08/07/2023 Management Accounting FMA
CBE
2 hours Long
Pass Mark is 50%
Section A
35 2 marks question
MCQ
Number entry
Multiple response
Multiple Matching
Section B
3 Multitask Questions 10 Marks each.
Budgeting
Standard Costing Variances
Performance Measurements
Data is raw facts and figure.
Information is any data that has been process.
Reasons for using information.
Managers need the information for Planning, Control, Decision making.
Planning strategic objective
Strategic Planning time frame is 3 to 5 years Higher management
Tactical Planning Time Frame 1 yr or less Middle Or higher Planning
Operational Planning time Fram 1 year or less Middle or lower management
Control
Cost effective – Benefits derived from the use of the information must be greater than the
cost incurred in obtaining the information.
Types of information
Primary Information is information that is close to the sources as possible. ( source
document, eye witness accounts)
Secondary information is information collected for a different person than it is going used
for.
Good information should be.
Complete
Cost Beneficial
User Targeted
Relevant
Authoritative
Timely
Easy to use.
ACCURATE
CORRECTC
Comprehensibility
Objectivity
Relevance
Reliability
Entirety
Cost effectiveness
Timeliness
Communicated
Types of Accounting
Financial Accounting
Cost Accounting
Management Accounting
Interlocking accounting 2 set of records for financial one for management accounting it
means that you have information’s for selective reasons so it it talored to that but the
downfaili is that it is timely
Integrated accounts we have one set that record both financial and management
Types of information
Profitabiliy
Going Concern- The assumption that the business will coutiune into the froseeable future
without the need or interntern of changes it scale of operation
Liquidity- The Ability of the business to pay it debts asset
Types of data
Quantity data is data that can be measures
Qualitative data is data that cannot be measure and is subjective
Sample
Population
Categorical data
Numerical data
Sources of data
Machine/sensor data
Transaction data
Human/social data
Internal information
The accounting system
The payroll system
The strategic planning
The production department
Sources that are external information
Government Sources
Business contacts
Trade association and journal deal with the particall industry we deal with and act as
responsive when ppl are in dispute
Financial press business press and general media deal with international
The internet
Other Sources
Sampling is taking a small part of the population and using the answer from that as the
result as the population on a whole.
Methods of probability sample
Random Sampling
Systemic sampling
Strategic random sample
Multistage sampling
Method Nonprobability Sample
Quota sample
Cluster Sample
Presentation of information
Plan
Write
Review
The structure of a report
Title
Content Page
Terms of
Sources of
Analysis
Conclusion
Appendix
Tables
Charts ( Percentage, Multiple Bar, Pie Chart, Scatter Diagrams)
Line Charts is used to show trends time related data
Mapping Charts Presents Information Geographically
Dash boards- provide relevant summary and provided a few drivers that give and over view of a
business area. Each driver can be further analysed by drilling down into the supporting data.
Classification Of Cost
Classification by elements
Material
Labour
Expense
Classification by Nature
Direct Cost is all the
Material
Labour
Expense which will equal to prime cost.
Or Indirect
Classification by Function
Selling or Marketing Cost
Distribution Cost
Research and Development Cost
Financing Cost
Activity
1. Expense Direct
2. Expense Indirect
3. Materials Indirect
4. Labour Indirect
5. Materials Indirect
6. Labour Direct
7. Expenses Indirect
ACTIVITY
a) Indirect
b) Direct
c) Indirect
d) Indirect
e) Indirect
f) Indirect
ACITIVITY
a) Direct
b) Indirect
c) Indirect
d) Indirect
e) Direct
f) Direct
Responsibility accounting is holding the manager accountable.
Activity
1. Production
2. Admin
3. Production
4. Admin
5. Distribution
6. Financing
7. Selling
8. Distribution
9. Finance
10. Selling
Controllable cost is a cost that a manager by decision can affect.
Uncontrollable cost is cost that cannot be changed.
Classification by behaviour
Total Fixed cost is a cost that isn’t affected by your production.
Cost
10
Units
10 20 30 40
Unit Fixed Cost = Total cost/Number of units
1600 Units 10,000/10,000 = $1.00
20,000 Units 10,000/20,000 = 0.50
30,000 Units 10,000/30,000 = 0.33
40,000 Units 10,000/40,000 = 0.25
Unit Fixed Cost
Costs 1.00
0.75
0.50
0.25
10 20 30 40
Units cost falls at a Declining rate as Activity level increase.
Unit Variable Cost
E.g. Direct material per unit of 2.50
Cost
2.50
10 20 30 40
Total Cost = number of units * cost per unit
At Total costs
10,000units 10,000*250 =25000
20,000 units *2.50 = 50,000
30,000units * 2.50 = 75,000
40,000 units * 2.50 = 100,000
Total Variable Cost
Cost per unit
10
.75
.50
.25
Units
10 20 30 40
Total Semi Variable Cost/ Mixed Cost
Fixed cost + Variable Cost
Eg Land Line Telephone
Monthly Rental $50.00
Usage Rate $0.10 per min
At Total Cost
0 Minutes 50 + 0 = 50
30 Minutes 50 + (30*1.10) =53
60 Minutes 50 + (60* 0.10) = 56
90 Minutes 50 + (90*0.10) = $59
59
56
53
Variable
50 Fixed
30 60 90
Total Stepped Cost
E.g., Supervisor Salary 20,000 per month
Oversee the production 50,000 Units per month
Cost
80
60
40
20
Units
50 100 150 200 1000
Unit Fixed Cost
Cost
50 100 150 200
Upper Units of Range at unit Cost
50,00 units $20,000/50,000 =0.40
10,000units $40,000/10,000 = 0.40
150,000 units $60,000/150,000 = 0.40
200,000 units $80,000/200,000 = 0.40
Basic Graph
Activity
a) Fixed
b) Fixed
c) Fixed
d) Variable
e) Semi Variable
f) Semi Variable
g) Fixed
h) Stepped
i) Variable
Activity
The line that cut the x axis represent fixed cost
a) The line would cross the y axis at the point 1488
b) The gradient of the line is 20
c) The independent variable is x
d) The dependant variable is y
The total cost of production
a) The fixed cost 4800
b) The variable cost 8
c) The total cost of producing 1000 units 5600
Y = 4800+ (8*100)
High Low method
Variable cost Highest cost lowest Cost / Highest activity level – Lowest activity
level
9000-7000
400 – 200
= 10/unit
FC =TC-VC
At the Highest activity level
9000-(10*400) = 5000
At the Lowest Activity Level
7000 – (10* 200) = $5000
TC = FC + VC
5000+ (10*350) =$8500
Activity Stepped Cost
Activity Level 4000 6000 75000
Total cost 40,800 50000 54800
Exceed 5500 units
VC = 54800 – 50,000
________________
7500 – 6000 = 3.20 /units
FC = 54800 – 7500 *3.20)
= 30800 This includes the 10% increase
FC without the Increase
Before 100
30800/110 * 100 = 28,000
Increase 10
After 110
Total Cost 28000+(3.20*5000) = 44,000
15/07/23 Management Accounting FMA
Have Homework from first handout.
Materials can be classified as direct or indirect materials
Direct Materials are materials that can be directly attributed to a unit of production.
Indirect Materials are any other materials used in the production process that cannot be
directly attributed to a unit of production.
Proper documentation of inventory movement is important because it will help the
organisation ensure that it has sufficient inventory, that the inventory of the required
quality and that there is no duplication of orders.
ADDITIONAL MATERIALS RECORDS Bin Card
A bin card is used by stores detailing the description of the goods, bin number, re-order level,
reorder quantity, receipts and issues of the item, balance in hand, maximum and
minimum inventory levels and any relevant remarks.
Stores Ledger
Card
Perpetual inventory is recording the receipts, issues and the resulting balances of the
individual items in quantity or quantity and value as they occur. This is done by
updating the stores ledger card which shows the number and value of the items received,
issued and its current balance, as well as, the bin card.
Materials Returned Note
It may become necessary for a user department to return goods to Stores because they
no longer require the items. The user department will complete a materials returned
note which will specify the user department, the goods being retuned and the job it
was requested for.
Materials Transfer Note
The material transfer note is used to record inventory that is transferred from one
department to another. The note is completed by the department making the
transfer detailing the inventory being transferred and to whom. Once completed it is
sent to Stores for confirmation.
PURCHASE CONSIDERATIONS
When a company is considering purchasing inventory it must take into account the
following
1. Maintaining an adequate supply of materials to ensure that the company
does not
suffer from inventory shortages.
2. Minimising its investment in inventory thus minimising costs associated with
storage of
inventory.
3. Obtaining the most economic price which ensures that costs are kept to a
minimum.
4. Minimising losses arising from perishable and obsolete items.
5. Maintenance of adequate records.
6. Determining the quantity required. To determine how much should be purchased the
company can consider its projections of sales in the forthcoming period, the
level of inventory it presently has and how much it wishes to retain in the future.
Sales
Less Opening
inventory Add Closing
inventory Quantity
Required
X
(X)
X
X
PRICING ISSUES OF MATERIALS
If a company operates a Just in Time system it is easy to value the issues of raw
materials. This is so since a Just in Time system means that materials will be ordered so that the
delivery of the items will coincide with the time when they are required for production.
As such, no inventory is held by the company. The values of issues are the prices
paid for the raw materials. However, this is not normally the case since most companies
will retain some inventory.
Inventory is retained by companies because there may
be
> Fluctuations in the demand for the finished goods and therefore production may not
remain constant each period. Any increases in production will require increases
in raw material inputs which can be meet by the inventory held.
➤ Fluctuations in the supply of raw material. If supply is not constant it will be
necessary to hold inventory so that they are available during periods of shortages. ➤
Delays in delivery. If goods are not held and delivery is not as promised the
company may experience production delays and possibly lost sales if no finished
products are available.
The company may take advantage of bulk purchase discounts. These
discounts result from purchasing a specified amount or more of the item. This
amount may exceed the actual requirements for the period so there is
surplus that has to be stored.
Therefore, a business must determine how to value its inventory and its issues of materials to
production. The main methods of valuation include first in first out, last in first out,
continuous weighted average and periodic weighted average.
Production Department
JST Required
High Quality Since poor quality will reduce throughout ad
dependability of supplies
Speed to ensure customers order are met through production
(Not inventory)
Reliability of production no hold up
Flexibility no responds no customer orders (production in
small batches)
Lowe cost can result from high quality production. Faster
throughout and the elimination of errors.
FIRST IN First Out (FIFO)
Date Quantity Unit Cost Total Cost
May 1 100 200
3 200 2.10
5 (100) (200)
50 2.10 (105)
10 (150) 2.10 (305)
10 300 2.20
12 150 2.10
(315)
24 (200) 2.20
(445)
350
(755)
26 (100) 2.20
(220)
( 100) 2.30
(230)
(200)
(450)
Last in First out Method
Date Quantity
Unit Cost Total Cost
1 100 200
3 200 2.10
5 (150) 2.10 (315)
10 300 2.20
12 (300) 2.20 (660)
24 300 2.30
26 (200) 2.30 (460)
Dwring Periods of Inflation
FIFO Result in
Lower Valuation for Issues since older prices are the lower prices
Best Estimate for closing Inventory ( closest reflection of current
prices ) since they are valued at newest prices
Best estimated for closing inventory (Closet reflection of current
prices) Since They are valued at newest prices which are close to
current marilet price s
Overstatement of gross profit since cost of sales is under stated
Lifo Result in
Highest Valuation of issues since newest prices are the highest prices.
Low estimate of closing Inventory since they are valued at the oldest
princes which are the prices
Overstatement of cost of sales and therefore understatement of profit
Continuous Cumulative Weighed Average
Date Oty Unit Total Cost
Date Oty Unit Cost Total Cost
1 100 200
3 200 2.10 420
300 2.07 620
(150) 2.07 (310)
10 300 2.20 660
450 2.16 970
12 (350) 2.16 (754)
100 2.16 970
24 300 2.30 690
400 966/400 = 906
2.265
26 (200) 2.265 (453)
200 2.265 453
Periodic Weighted Average
100 200
3 200 2.10 420
10 300 2.20 660
24 300 2.30 690
900 1970
Average Cost 1970/900 =
Per Unit = 2.19
Issues
5 150 2.19 328
12 350 2.19 766
26 200 2.19 438
760 1532
Closing
Inventory
900 – 700 =200 200 2.19 = 438
unit
