Week 1 Everything

Question 1

What is accounting

Answer 1

The process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of the information. Accounting provides both financial and non-financial information and helps managers with decision making.

Question 2

Who are the users of accounting information?

Answer 2

Users of accounting information can be divided into two groups. External users which are parties outside the organisation, such as owners, potential investors, creditors, government and so on. internal users which are parties within the organisation such as managers, employees.

Question 3

accounting can be divided into two branches

Answer 3

Financial accounting

Management accounting

Question 4

Financial accounting

Answer 4

prepares reports most frequently used by decision makers external to the organisation

Question 5

Management accounting

Answer 5

prepares reports most frequently used by decision makers internal to the organisation

Question 6

Cost accounting

Answer 6

Cost Accounting is a sub-division of management accounting. It is concerned with cost accumulation for inventory valuation to meet the requirements of external reporting and internal profit measurement.

Question 7

Financial Accounting involved

Answer 7

Preparing annual financial reports

External use

Regulations apply

Recording the past

Stewardship

Question 8

Management accounting involves

Answer 8

Understanding costs, budgeting, etc.

Internal uses: Planning and control, Performance evaluation

Do whatever is most useful

Past and future

Decision-making

Question 9

In particular cost accounting is concerned with establishing costs of:

Answer 9

Operations
Processes
Activities
Products

Question 10

To successfully operate in today’s competitive environment companies are:

Answer 10

Making customer satisfaction an overriding priority.

Adopting new management approaches.

Changing their manufacturing systems (E.g., Robotics).

Increasingly using information technologies in their business activities (E.g., use of artificial intelligence).

Question 11

Management accounting information can be used in:

Answer 11

Achieving cost efficiency

Accurate determination of product costs and prices

Effective cost management

Product comparisons decisions.

Question 12

The functions of management accounting:

Answer 12

Cost allocation for inventory valuation and profit calculation

Provision of relevant information for better decisions

Provision of relevant info for planning, control and evaluation

Question 13

Cost allocation for inventory valuation and profit calculation

Answer 13

Matching principle requires to match costs with revenues to calculate profit. To determine cost of goods sold we need to know the cost of unsold finished goods or partly completed stock (work in progress). Therefore, it is necessary to trace costs to each individual job or product to allocate costs between cost of goods sold and inventories.

Question 14

Provision of relevant information for better decisions

Answer 14

Provide relevant information to help managers in making better decisions such as profitability analysis, product pricing, make or buy (Outsourcing), product mix and discontinuation

Question 15

Provision of relevant info for planning, control and evaluation

Answer 15

Provide information for planning, control and performance measurement such as budgeting and periodic performance reports.

Question 16

Costing

Answer 16

Costing is understanding and identifying the costs of particular activities and decisions. It is a key part of management accounting

Question 17

Cost

Answer 17

The amount of resource, usually measured in monetary terms, sacrificed to achieve a particular objective.

Question 18

Cost object

Answer 18

A cost object is any activity for which a separate measurement of cost is required such as the cost of making a product and the cost of providing a service.

Question 19

Three different cost classifications

Answer 19

Direct and Indirect costs
Variable and Fixed costs
Product and Period costs

Question 20

Direct v indirect costs

Answer 20

Direct costs can be specifically and exclusively identified with a given cost object such as direct materials and direct labour. Indirect costs cannot be specifically and exclusively identified with a given cost object such as rent of factory and administration costs. Indirect costs (also called as overheads) are assigned to cost objects on the basis of cost allocations.

Question 21

Product and period costs

Answer 21

Financial reporting standards require that inventory valuations are made based on only manufacturing costs. Therefore, in manufacturing organisations accounting system distinguishes between two types of costs. Manufacturing costs known as product costs and non-manufacturing costs, known as period costs.

Question 22

Product costs

Answer 22

Product costs are those costs that are attached to the products intended for sale and included in the stock (inventory) valuation. Such as direct or indirect materials.

Question 23

Period costs

Answer 23

Period costs are those costs which are treated as expenses of the period and are not carried forward as part of the inventory. Such as telephone or storage expenses.

Question 24

Example of a product v period cost

Answer 24

10/3/19

Question 25

Cost behaviour

Answer 25

Costs and revenues vary with different levels of activity. It is important to predict costs and revenues at different activity levels for many decisions and for planning and control purposes. Therefore, accountants usefully classify costs into fixed and variable costs.

Question 26

Variable costs

Answer 26

A variable cost is one which varies directly with changes in the level of activity. They vary in proportion to volume of activity (direct materials).

Question 27

Fixed costs

Answer 27

A fixed cost is one which is not affected by changes in the level of activity, over a defined period of time. They remain constant irrespective of volume of activity, (rent).

Question 28

semi variable cost

Answer 28

Part of semi-variable costs change depending on the level of activity, but a part of this cost is fixed (sales representative’s salary plus a commission)

Question 29

Step cost

Answer 29

fixed cost increases by steps

Question 30

Graphical illustration of variable and fixed costs

Answer 30

10/3/19

Question 31

Total fixed cost and unit fixed cost

Answer 31

10/3/19

Question 32

Semi-fixed costs

Answer 32

Semi-fixed costs are fixed within specified activity levels, but they eventually increase or decrease by some constant amount at critical activity levels. For example additional labour or salary of another manager

Question 33

Note: in the long-term

Answer 33

all costs are variable

Question 34

Graphical illustration of variable and fixed costs

Answer 34

10/3/19

Question 35

Total fixed cost and unit fixed cost

Answer 35

10/3/19

Question 36

Semi-fixed costs

Answer 36

Semi-fixed costs are fixed within specified activity levels, but they eventually increase or decrease by some constant amount at critical activity levels. For example additional labour or salary of another manager

Question 37

Note: in the long-term

Answer 37

all costs are variable