Session 1 - Introduction to Management Accounting

Question 1

What are the 3 main areas which management accounting can be broken down into?

Answer 1

Planning
Decision Making
Control

Question 2

What are the main features of financial accounting?

Answer 2

External users - banks, suppliers
purpose is to assess financial performance
produced at year end
Past events
Formats - SFP PnL

Question 3

What are the main features of management accounting?

Answer 3

Internal users
Info is prepared as frequently as required
Purpose is to assist in decision making, planning and control
Produced during the year

Question 4

What is a direct cost?

Answer 4

Cost which can be directly attributed to a cost unit, for example, cost of materials used to make the product

Question 5

What are indirect costs and what are they also known as?

Answer 5

Indirect costs are costs which can’t be indentified directly within a unit of output

EG: Insurance, wages of supervisors

Question 6

What are classed as non-production overheads?

Answer 6

Selling and distribution costs
Administration costs
Finance

Question 7

What is a forecast?

Answer 7

Estimate of what may happen in the future based on historical data

Question 8

What is a cost unit?

Answer 8

Units of output to which costs can be charged.
For example, a unit of production from a factory such as a car

Question 9

What is a cost card?

Answer 9

A document which groups the costs of a product or service in order to arrive at a total cost

Question 10

What is prime cost

Answer 10

Total of all the direct costs
Total of Direct materials, direct labour and direct expenses

Question 11

What is the purpose of a budget?

Answer 11

A budget will ensure managers limit expenditure (cost control), also used to compare performance between actual results and budget plan.

Question 12

What is a fixed cost?

Answer 12

Total fixed cost constant regardless of output
However, per unit as output increases, cost decreases

Question 13

What is a variable cost?

Answer 13

Total cost varies in direct proportion to the level of output
Eg: Direct materials

Question 14

What is a semi variable cost?

Answer 14

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

Question 15

What is a stepped cost?

Answer 15

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.

Question 16

What are indirect mateirals?

Answer 16

Materials used in production but not incorporated into the product for example, machine lubricants

Question 17

What is indirect labour?

Answer 17

Wages and salaries of other staff such as supervisors, storekeepers and maintenance workers.

Question 18

What are indirect expenses?

Answer 18

Expenses that are not spent on individual units of production for example rent, rates and electricity.

Question 19

How to do the high low technique?

Answer 19

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

Question 20

What is a product cost?

Answer 20

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

Question 21

What is segmented cost?

Answer 21

Costs relating to a component of the business which generates revenue

Question 22

Name some non production costs - Selling and distribution costs?

Answer 22

Delivery costs
Advertising
Sales staff salaries

Question 23

Name some overheads?

Answer 23

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

Question 24

Name some fixed costs?

Answer 24

Rent
Diminishing balance depreciation
Fees

Question 25

Name some variable costs?

Answer 25

Royalty paid
Raw materials used (manufacturing business)

Question 26

What is a composite cost unit?

Answer 26

Units of output which comprise of two variables such as: The cost of a bus passenger per mile.

Question 27

What is a period cost?

Answer 27

Costs which are not part of the manufactured product and can’t be assigned to products, for example, incurred monthly

Question 28

How can costs be classified?

Answer 28

Element - Materials, Labour, Expenses
Nature - Direct and indirect
Function - Production, administration, selling and distribution, finance
Behaviour - Fixed, semi-variable, variable

Question 29

How to work out return on investment?

Answer 29

Profit/investment x 100

Question 30

How to work out profit made by a centre?

Answer 30

Revenue - Costs

Question 31

Name some responsibility centres?

Answer 31

Cost Centres, profit centres and investment centres

Question 32

What are responsibility centres?

Answer 32

Used to enable managers to control the parts of the business they are responsible for

Question 33

What is a cost centre, Profit centre and Investment centre?

Answer 33

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.