Module 1 (lesson 1+2)

Question 1

Which different tasks do managers in organizations have?

Answer 1

• Making plans
• Organizing resources
• Directing personnel
• Controlling operations

Question 2

What is planning?

Answer 2

Planning involves selecting a course of action and specifying how the action will be implemented. Key steps are:

• Identify Alternatives: Consider various options that align with the organization’s goals.
• Evaluate Alternatives: Analyze each option based on its potential to further the organization’s objectives.
• Select the Best Alternative: Choose the course of action that best meets the organization’s goals.

Question 3

What is directing and motivating?

Answer 3

Directing and motivating involves mobilizing people to carry out plans and run routine operations. We use the information for:

• Set performance targets
• Performance evaluation
• Cost control and efficiency improvements
• Decision-making support

Question 4

What is controlling?

Answer 4

Controlling involves ensuring that the plan is actually carried out and is appropriately modified as circumstances change. Key to effective control is feedback which tells if the operations are on track and different tools are used:

• Detailed reports
• Performance reports

Question 5

What is decision making?

Answer 5

Decision making involves selecting a course of action from competing alternatives. Key decision areas

• What to sell: Decisions about products and services offered.
• Who to serve: Decisions about customer segments and market focus.
• How to execute: Decisions about operational processes and resource allocation

Question 6

What is the difference between Management accounting and Financial accounting?

Answer 6

Management accounting is concerned with providing information to managers

Financial accounting is concerned with providing information to shareholders, creditors and others who are outside an organization

Question 7

A position on the organization chart that is directly related to achieving the basic objectives of an organization is called…

Answer 7

A line position

Question 8

A position provides service or assistance to other parts of the organization and does not directly achieve the basic objectives of the organization is called…

Answer 8

A staff position

Question 9

The delegation of decision-making authority throughout an organization by allowing managers at various operating levels to make key decisions relating to their area of responsibility is called…

Answer 9

Decentralization

Question 10

A detailed report to management comparing budgeted data against actual data for a specific time period is called…

Answer 10

A Performance report

Question 11

The manager in charge of the accounting department is generally known as…

Answer 11

Chief Accountant

Question 12

The accounting and other reports coming to management that are used in controlling the organization are called…

Answer 12

Feedback

Question 13

Management accounting places less emphasis on … and more emphasis on … than financial accounting.

Answer 13

Precision and non-monetary

Question 14

What is cost?

Answer 14

Cost refers to the monetary value of resources used or spent to acquire goods or services. Cost is crucial in determining pricing, profitability, and financial performance within a business. Cost classification is an essential concept in accounting and finance, allowing businesses to organize and analyze expenses in ways that facilitate decision-making, budgeting, and financial reporting. Classification based on

• Nature or element
• Behaviour
• Function
• Traceability
• Relevance
• Ability to control
• Normalcy
• Timeframe
• Ability to measure
• Ability to make decisions

Question 15

What is manufacturing costs and what categories are there?

Answer 15

Manufacturing Costs are the costs involved only in the production process. They are essential for creating the product but don’t cover anything beyond that. Manufacturing costs are divided into three categories:

• Direct materials: Direct materials are those materials that become an integral part of the finished product and that can be physically and conveniently traced to it
• Direct labour: Direct labour is sometimes called touch labour, since direct labour workers typically touch the product while it is being made.
• Manufacturing overhead: Manufacturing overhead includes all costs of manufacturing except direct materials and direct labour. Costs that cannot be traced to specific units

Question 16

What is non-manufacturing costs and what categories are there?

Answer 16

Non-manufacturing costs are divided into two categories

• Marketing or selling costs: Include all costs necessary to secure customer orders and get the finished product or service into the hands of the customer.
• Administrative costs: These are the expenses related to the overall management and operation of the business. They are not tied to making or selling the product but are necessary for running the company.

Question 17

What is the difference between product costs and period costs?

Answer 17

• Product Costs are broader and include all costs associated with getting a product ready for sale. Costs that are associated with the production of goods. These costs are inventoried and expensed and afterwards as cost of goods sold (COGS) when the product is sold.
• Period costs are all the costs that are not included in product costs. Instead, these costs are related to running the business, and they are recorded as expenses in the period they happen.

Question 18

What is a financial statement and what types are there?

Answer 18

Financial reports are for creditors, shareholders and other stakeholders to show the financial condition of the firm and the firm’s earnings performance over some specified interval. There are three types of financial statement

• Income statement (Profit and loss statement)
• Balance sheet
• Cash flow statement

Question 19

What types of inventories do manufacturing companies have?

Answer 19

• Raw materials inventory: Include raw materials purchases
• Work in progress inventory: Consists of goods that are only partially completed. Includes direct labour and manufacturing overhead
• Finished goods inventory: Consists of goods that are ready to be sold

Question 20

What is cost behaviour?

Answer 20

• Cost behaviour means how a cost will react or respond to changes in the level of business activity. As the activity level rises and falls, a particular cost may rise and fall as well – or it may remain constant. Cost behavior is relevant for decision making using absorption costing

Question 21

What types of cost behaviours are there?

Answer 21

• Variable cost: Costs that vary directly with the level of production or sales. Examples include raw materials, direct labor, and sales commissions
• Fixed cost: Costs that remain constant regardless of the level of production or sales volume. Examples include rent, salaries, and insurance.
• Semi-Variable (or Mixed) Costs: Costs that contain both fixed and variable components. An example might be a utility bill that has a fixed monthly charge plus a variable charge based on usage.

Question 22

What is cost object and why do companies assign them?

Answer 22

• A ost object is anything a business wants to know the cost of. Examples are product, customer, project etc.
• They are assigned due to reasons such pricing, profitability or spending control

Question 23

How can a cost object be assigned?

Answer 23

They can be assigned as:

• Direct cost: Expenses that can be easily and directly linked to a specific item or activity.
• Indirect cost: Expenses that can’t be traced directly to a specific item or activity. They are shared among different items or activities.

Question 24

What is absorption costing?

Answer 24

Absorption costs captures all costs related to the production (manufacturing) of a product:

• Fixed cost
• Variable cost
• Direct cost
• Indirect cost

Question 25

What is relevant costs?

Answer 25

Costs that will be affected by a decision and should be considered when making that decision

Question 26

What is irrelevant costs?

Answer 26

Costs that will not be affected by a decision and, therefore, should not be considered

Question 27

What is controllable costs?

Answer 27

Costs that can be influenced or controlled by a specific manager within a given period. For example hire and fire

Question 28

What is uncontrollable costs?

Answer 28

Costs that cannot be influenced by a manager, often because they are set at a higher organizational level

Question 29

What is normal costs?

Answer 29

Costs that are expected to occur under normal operating conditions

Question 30

What is abnormal costs?

Answer 30

Costs that are not expected to occur under normal operating conditions

Question 31

What is capital costs?

Answer 31

Big, long-term investments in assets

Question 32

What is revenue costs?

Answer 32

Regular, short-term expenses for daily operations

Question 33

What is actual costs?

Answer 33

Actual costs are the real expenses that occur during a specific time period.

Question 34

What is standard costs?

Answer 34

Are estimated or planned costs set in advance. They represent what you expect to pay under normal conditions

Question 35

What is opportunity costs?

Answer 35

The potential benefit that is given up when one alternative is selected over another

Question 36

What is sunk costs?

Answer 36

Expenses that have already been spent and cannot be changed or recovered, no matter what decisions you make in the future

Question 37

What is differential costs?

Answer 37

It is the extra or reduced cost you get when you choose one option over another

Question 38

What is marginal costs?

Answer 38

It is the cost of producing one additional unit of a product