control?

Answer 26

The process of assuring specific tasks are carried out effectively and efficiently. The front line to achieving management objectives and results.

Question 27

LO1.5 - How does a management accountant underpin management practice?

Answer 27

Provides information primarily for strategic plan and management control. Sometimes can be employed for operational control aspects.

Question 28

LO1.5 - What does a management control system do?

Answer 28

Measures and corrects the performance and activities of subordinates.

Question 29

LO1.5 - What are the basic elements (hierarchy) of a management control system?

Answer 29

PLANNING: what to do / desired result, RECORDING: standards of efficiencies and targets, IMPLEMENTATION: carrying out the plan / measuring results, COMPARING: actual results against plan, EVALUATION: comparison of results with objectives, CORRECTIVE ACTION. (Can include financial and non-financial information)

Question 30

LO1.5 - What can be described as 'strategic information'?

Answer 30

High level, summary information used by senior management, from internal and external sources, relevant to long term strategic planning. Often prepared ad hoc from both qualitative and quantitative data sources....cannot provide certainty.

Question 31

LO1.5 - What can be described as 'tactical information'?

Answer 31

Summarised, information used by middle management to decide how resources are being employed. Information can include productivity measures, budget control, variance analysis and cash flow forecasts. Usually internally created, information relates to short term objectives, analyses activities and departments, prepared routinely, based on qualitative measures to allow monitoring against goals. Aligned with management control.

Question 32

LO1.5 - What can be described as 'operational information'?

Answer 32

Highly detailed information to ensure specific tasks are planned and carried out (eg. payroll reports). Specifically short term in nature, they relate to the immediate term. Task specific and incorporate quantitative information.

Question 33

LO2.1 - Define 'decision making' as it pertains to management accounting?

Answer 33

A choice between alternative courses of action.

Question 34

LO2.1 - What are the steps involved with the decision making process?

Answer 34

1. Define the problem; 2. Identify decision making criteria; 3. Develop alternative solutions / opportunities; 4. Collect and analyse relevant data about each; 5. Select alternatives, state expected outcomes, check that they align with goals and objectives; 6. implement and review.

Question 35

LO1.9 - Why is planning for an organisation important?

Answer 35

Establishes overall objectives, assists with selecting appropriate strategies to achieve objectives, sets targets for each strategy, and formulates detailed plans for achieving targets.

Question 36

LO1.9 - What is organisational 'vision'?

Answer 36

A succinct statement of an organisations future aspirations.

Question 37

LO1.9 - What is a mission statement?

Answer 37

A statement that sets out an organisations fundamental purpose.

Question 38

LO1.9 - What is organisational 'objective'?

Answer 38

An aim or goal of an organisation based on strategy.

Question 39

LO1.9 - What is organisational strategy?

Answer 39

A possible course of action that might enable an organisation to achieve its objectives.

Question 40

LO1.9 - What is long-term strategic planning?

Answer 40

Corporate planning involving the selection and integration of appropriate strategies to attain organisational objectives.

Question 41

LO1.9 - What are the 4 basic elements of long-term strategic planning?

Answer 41

ASSESS, the organisation and its environment; DETERMINE, corporate objectives; devise STRATIGIES for achieving objectives; CREATE the corporate plan.

Question 42

LO1.9 - What is short term tactical planning?

Answer 42

Converting the long-term strategic plan into a number of short term plans. Usually covering one year, they can relate to internal business units, functions or departments.

Question 43

LO1.9 - How does the management accounting function support the short-term planning process?

Answer 43

By providing information for setting targets, standards and efficiencies; helping establish assumptions on which planning is based such as growth, costs and savings.

Question 44

LO1.9 - How can the management accounting function provide control within the short-term planning process?

Answer 44

By providing comparisons of planned performance with actual performance; that the strategic plan is reviewed in light of the comparisons made to asses whether objectives can be achieved; design of a management reporting structure for reporting information.

Question 45

LO1.0 - Non financial information can relate to matters such as....(examples)?

Answer 45

Quality, speed, flexibility, creativity, motivation, customer satisfaction, competitive advantage.

Question 46

LO1.1 - What is marginal costing?

Answer 46

The change in total cost that arises when the quantity produced has an increment by unit. Formula is change in costs / change in quantity. Eg. if the charge per unit is greater that the marginal cost of producing one more unit, then that unit should be produced.

Question 47

LO1.1 - What are some historical attributes of management accounting?

Answer 47

Recording costs, planning budgets, standard costing and variation reporting. Primarily in manufacturing industries.

Question 48

LO1.1 - What changes have occurred in the role performed by management accountants?

Answer 48

Included developments in application based costing such as separation of fixed and variable costing, marginal costing (activity based costing), discounted cash flow. Moves into service related industries, marketing and distribution.

Question 49

LO1.1 - What is included in the current role of a management accountant?

Answer 49

Expanded role of providing management control information and statistical planning. Now includes financial and non-financial data and measures. Implementing changes in manufacturing techniques such as Total Quality Management and Just in Time production. Incorporation of changes in technology to maintain increased demands.

Question 50

LO1.6 - What are the tangible components of a Management Control System (MAS)?

Answer 50

PEOPLE, particularly with accounting knowledge; TECHNOLOGY; RECORDS, of financial transactions; the COST ACCOUNTING SYSTEM on which it is based: MATHMATICAL TECHNIQUES, or management accounting techniques; REPORTS produced; and the USERS of the information.

Question 51

LO1.6 - What are the potential risks of a Management Control System (MAS)?

Answer 51

Excessive emphasis on financial measures, internal orientation (must include external data sources / influences), lack of goal congruence (across the whole organization), lack of future perspective, failure to adapt.

Question 52

LO2.2 - How is the basic relevant cost of labour determined from outside of the organisation?

Answer 52

Labour will be the total variable costs incurred.

Question 53

LO2.2 - How is the internal relevant cost of labour determined when their is expected spare capacity?

Answer 53

Variable cost incurred minus spare capacity - it is assumed that any spare capacity will be paid and can be utilized on another project.

Question 54

LO2.2 - How are the relevant cost of materials determined?

Answer 54

If additional materials are required, relevant cost is their current replacement cost - unless materials will not be replaced once used - then it is the higher of a) current resale value, or b)the value they would obtain put to an alternative use.

Question 55

LO2.2 - How is the internal relevant cost of labour determined if labour is in short supply?

Answer 55

Direct labour costs + contribution lost by non production. Eg. direct labour costs + (contribution per unit / labour to produce unit).

Question 56

LO2.2 - What is the relevant cost of an asset?

Answer 56

The relevant cost of an asset represents the amount of money that a company would have to receive if they were deprived of an asset - also called deprival value.

Question 57

LO2.2 - How is deprival value determined?

Answer 57

the LOWER of Replacement cost or; the HIGER of NRV or REVENUES EXPECTED.

Question 58

LO1.6 - What is management accounting 'data'?

Answer 58

Raw material relating to facts, events and transactions.

Question 59

LO1.6 - What is management accounting 'information'?

Answer 59

Processed data so as to be meaningful.

Question 60

LO1.6 - What are qualities of 'good information'?

Answer 60

RELEVENT to its purpose; COMPLETE; RELIABLE and SUFFCIENTLY ACCURATE, CLEAR, CONFIDENT, that the information can be trusted with clearly defined assumptions; COMMUNICATED clear and precise; TIMELY, COST efficient, information must have value, and COMPARABLE.

Question 61

LO1.6 - Why is information important?

Answer 61

It provides awareness to make better financial and non-financial decisions.

Question 62

LO1.6 - What is the most important factor of MAS design?

Answer 62

That the output meets the needs of management fore executive decision making processes.

Question 63

LO1.6 - What factors should be considered in design of MAS's (in hierarchical order)?

Answer 63

Information required and timing of delivery (most important); source of input data (capable of gathering the data needed); processes involved (including processing of data and report delivery); response required (how managers should respond - ultimately in decisions being made).

Question 64

LO1.6 - In line with Anthony's hierarchy, what are the different information types of MAS's?

Answer 64

Strategic, management (tactical), and operational information?

Question 65

LO1.4 - What is the definition of the Just In Time (JIT) management concept?

Answer 65

A commitment to continuous improvement and excellence. "Get things right first time."

Question 66

LO1.4 - How does the JIT concept influence management accounting?

Answer 66

JIT responds to production / procurement as they are required. Driven by demand it identifies / eliminates excessive inventory, cost of machinery setup and long lead times.

Question 67

LO1.4 - What is the definition of Total Quality Management (TQM)?

Answer 67

A culture of continuous operational improvement with a philosophy of zero defects.

Question 68

LO1.4 - What are attributes of the TQM philosophy?

Answer 68

"The only thing that matters is the customer." (internal/external). Substandard is unacceptable; no predefined or acceptable levels of quality. A system of constant review, quality assurance and feedback.

Question 69

LO1.4 - What are the associated costs with development of a TQM system?

Answer 69

Conformance cost - establishment, prevention and appraisal. Non-conformance costs - internal // external failures, faulty goods, customer claims.

Question 70

LO1.4 - What is definition of Kaizen?

Answer 70

The Japanese term for continuous self improvement.

Question 71

LO1.4 - What are the attributes of the Kaizen technique?

Answer 71

A feature of TQM, it focuses on small scale change during the production phase, focusing on the key elements of production, purchasing and distribution. To achieve cost reduction through continuous improvement often achieved through economic efficiencies (particularly through suppliers).

Question 72

LO1.4 - What is Lean Management Accounting?

Answer 72

Is the elimination of waste and continuous improvement; incorporating JIT (customer demand) and TQM (processes and value streams), this system provides information to drive improvement and eliminate waste.

Question 73

LO1.4 - What is life cycle costing?

Answer 73

A view that costs and profitability should be planed and monitored over the entire life cycle of a product. Particularly relevant to costs in early design stage or innovative organizations constantly redesigning / developing.

Question 74

LO1.4 - What are the advantages of life cycle costing?

Answer 74

Focuses on development and design costs, and end costs such as marketing, time to market, design and development problems. Also considers potential underspend in the design and development stage.

Question 75

LO1.4 - What are the disadvantages of life cycle costing?

Answer 75

Costing relies on estimations / assumptions of product life costs, and external data sources (eg. how much will a customer be prepared to pay).

Question 76

LO1.4 - What is Target costing?

Answer 76

A different approach to the relationship between cost, price and profit, where a concept is developed, the price that customers would be prepared to pay is determined, the desired profit margin is deducted; the balance is the target cost of production.

Question 77

LO1.4 - What are the advantages of Target Costing?

Answer 77

This approach incorporates external data and market information, and encourages continual product and production improvements.

Question 78

LO1.4 - What are the disadvantages of Target Costing?

Answer 78

It is difficult to set target cost as selling price is hard to determine. Relies heavily on assumptions of competitor behavior, technology and customer preferences.

Question 79

LO1.9- Define organizational behavior?

Answer 79

The impact that individuals, groups and the organizational structure have on the behavior and ability to create value?

Question 80

LO1.9 - What are the three key components of organizational behavior?

Answer 80

PEOPLE (exploit the potential of employees assuring their goals align with company goals), STRUCTURE and TECHNOLOGY and CONTROLS (systems of planning and control that effect motivation and achievement results).

Question 81

LO1.3 - Within the scope of the MA role, how can the MA create and improve organizational behavior value?

Answer 81

Recruit and retain the best talent; get the best results from employees; maintain a culture that supports, promotes and rewards the drivers of success; embrace and share knowledge; develop, implement and maintain this management system.

Question 82

LO1.10 - What is sustainability?

Answer 82

Ensuring that the needs of the present are meet without compromising the ability of the future.

Question 83

LO1.10 - What is sustainability with the organizational context?

Answer 83

Development of strategies so resources are only used at a rate that allows them to be replenished, and waste is confined to a level that does not exceed capacity. The objectives of which are to identify risks effecting sustainability and developing strategy to protect against risk.

Question 84

LO1.10 - What is sustainability accounting?

Answer 84

A new approach of accounting / reporting incorporating tools and organizational decisions consistent with economic, environmental and social sustainability.

Question 85

LO1.10 - What are the guidelines of the Global Reporting Initiative (GRI)?

Answer 85

Triple bottom line reporting that includes ECONOMIC (impacts on an organizations local, national, and global economic conditions); ENVIRONMENTAL (an organizations impact on living / non-living natural systems); SOCIAL (an organizations impact on the social systems within which it operates).

Question 86

What are possible limiting factors for an organization?

Answer 86

SALES (a limit to demand; LABOUR (in terms of skills shortage or available staff); MATERIALS (a shortage of materials to satisfy demand); CAPACITY (based in current infrastructure and ability to satisfy demand).