Wk1 Nature and Scope of Management Accounting

Question 1

Identify the key differences between the nature and scope of financial and mangement accounting:

Answer 1

• External V Internal Users
• Generalised V Specialised Info
• Historical V Future Perspective
• Rules-based V Customised Reports

Question 2

Give examples of internal users of management accounting info within a firm:

Answer 2

• CEO
• General Managers
• Department/ Division Managers
• Functional Staff

Question 3

Give examples of how management accounting info is usually more specialised than general:

Answer 3

• Normally produced to meet the needs of a specific decision maker (management)
• Nearly all decisions will require non-financial info, which will be based on estimated as the decision relates to future actions

Question 4

Give an example of how management accounting info is usually centered around a future perspective:

Answer 4

• Budgets (a major management accounting tool) will often have future orientated data within them

Question 5

Give examples of how management accounting data is generally more customised than rule-based:

Answer 5

• Not subject to accounting rules. Are instead customised to specific situations and can take their own form
• Emphasise relevance over reliability
• Each organisation will have their own specific management accounting reports

Question 6

What are the 6 main functions of management accounting?

Answer 6

• Planning
• Controlling
• Organising
• Communicating
• Motivating
• Decision Making

Question 7

Describe the Planning function of management accounting:

Answer 7

Helps to formulate plans for different activities then co-ordinate these plans into budgets

Question 8

Describe the Controlling function of management accounting:

Answer 8

Help to produce performance reports which compare actual outcomes with planned goals

Question 9

Describe the Organising function of Management Accounting:

Answer 9

Develop accounting reporting systems that are closely related to the organisational structure

Question 10

Describe the Communicating function of management accounting:

Answer 10

Can aid the communication function by installing and maintaining an effective communication and reporting system e.g. the budget and performance reporting process

Question 11

Describe the Motivating function of management accounting:

Answer 11

Reports produced can have an important influence on the motivation of managers and employees

Question 12

Describe the Decision Making function of management accounting:

Answer 12

Reports produced can provide guidance for decision making and problem solving

Question 13

What is Cost Accounting?

Answer 13

• Provides info for both management and financial accounting
• Measures and reports financial and non-financial data which relates to the cost of acquiring or consuming resources

Question 14

What is Cost Management?

Answer 14

• Describes the activities of managers in the short and long-run planning and control of costs
• Includes the continuous reduction of costs
• Key part of general management strategies and their implementation

Question 15

In what particular type of industry might Activity-Based Costing (ABC) be useful?

Answer 15

ABC is a product costing method useful in industries where overheads are high relative to other costs

Question 16

Describe what is meant by Life-Cycle Costing (LCC):

Answer 16

The process of identifying and monitoring costs throughout a product’s life cycle e.g.
- R&D costs
- Product design/ testing costs
- Manufacturing, packaging etc. costs
- Marketing, promotion etc. costs
- Sales and service costs

Question 17

Describe what is meant by Benchmarking:

Answer 17

• Identify an activity that needs to be improved
• Find an organisation that is most efficient in this activity
  -Study and utilise that process

Question 18

Describe what is meant by Target Costing:

Answer 18

• Identify product opportunity
• Determine price that would make product competitive
• Determine if product can be made at sufficiently low cost to provide a desired profit

Question 19

Describe what is meant by Strategic Management Accounting:

Answer 19

• An extension from the internal focus of MA to include external info about competitors
• Gaining competitive advantage through exploiting linkages in the value chain
• Formulating and supporting the overall strategy of an organisation by developing an integrated framework of performance measurement

Question 20

Describe what is meant by the Balanced Scorecard:

Answer 20

• Placing greater emphasis on incorporating non-financial measures into the formal reporting system
• Developed in order to integrate financial and non-financial measures
• Seeks to link performance measures to an organisation’s strategy