Management Accounting and Analysis of cost Flashcards
What are management accounting reports for?
Internal use only.
What are financial accounts prepared for?
To satisfy the information needs of a variety of users both internal and external to the business.
What are accounting numbers a basis for?
Financial decisions
What are the broad differences between management accounting and financial accounting?
- Users
- Nature of report
- Level of detail
- Availability
- Regulations
- Focus
- Time Horizon
What is an overhead cost?
A combination of all the indirect costs that a business incurs to keep the company running.
What were the problems with when the traditional methods of overhead allocations were developed?
Developed when the overheads were a small proportion of total costs and when most companies produced a small range of products.
What method of overhead allocations creates a more accurate costing of products?
The Activity based costing (ABC)
What are the elements of cost?
Direct materials, Direct labour and overheads
What is the prime cost?
The total direct cost, the sum of direct materials, direct labour and any other direct expenses.
What is the total production cost the sum of?
All direct and indirect production costs.
What is the total cost the sum of?
Direct, Indirect and non-production.
What are examples of non-production costs?
Selling, Distribution, Administration
What is absorption?
The process of sharing out indirect costs over several products or services
Why is overhead absorption necessary?
- To calculate the cost of one unit
- To ensure the costs of production are accounted for
- Helps to calculate the cost of a product or service and import for price-decisions
- helps to absorb all costs into inventory and so satisfy accruals concept.
What happens in the traditional absorption method of overheads?
Indirect costs are absorbed based on the rate chosen
