1: Fundamentals of Costing Flashcards
What’s the difference between Management Information, Management Accounting and Cost Accounting?
MI: any information prepared to assist with planning, decision-making and control
MA: identification etc of relevant information to prepare management accounts and schedules
CA: production of cost information to assist management
Key differences between financial and management accounting?
F: external users
M: internal users
F: historical position and performance
M: assist management in planning and controlling to make effective decisions
F: required legally
M: not required
F: prescribed format
M: management discretion
F: historical scope, covers business as whole
M: flexible, with historical and future info, can focus on specific parts
F: financial info
M: financial, CSFs, KPIs
F: once a year
M: more often, whenever
Define cost object?
Anything for which we are trying to ascertain the cost
Define cost centre?
A department, process of function where costs can be accumulated
Like a bar, conference room, etc
Define cost unit?
A product or service for which costs are determined
Like a meal served, a delegate
What is a composite cost unit?
Cost unit made up of two parts
Normally for a service provided
What are the three elements of production costs?
Material
Labour
Expenses
What are direct v indirect costs?
Direct (prime)
- can be directly traced in full to a cost unit
Indirect (overheads)
- cannot be traced directly in full to a cost unit
Define material, labour and expenses?
Material: costs of material used to make a sell a unit
NEGLIGIBLE AMOUNTS ARE INDIRECT COSTS
Labour: labour used to make a cost unit
Expenses: costs incurred in full as a direct consequence of making the unit
What are non-production overheads and what are the three types?
Administration
- Costs in directing, controlling and administering the business
Selling
- Costs in raising sales and customer retention
Distribution
- Costs in packaging and delivering goods to customers
Product v period costs?
Product
- incurred in the manufacture of goods/services
- included in inventory valuation (and COS)
Period
- fixed non-production overheads
- not included in inventory valuation
- deducted as an expense in the income statement
What are the four types of cost behaviour?
Fixed
Variable
Semi-variable
Stepped-fixed
What are fixed costs?
Remain constant in total with a range of activity levels
Cost per unit will fall as the activity level increases
What are variable costs?
Vary in total as the activity level changes
Costs stay the same per unit of activity
Total costs increase as activity levels increase
What are semi-variable costs?
Have a fixed and variable element
Partly affected by a change in the level if activity
Semi fixed or mixed
Eg. Bills, performance-related pay
What are stepped-fixed costs?
Costs are constant within one range of activity level
UNTIL a critical activity level is reached
Then the total costs incurred increases to next step
Eg. warehouse costing, supervisor wages
What is responsibility accounting and responsibility centre?
RA: a system ensuring that responsibility for all activities can be assigned to individual managers to monitor and assess performance
RC: a department, function etc, whose performance is the responsibility of a specific manager
What costs are controllable/uncontrollable?
Variable costs are controllable in the short term
Fixed costs are uncontrollable in the short term and controllable in the long term
3 traits of management information?
Clear
Accurate and complete
Prepared on a timely basis
Five principles in the ICAEW code of ethics? Five threats?
Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behaviour
Familiarity
Self review
Self interest
Intimidation
Advocacy
What to do when threats cannot be reduced to an acceptable level?
Refuse to be associated with misleading information
Consideration obtaining legal advice
Consider resigning
3 examples of misleading information?
False statements
Omitted or obscure statements
Reckless statements
Key headings when considering sustainability issues?
SEE Framework!
Social
Environmental
Economic
What is governance?
The way orgs are directed and controlled
The policies in place
Boards need to actively consider what their orgs are doing to address sustainability
