Week 1 - Intro

Question 1

What is the difference between financial and management accounting?

Answer 1

Financial accounting relates to external reporting to stakeholders.

Management accounting relates to internal reporting within the company.

Question 2

What is management accounting for?

Answer 2

It influences how managers make strategic decisions about the business. It provides them information about the sources of competitive advantage; e.g. cost, productivity or efficiency advantage of their company relative to that of competitors or the premium prices can charge relative to the costs of adding features that make its products or services distinctive.

Question 3

What is strategic cost management?

Answer 3

Cost management that specifically focuses on strategic issues.

Question 4

Which type of accounting must be prepared in accordance with GAAP? Financial or management?

Answer 4

Financial - because it’s for external stakeholders. Management doesn’t need to do that shit.

Question 5

Management accounts help to formulate strategy by helping managers answer questions such as: (4)

Answer 5

• Who are our most important customers and how do we deliver value to them?
• What substitute products exist in the marketplace and how do they differ from our product in terms of price and quality?
• What is our most critical capability? Is it technology, production or marketing? How can we leverage it for new strategic initiatives?
• Will adequate cash be available to fund the strategy or will additional funds need to be raised?

Question 6

What are the six business functions in the value chain?

Answer 6

1. Research and development
2. Design of products, services and processes
3. Production
4. Marketing
5. Distribution
6. Customer service

Question 7

Define supply chain

Answer 7

The flow of goods, services and information from the initial sources of material and services to the delivery of products to consumers, regardless of whether those activities occur in the same organisation or in other organisations

Question 8

Cost management emphasises what?

Answer 8

Integrating and coordinating activities across all companies in the supply chain, as as well as across each business function, to reduce costs.

Question 9

Customers want companies to use the value/supply chain to deliver ever-improving levels of performances regarding the following factors: (4)

Answer 9

• Cost and efficiency - companies face continues pressure to reduce the cost of the products they sell
• Quality - customers expect high levels of quality that exceed customer expectations
• Time - time it takes for new products to be created and brought to market. Be quicker in developing a newer, better product.
• Innovation - the basis of ongoing success

Question 10

What is the 5 step decision making process?

Answer 10

1. Identify the product
2. Collect the relevant information
3. Determine possible courses of action and consider the consequences of each
4. Evaluate each possible course of action and select the best one
5. Implement the decision, evaluation performance and learn

Question 11

What is the cost-benefit approach?

Answer 11

An approach that helps management accounts facing resource allocation decisions. It states that resources should be used if the expected benefits to the company exceed the expected costs.

Question 12

What is a cost object?

Answer 12

The thing you’re trying to find the cost of.

Question 13

What are the two types of costs management accountants usually need to know for a cost object?

Answer 13

Budgeted cost and actual cost. Comparing the two helps managers evaluate how well they did and learn about how they can do better in the future.

Question 14

How does a cost system determine the costs of various cost objects? (2 basic stages)

Answer 14

1. Cost accumulation - the collection of costs in various categories such as different types of materials, different classifications of labour and costs incurred for supervision.
2. Assignment - assigning these costs to designated cost objects (products)

Question 15

What is a direct cost?

Answer 15

A cost related to a cost object that can be traced back to it in an economically feasible way. e.g. sugar in a cake - bakery

Question 16

What is an indirect cost?

Answer 16

A cost related to the cost object that cannot be traced to it in an economically feasible way. e.g. salt in a cake - bakery

Question 17

What is a variable cost?

Answer 17

A cost that changes in total proportional to changes in the related level of total activity or volume. The cost per unit of a variable cost is constant.

Question 18

What is a fixed cost?

Answer 18

A cost that remains unchanged in total for a given time period, despite changes in the related level of total activity or volume.

Question 19

What is a cost driver?

Answer 19

A variable that causally affects costs over a given time span. That is, there is a cause-and-effect relationship between change in the level of activity/volume and a change in the level of TOTAL costs. e.g. kilometres driven is often a cost driver of distribution costs

Question 20

What are the three types of inventory for manufacturing sector companies?

Answer 20

• Direct materials inventory - direct materials in stock and awaiting use in the manufacturing process (e.g. computer chips needed to make phones)
• Work-in-progress inventory - goods partially worked on but not yet completed
• Finished goods inventory - goods completed but not yet sold

Question 21

What are the three terms commonly used when describing manufacturing costs?

Answer 21

• Direct materials costs - the acquisition costs of all materials that eventually become part of the cost object
• Direct manufacturing labour costs - e.g. wages
• Indirect manufacturing costs - all manufacturing costs that can’t be traced in an economically feasible way e.g. plant rent, plant maintenance and cleaning labour

Question 22

What are inventoriable costs?

Answer 22

All costs of a product that are considered assets in the balance sheet when they are incurred and that become cost of goods sold only when the product is sold.

All manufacturing costs are inventoriable costs. And costs, like direct materials, direct labour and manufacturing overhead that went into creating an ASSET, then it’s inventoriable.

For retail sector companies like Kmart, inventoriable costs are the costs of purchasing the goods that are resold in their same form. e.g. cost of the actual goods, insurances, handling

Question 23

What are period costs?

Answer 23

All costs in the income statement other than COGS. Period costs are treated as expenses of the accounting period in which they are incurred because they are expected to benefit revenues in that period, rather than future periods.

For manufacturing companies, all non-manufacturing costs are period costs. For retail companies, period costs are all costs not related to the cost of goods purchased for resale. e.g. cost of floor salespeople, advertising costs

Question 24

The approaches and activities of managers that increase value for customers and lower costs of products and services are known as what?

Answer 24

Value chain analysis