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Accounting and Entrepreneurship > Management Accounting and Analysis of Cost > Flashcards

Management Accounting and Analysis of Cost Flashcards

1
Q

who is the audience for management accounting

A

someone, a manager, inside the organisation

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2
Q

what information does management accounting provide

A

costing, decision making, planning, performance evaluation

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3
Q

what are the basis for financial decisions

A

accounting numbers

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4
Q

what is the difference in users between MA and FA

A

MA applies to internal managers and staff
FA is for all other external users but also internal

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5
Q

what is the difference in the nature of the report between MA and FA

A

MA reports are for a specific purpose, group or decision
FA is more general in purpose

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6
Q

what is the difference in the level of detail between MA and FA

A

MA often provides considerable detail - very specific and focused
FA provides a more general overview - lacks detail

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7
Q

what is the difference in availability of MA and FA reports

A

MA reports are often prepared quickly for current decision making
FA must be reported annually legally and sometimes semi-annually

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8
Q

what is the difference between regulations in MA and FA

A

MA - there are no regulations on the standard content and formats
FA - legally regulated by external parties

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9
Q

what is the difference in focus between MA and FA

A

MA - area, division, department, responsibility, product, service, customer, manager
FA - reported for the whole organisation

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10
Q

what is the difference in the time horizon between MA and FA

A

MA looks to the future using past and present information - forward looking
FA uses past and present information to show what has happened - backward looking

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11
Q

what are some of the types of cost

A

direct/indirect
production/non-production
fixed/variable
avoidable/unavoidable
relevant/not relevant
sunk
opportunity
incremental

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12
Q

what cost must we know to calculate a selling price

A

total cost

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13
Q

what is overhead absorption

A

the process of determining the allocation of indirect costs to a product or service

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14
Q

what are the types of direct costs

A

direct materials, direct labour, direct expenses, total direct costs/prime cost

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15
Q

what are the types of indirect costs

A

indirect materials, indirect labour, indirect expenses, total indirect costs

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16
Q

what costs are not considered direct or indirect

A

non production costs/other overheads

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17
Q

together, what do the direct and indirect costs make up

A

production costs

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18
Q

direct materials

A

parts of the finished product, plastic, metal, electronics

19
Q

direct labour

A

cost of staff who worked in production

20
Q

direct expenses

A

additional linked-to-product expenses

21
Q

what is the formula for prime cost (total direct cost)

A

direct materials + direct labour + other direct expenses

22
Q

indirect materials

A

materials not part of the finished product, eg machine oils

23
Q

indirect labour

A

factory staff not associated with production

24
Q

indirect expenses

A

all other factory overheads eg rent, lighting, heating

25
Q

what is the formula for total production costs

A

direct + indirect production costs

26
Q

non-production costs (other overheads)

A

selling and distribution, administration overhead

27
Q

what is the formula for total cost

A

direct + indirect + non-production

28
Q

what is a contribution

A

some costs are incurred making a second ‘batch’ of a product but it might be less than the original batch
a contribution contributes towards the costs that will be incurred anyway whether another batch is produced or not

29
Q

what factors should managers consider before agreeing to a sale

A

will the order impact current production
will the price lead to more orders in the future
could something else be sold or produced instead
do you want to be associated with the customer you are selling to

(more general: environmental, social, ethical, political, legal, long term prospects, company direction, industry or market risks, reliability of numbers)

30
Q

absorption

A

process of sharing out indirect costs over several products or services (very arbitrary)

31
Q

what is allocated cost per product

A

some cost incurred/ number of products produced by cost

32
Q

why do we absorb overheads (main reasons for allocation)

A

product pricing and to match cost with revenue when calculating profit

33
Q

why must we allocate for product pricing

A

to get a good estimate of full cost to set selling price
what are customers willing to pay vs what supplier wants to charge

34
Q

what is cost-plus pricing

A

selling price = total cost + profit %

35
Q

how are indirect costs absorbed

A

based on a chosen allocation rate

36
Q

why do we allocate to match cost with revenue

A

accruals concept and carrying forward inventory (recorded at full cost including allocated overheads) then full cost matched against revenue when sold

37
Q

what is the traditional allocation rate per product

A

overhead per unit = total production overhead/number of units

38
Q

what is traditional allocation rate per direct labour hour

A

overhead rate per DLH = total production overhead/total number of DHLs

39
Q

what is traditional allocation rate per machine hour

A

overhead rate per MH = total production overhead/total number of MHs

40
Q

what are departmental overhead rates

A

applying a unique rate to different departments

41
Q

why might you use departmental overhead rates

A

different products spend different times in each department
some may be more machine intensive or labour intensive so use different rates
in theory it is a better allocation method to give a more accurate cost

42
Q

what are the steps in ABC design

A

1 identify major activities that take place in organisation
2 assign costs to cost pools for each activity
3 determine cost drivers for each activity
4 assign costs of activities to products according to demand for activities

43
Q

is ABC considered more or less accurate than the traditional method

A

more

44
Q

criticisms of ABC

A

arbitrary cost allocation is still involved in deciding on cost pool
how to decide on best cost driver, and can they be accurately recorded
unused production space will have no activities but still have costs
data: rubbish in/rubbish out
determination of cost pools and cost drivers is complicated and time consuming

Accounting and Entrepreneurship (9 decks)

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