Introduction to Management Accounting

Question 1

When deciding whether to outsource production, what should management consider? (3)

Answer 1

• Current employees may need to be retrenched
• What if the service provider does not perform to their satisfaction? What if their quality is poor or they don’t deliver on time?
• What if the service provider raises their prices?

Question 2

When deciding whether to buy or rent an asset, what should management consider? (3)

Answer 2

• What is the long term cost impact?
• How could this impact production products sold by the company?
• What is the financing impact

Question 3

When deciding whether to pay bonuses, what should management consider? (2)

Answer 3

• The precedent being set. Can the business afford to continue paying bonuses into the future?
• If not, what impact would this have on employee morale and productivity?

Question 4

what is the definition of management accounting?

Answer 4

• management accounting refers to the processes ad techniques that focus on the effective and efficient use of organisational resources, to support managers in their tasks of enhancing both customer value and shareholder value

Question 5

what is the value creation cycle? (4x2)

Answer 5

• financing activities
  – funding obtained
• investing activities
  – assets acquired
• operating activites
  – assets are used
• dividend decision
  – what happens to the value