Session 1 - Introduction to Management Accounting Flashcards
What are the 3 main areas which management accounting can be broken down into?
Planning
Decision Making
Control
What are the main features of financial accounting?
External users - banks, suppliers
purpose is to assess financial performance
produced at year end
Past events
Formats - SFP PnL
What are the main features of management accounting?
Internal users
Info is prepared as frequently as required
Purpose is to assist in decision making, planning and control
Produced during the year
What is a direct cost?
Cost which can be directly attributed to a cost unit, for example, cost of materials used to make the product
What are indirect costs and what are they also known as?
Indirect costs are costs which can’t be indentified directly within a unit of output
EG: Insurance, wages of supervisors
What are classed as non-production overheads?
Selling and distribution costs
Administration costs
Finance
What is a forecast?
Estimate of what may happen in the future based on historical data
What is a cost unit?
Units of output to which costs can be charged.
For example, a unit of production from a factory such as a car
What is a cost card?
A document which groups the costs of a product or service in order to arrive at a total cost
What is prime cost
Total of all the direct costs
Total of Direct materials, direct labour and direct expenses
What is the purpose of a budget?
A budget will ensure managers limit expenditure (cost control), also used to compare performance between actual results and budget plan.
What is a fixed cost?
Total fixed cost constant regardless of output
However, per unit as output increases, cost decreases
What is a variable cost?
Total cost varies in direct proportion to the level of output
Eg: Direct materials
What is a semi variable cost?
Combines both a fixed and a variable cost.
As activity levels increase so does semi variable cost,
Per unit as output increases the cost decreases as it is spread over more units of output.
This is where you will use the high - low method.
Usually contain a fixed and variable cost
What is a stepped cost?
Total fixed cost constant up to a certain level of output, for example, warehouse capacity is 1000. If output surpassess a 1000 you’ll need to buy a new warehouse.
What are indirect mateirals?
Materials used in production but not incorporated into the product for example, machine lubricants
What is indirect labour?
Wages and salaries of other staff such as supervisors, storekeepers and maintenance workers.
What are indirect expenses?
Expenses that are not spent on individual units of production for example rent, rates and electricity.
How to do the high low technique?
1) Highlight highest number and lowest number of output and total cost
2) Take away the hgihest from the lowest of both cost and output
3) Divide the cost by the output and this will give you the variable cost per unit
4) Times the variable cost per unit by either the highest or the lowest output
5) Then Take the highest or lowest cost and take it away from this figure to give the fixed cost
What is a product cost?
Costs which become part of the manufactured product ie: direct materials, labour and expenses and production overheads
Included in the closing inventory of the product at year end
What is segmented cost?
Costs relating to a component of the business which generates revenue
Name some non production costs - Selling and distribution costs?
Delivery costs
Advertising
Sales staff salaries
Name some overheads?
Telephone charges
Insurance
cost of wages of non production staff such as managers, office staff
Running costs of delivery vehicles
Depreciation of non current assets
Name some fixed costs?
Rent
Diminishing balance depreciation
Fees
Name some variable costs?
Royalty paid
Raw materials used (manufacturing business)
What is a composite cost unit?
Units of output which comprise of two variables such as: The cost of a bus passenger per mile.
What is a period cost?
Costs which are not part of the manufactured product and can’t be assigned to products, for example, incurred monthly
How can costs be classified?
Element - Materials, Labour, Expenses
Nature - Direct and indirect
Function - Production, administration, selling and distribution, finance
Behaviour - Fixed, semi-variable, variable
How to work out return on investment?
Profit/investment x 100
How to work out profit made by a centre?
Revenue - Costs
Name some responsibility centres?
Cost Centres, profit centres and investment centres
What are responsibility centres?
Used to enable managers to control the parts of the business they are responsible for
What is a cost centre, Profit centre and Investment centre?
Cost centre is where managers just control the cost
Profit centre is where managers control both the costs and the revenue
Investment centre is where managers are accoutnable for the profit compared to how much is invested.
