Week 1 Flashcards
What is management accounting?
Supports value creatiion in organsiations
Is management accouting required by law?
Nope
For this course what will we also talk about?
We talk about management accounting and cost accounting surbordinate to management accounting
What are some of the ways management accountigng is useful/
– Inform strategic decisions
– Plan and control activities
– Ensure the efficient use of resources
What is the difference between Management and Financial accounting in terms of purpose?
MA- Decision making
FA - Communication of financial position
What is the difference between Management and Financial accounting in terms of Requirement?
FA - Mandatory
MA - Optional
What is the difference between Management and Financial accounting in terms of Primary audience?
FA - External
MA - Internal
What is the difference between Managerial and Finanical accounting in terms of Regulation and guidelines?
FA- GAAP, IRFS, IAS
MA- None, based on Cost benefit analysis
What is the difference between Management and Finanical accounting in terms of Frequency?
FA - Quarterly, Annually
MA - As needed and ongoing
What is the difference between Management and Finanical accounting in terms of External Review?
FA - Auditors
MA - None
What is the difference between Management and Finanical accounting in terms of Focus?
FA - Past transcations
MA - Information to aid decisions for the future
Is management accounting publicily avaliable?
Nope it is not publicily avaliable , its confidental not like Financial accounting
Finish the sentence, Traditional Financial reporting requires what?
Basic cost accounting information for inventory valuation methods
Wht doe people argue that the dividing line between Management accounting and financial accounting is getting increasingly blurred?
In increasingly “value oriented” environments financial reporting and managerial accounting have come to share concerns with long-term wealth creation, including information on strategic objectives, business models, financial and non-financial performance indicators, risks, etc.
What is a Cost object?
Is any product, any job order, any division, anything to which you can assign a cost.
What arer cost objects of A chocolate manfuactuer
A retail bank
A univeristy
( it can be anything)
A chocolate manfuactuer = e.g. a chocolate bar
A retail bank = A retail banking client
A university - An undergraduate student.
Which of the following are cost objects
A) A pint of milk produced by a diary
B) A call taken at a call centre
C) One of a banks business customers
D) The home delievery service of an department
These are all cost objects
What is a cost driver?
Is any factor that causes a change in the cost of an activity.
e.g. change in the level of production.
What are Capitalised costs?
Recognised as assets on the SOFP
What are Expensed costs?
Recognised on periodic basis as expenses in I/S
What are Product costs?
Are those directly related to the production of a good or service intended for sale e.g. direct materials. ( It goes in the cost of sales or they are inventoriable costs)
What are Period costs?
Are all other indirect costs incurred in the production of a good or service e,g, advertising, marketing ( whatever goes after gross profit ( expenses)
What are the Product costs for a manfuacturing business?
Direct materials + Direct labour + Manfuacturing overhead
What inventory can be used as product costs?
Materials held for use ( raw materials)
Unfinished goods ( work in progress)
Finished goods held for sale
Lets say in year 1 we have product costs of 80000 and period costs of 30000 ( not sold)
and in year 2 you have product costs of 0 and period costs of 20000 (good sold) whats happened?
In the first year the product costs will be added to inventory and the period cost will be expensed
In year 2 the 80000 is expensed because we are selling all goods
What are service business what would be the product costs?
Operating expenses related to provision of service in (I/S)
No inventory or Cost of Sales
What are variable costs?
Costs that very with output e.g. your telephone bill is based on how many minutes you talk.
What is the diagram for Variable cost per minute?
The costo f 0845 minute talked is constant e.g. 10 pence per min
What are Fixed costs?
Costs that don’t vary with output e.g. your monthly phone bill probabbly doesn’t change when you make more calls.
What is the diagram of Fixed cost per unit?
The average cost per local call decreases as more calls are made
numerator remains constant but dominating is increeasing.
What are the three major categories of the inventoriable costs of a manufactured product?
Direct materials costs, direct manufacturing labour costs, manufacturing overheads.
What are stepped costs and what is the diagram?
an example a company rents out a storage place that max can store is 100 units but for the 101 unit the you need another storage space so costs rise sharply ( on y axis you have cost and x axis volume of activity.
What are semi-variable costs? ( also known as mixed costs)
. Costs are fixed for a set level of production or consumption, and become variable after this production level is exceeded. (above 0 if no products are produced)
In the billing structure for a mobile phone, there is a flat-rate therefore it is a fixed cost. For extra usage of texts, calls or internet data are variable costs.
Comparing Trading and Manufacturing Activities?
Trading
Buy finished goods and sell finished goods
Manfuacturers
Buy raw materials and produce and sell finished goods
What are manfuacturing overheads?
Manufacturing overhead costs are all manufacturing costs that are related to the cost object but cannot be traced to that cost object in an economically feasible way
For a car what would be the Manfuacturing costs ?
Direct materials - installing the radio in the car ( you can trace the cost directly)
Direct labout ( wages paid to workers to assemble the car, cost can be traced easily)
Manfuacturing overheads ( Indirect material (materials used as support functions such as helemets, Indirect labour. security guards, factory overheads, depreciation of factory equipment.
What are Prime costs and conversion costs? ?
Direct material + Direct labour
Direct labour + MOH ( we are converting DL and MOH together to build a finished product
What does Cost of goods manfuactured mean?
In other words, it includes the costs of direct materials, direct labor, and manufacturing overhead that are included in the products that moved from the manufacturing area to the finished goods inventory during the accounting period
How does an Income statement cost of sales look for a trading and manfuacturing business?
How does current assets look like for a trader and manfuacturing business on sofp?
Beginning raw materials stock was £32,000. During the month, £276,000 of raw material was purchased. A count at the end of the month revealed that £28,000 of raw material was still present. What is the cost of direct material used?
a. £276,000
b. £272,000
c. £280,000
d. £2,000
Opening inventory =32000
+ purchases = £276000
- closing inventory = £28000
= 280000
Direct materials used in production totaled £280,000. Direct labour was £375,000 and factory overhead was £180,000. What were total manufacturing costs incurred for the month?
a. £555,000
b. £835,000
c. £655,000
d. Cannot be determined.
You add the 3 costs together to get b £835,000
Beginning work in progress was £125,000. Manufacturing costs incurred for the month were £835,000. There were £200,000 of partially finished goods remaining in work in progress stock at the end of the month. What was the cost of goods manufactured (completed/finished) during the month?
a. £1,160,000
b. £910,000
c. £760,000
d. Cannot be determined.
Fixed costs are usually characterised by:
a. Unit costs that remain constant.
b. Total costs that increase as activity decreases.
c. Total costs that increase as activity increases.
d. Total costs that remain constant.
D
Variable costs are usually characterised by:
a. Unit costs that decrease as activity increases.
b. Total costs that increase as activity decreases.
c. Total costs that increase as activity increases. d. Total costs that remain constant.
C
What are sunk costs and why arent they important for decision making ?
Sunk costs are actual costs incurred in past periods (same as past costs). Irrelevant cost because they cannot be changed by any decision
What are Opportunity costs and why are they useful for decision making?
The cost of the next best alternative forgone when an economic decision is made. Opportunity costs are relevant to a particular decision if they differ between alternative courses of action. (E.g. loss of income the students experience by deciding to study for a degree at university instead of going straight into work.)
Cost accounting _______________
Select one:
1) is concerned with assigning costs to various cost objects.
2) attempts to satisfy the costing objectives of both financial accounting and management accounting.
3) provides cost information that supports planning, controlling, and decision making.
4) All of the above descriptions are true.
4)
Which of the following does NOT describe management accounting?
Select one:
A)targeted at external parties
B) evaluation of segments or products within the firm
C) emphasis on the future
D) detailed information
A
rom the management and cost accounting perspective, competitive advantage is established by _________________
Select one:
A)providing greater resources than competitors.
B) providing greater customer value for less cost than competitors.
C)providing better quality than competitors.
D) providing more customer products than competitors.
B
Which of the following best describes semi variable cost?
Select one:
1) Zero if output were zero and would change erratically as output increased
2) A fixed amount when output was zero and would not increase in direct proportion to output
3) Above zero if no products were made and would then increase in direct proportion to the output
4 )Zero when output is zero and would increase in direct proportion to output
C
What is the Cost of goods manfuactured for the month
A) £463000
B) £477000
C) £491000
D) 383000
Semi variable cost
£42000
A) £700
b) £26200
c) £1200
D) £500
£500 + £700 =£1200
Salaries to managers in a corporate office ( fixed)
Raw materials used in production ( variable as it says in production)
Power consumption in a cofee shop (Mixed)
Total selling and adminstrative costs ( Mixed)
Salaries of additional shift superviors of ten employees ( Stepped)
A) £70000
B) £12700
C) £16000
D) £65000
D
Cost of purchasing species for cooking ( product costs and variable costs)
Delievery costs to ship cooking materials from suppliers ( Product costs and variable costs)
Salaries of managers ( Period costs and fixed costs)
Water bills ( Period costs and semi variable costs )
Marketing costs ( Period costs and fixed costs)
What is total selling and adminstrative expenses?
ncludes all non-production expenses incurred by a company in any given period e.g. like rent.
