Week 7 - Introduction to Management Accounting Flashcards
What are 2 Differences between Financial and Management Accounting
USERS :
FA - External Persons who make Financial Decisons
MA - Managers who Plan for Control an Organisation
SUBJECT
FA - Primary Focus is on Whole Organisation
MA - Focuses on Segments of an Organisation
What are 3 Management Functions?
- PLANNING - short & long term
- CONTROL - outcome in Accordance with Initial Plans and Objectives
- DECISION MAKING - to achieve optimum utilisation of Business’s capital or resources
Define COST OBJECTIVES
Anything for which a Separate Measurement of Cost is Desired
What are the 2 Ways Costs can be Classified?
- DIRECT Costs
- INDIRECT Costs
What are Direct Costs?
Costs that can be Easily and Conveniently Traced to a Unit of Product or Other Cost Objective
- e.g. Direct Matieral and Direct Labout
What are INDIRECT COSTS
Costs Can’t be Easily and Conveniently Traced to a Unit of a Product or Other Cost Object
- e.g. Manufacturing Overhead
What are MANUFACTURING OVERHEADS?
Costs that Can’t be Traced Directly to Specific Units Produced
- Indirect Labour and Indirect Materials
- Wages Paid to Employees who Aren’t Directly Involved in Production; e.g. Cleaners
- Materials Used to Support the Production Process; e.g. cleaning supplies
What are NON MANUFACTURING COSTS
- Marketing or Selling Costs
- Costs Necessary to get the Order and Deliver the Product; e.g. sales staff salaries
- Administrative Costs
- All Exclusive, organisational and clerical costs
What is Costs Behaviour and 3 Types of Cost Behaviour
Indicator of How Costs will Vary in Total when the Level of Activity Within the Business Changes
1. Variable Costs
2. Fixed Costs
3. Mixed or Semi-Variable Costs
Explain Difference between VARIABLE Cost In Total and VC Per Unit
VC in Total - VC Changes as Activity Level Changes
VC per Unit - Remains the Same over Wide Ranges of Activity
Explain Difference between FIXED Cost In Total and FC Per Unit
FC in Total - FC Remains the Same Even when Activity Level Changes
FC per Unit - FC goes Down as Activity Level Goes Up
What are Semi-Variable Costs
- Costs that Have a both Fixed & Variable Element
- e.g. if the electricity cost for the factory has a standing charge and a cost per unit produced
What are Step Fixed Costs?
- Costs that are Constant for Different Levels of Activity
- e.g. if for Each 1000 chairs the Company Produces, they Need to Employ an Inspector
What is the Difference between RELEVANT and IRRELEVANT Costs?
RELEVANT - Future Costs that will be Changed by the Decision; e.g. Petrol Costs
IRRELEVANT - Costs that Won’t be Affected by the decision; e.g. insurance costs
What are the 3 Types of RELEVANT COSTS?
- OPPORTUNITY Costs
- REPLACEMENT Costs
- SUNK Costs
