Semester 1 Flashcards
What is management accounting?
Techniques and processes intended to provide both financial and non-financial information to people within an organisation
Who are the users of accounting information?
Financial Accounting - external parties outside of the organisation
Management Accounting - Internal parties within the organisation - Managers/primary managers
What are the purposes of accounting systems?
1) Formulating overall strategies and long-range plans
2) Resource allocation decisions
3) Cost planning and control of operations/activities (purchases, sales, hiring etc)
4) Performance measurement and evaluation of people
5) Meeting external regulatory and legal reporting requirements
What is cost accounting?
- Provides information for both management and financial accounting
- Measures and reports financial and non-financial data relating to cost of acquiring/consuming resources by an organisation
- About analysing costs
What is cost management?
- Activities of managers in short-run and long-run planning and control of costs
- Includes continuous reduction of costs
- Key part of general management strategies and implementation
- Requires cost acc.
What are the roles of management accountants?
- Planning
- Controlling (produce performance reports and compare to planned)
- Organising
- Communicating
- Motivating
- Decision making (provide guidance)
What is the performance report?
Shows planned/expected revenues, CoGS, wages, fixed costs etc. and actual values
What are the features of the contemporary business environment?
- Advances in manufacturing and information technologies
- Focus on customer
- New forms of management organisaton
- Social, political and cultural changes
- Increased global competition
What is life-cycle costing and what is used?
Identify and monitor costs throughout a product’s life cycle:
- R&D costs
- Product design and testing costs
- Manufacturing, inspecting, packaging and warehousing costs
- Marketing, promotion and distribution costs
- Sales and service costs
What is benchmarking?
- Identify an activity that needs to be improved
- Find an organisation most efficient at this activity
- Study the process and utilise the process
What is target costing?
- Identify product opportunity
- Determine the price that would make this competitive
- Determine if product can be made at low costs to provide desired profit
What is the Balanced Scorecard?
- Kaplan and Norton
- Created to integrate financial and non-financial measures
- seeks to link performance measures to an organisation’s strategy
- Should be used to clarify, communicate and manage strategy
- Management translates strategy into performance measures that employees understand
What is a cost?
A resource sacrificed or foregone to achieve a specific objective
- Expenditure incurred
What are the types of costs you may use?
Historical vs. replacement
Full vs. marginal
Actual vs. Budgeted
How can costs be classified?
By function
By element - e.g. material, labour or overhead
By nature - indirect or direct
By behaviour - fixed or variable/marginal
What is a direct cost?
Those related to a given cost object (product, department etc.) and that can be traced to it in an economically feasible way
What is an indirect cost?
Related to the particular cost object but cannot be traced to it in an economically feasible way
What is a prime cost?
Sum of only direct costs: direct labour, materials etc.
What is a conversion cost?
Indirect cost and direct labour - converting inputs into outputs
What are product costs?
Those attached to products and therefore included in stock/inventory valuation - end in product
- e.g. raw material, labour, production overhead
What is unsold product code/cost recorded as?
Current asset (inventory) in balance sheet - Becomes expense in profit and loss account when product sold
What is sold product code recorded as?
Recorded as an expense in P&L account in current accounting period
What are period costs?
Non-manufacturing costs
Not attached to products, not included in stock valuation
(E.g. marketing and administration expenses)
What is period code recorded as?
All recorded as expense in IS in current accounting period - as expense as don’t incur cost in future
What are variable costs?
Vary in proportion with activity
What are fixed costs?
Remain constant over wide ranges of activity
What are semi-fixed costs?
Fixed within specific activity levels, but they eventually increase/decrease by some constant amount at critical activity levels
What are semi-variable costs?
Include both a fixed and variable component (e.g. telephone charges)
What is cost-volume profit (CVP) analysis?
The study of interrelationships between costs and volume and how they impact profit
What does CVP analysis examine?
The behaviour of total revenues, costs, and operating profit as changes occur in output level, selling price, variable costs per unit or fixed costs
What does CVP aid management in?
- Setting prices for products/services
- Introducing a new product/service
- Replacing a piece of equipment
- Make or buy decisions
- Performing strategic “what if?” analysis
What is a semi-fixed cost also known as?
Step-fixed cost
What is the graph of a semi-fixed cost like?
Steps up
What is the graph of a semi-variable cost?
Slope up
How do you calculate breakeven?
Fixed costs / contribution per unit
Costs same as revenue, profit = 0
What is profit calculation?
Profit = Revenues - Total Costs
What is the CVP model equation for revenue?
(Q x P) = F + (Q x V) + N Q = units sold P = unit selling price F = fixed costs V = unit variable cost N = operating profit
What is the equation for unit contribution margin?
P - V
Unit selling price - variable cost
What is the contribution margin ratio?
P-V / P
How is CVP analysis used to determine the BEP and target operating profit?
- The Equation Method: selling price per unit x Q = Total fixed costs + (variable unit cost x Q)
- Contribution Margin Method: you know quantity, so can apply Q = F/P-V
