Introduction to management accounting Flashcards
1
Q
What is the purpose of management accounting ? P3
A
managers: costs of firm’s output (product/ service)
revenues from sales
2
Q
What can managers use management accounting info to assist them with ? P3
A
- Decision making
- planning for future
- control of expenditure
3
Q
What do businesses need to do with their costs ? P3
A
- Costs under review
- accurate costs info needed
4
Q
What are the two types of accounting ? P4
A
- Management accounting
- financial accounting
5
Q
What is financial accounting ? P4
A
- Use of financial data - transactions carried over time
- info = accounting software process & extracted in financial statements
- P&L & SOFP
- legal requirement
- external users
6
Q
What are the characteristics of management accounting when comparing it to financial accounting ? P4
A
- Same info source as financial - Reports - containing financial info on recent past - for future
- internal users and maybe third parties ( banks)
- no legal requirement
7
Q
How often is management info prepared and what must this be in line with ? - p4
A
- frequently / as required
- integrity - straightforward and honest in busines relationships
8
Q
What are cost units ? P5
A
- Units of output - costs can be charged
- units of production
- unit of service
*
9
Q
What are composit units? P5
A
- Two variables
10
Q
What are responsibility centres? P5
A
segements - managers accountable
11
Q
What are examples of responsibility centes? P5
A
- Cost centres
- profit centres
- revenue centres
- investment centres
12
Q
What are costs centes ? P5
A
- segements of business- costs charged
13
Q
What do costs centres allow? P6
A
- segment costs - identified to a particular centrre
- control of business
14
Q
What are profit centres ? P6
A
- step further from costs centres - analysis of sales revenue
- sefements of business - costs charged, revenue identififed , and profits calculated
15
Q
What is the responsibility of a manager within a profit centre ? P6
A
- control of costs - fixed and variable
- control of revenue
- deducts costs from revenue - comparisons previous periods, comparison to current periods, profit targets set other profit centres
16
Q
Why are many costs centres not considered to be profit centres ? P6
A
- provide support services
- do not have significant revenue
17
Q
What is a revenue centre ? P7
A
- Segements of business - sales revenue is measured
18
Q
What is the manager of a revenue centre responsible for ? P6
A
- Generating Sales only
19
Q
What are investment centres? P7
A
- Segements - profit compared money invested in centre
20
Q
What is the manager of the investment centre in control of ? P7
A
costs - variable and fixed
revenues
assets and liabilities
21
Q
What does the investment centre manager need to calculate? P7
A
- return on investment
- comparisons - current, previos, targets , other investment centres
- profit / investment * 100 = retiurn on investment
22
Q
Example how would costs be classified in a manufacturing company? P10
A
- Factory - materials, labour, expenses , production overheads
- warehooue and office - non production overheads- selling and distribution, administration, finance
23
Q
What must costs be to prepare info for management of a business ? P10
A
- Classified
24
Q
What are the four ways of classifying costs ? P10
A
- Elements
- nature
- function
- behaviour
25
How is costs classified by element? P10
* Expendutire type
* material - physical items - raw materials , components
* labour - wages and salaries
* expenses - not materials / la
* bour
26
How are costs classified by nature ? P11
* direct costs - identified directly each unit of output
* indirect costs - cannot be identified each unit of output
27
How is costs classified by function ? P12
* Type of work being done
28
When classifying costs by nature , what type of costs expenditure is it concerned with ? P11
* Revenue expenditure
* e.g. depreciation of non current asset - not purhcase of non current asset
29
What are the main function headings ? P12
Production
Administration
Selling and distribution
Finance
| Administration , selling & distribution , finance = non productiob costs
30
How would non manufacturing organisations use function headings ? P12
* work - section of organisation carries out
31
What are the three types of behavioural costs ? P13
* fixed
* variable
* semi-variable
32
What are fixed costs ? Page13
* Constant - range of output levels
* Cost per unit falls = output increases
33
What cann fixed costs be described as and why ? P14
* stepped fixed costs
* Increase by large amount - at once
* decision = double productio = increase in stepped fixed costs
34
What are semi variable costs ? P15
* combine fixed and variable
35
What are variable costs ? P15
* change directly with activity level
36
How long do fixed and variable costs hold for ? P16
* Short term
* long term = all costs variable
37
What are the steps of calculating the costs of goods and services ? P16
* identify the unit of output
* calculate number for a particular time period
* calculate direct costs
* calculate indirect costs
* calculate total costs of unit of output
38
How do you identify the number of units of output for a particular time period ? P16
* Workout how many - produced/provided - time period
* car manufacturer - cars in a year
* mechanics time
39
Why do costs need to be classified in foyr different ways ? P16
* Same better ran business - four different - viewpoints
* Element - savings - identify high element costs (e.g. labour)
* Nature - savings - look at direct/indirect - e.g. reduce direct labour
* Function - savings - high spending departments
* Behaviour - savings - altering fixed and variable
40
How can the total costs of a unit of output be calculated ? P18
* Direct costs + indirect costs (overheads) / number of units of output = total costs of a unit of output
41
What costs would a service business still incurr ? P19
* Material
* Labour
* expenses
* output or overheads
42
What does the total costs statement bring together and how can it be prepared ? P20
* costs involved - producing output of a business
* single costs unit
* a batch
* costs of whole factory - all of factory's output given time period
43
What can the total costs of a unit of output also be referred to as ? P18
* Absorption costs
* absorbs - direct costs and indirect costs
44
What is to be remebered about indirect costs in the total costs calculations ? P18
* Inventory valuation purposes
* indirect costs - related to production only - included
45
What should a total costs statement look like ? P20
* Direct materials + direct labour + direct expenses = prime costs
* prime costs + production overheads = production cost
* production costs + non production overheads (selling & distribution + administration + finance costs) = total costs
46
What is a "product costs" in a total costs statement ? P21
* Part of manufactured product
* direct - material, labour, expenses , production overheads
* in closing inventory
* next financial year
47
What are " period costs" in the total costs statement ? P21
* not part of manufactured products
* not assigned - products/ closing inventory
* incurred in period of time
* expense - P/L - accounting period incurred
48
What would be an exmaple of a product costs ? P20
Production costs (prime costs + production overheads)
49
What would be an example of period costs ? p20
Non production overhead costs
