F2 Pocket Note Kap

http://freeaccastudymaterial.
com
fb.com/freeaccastudymaterial
To download more visit http://freeaccastudymaterial.com

ACCA F2
FIA FMA
Management Accounting
join us on facebook @ fb.com/freeaccastudymaterial

Core syllabus areas

2

The exam

2 hours
Marks
Thirty-five 2-mark questions 70
Three 10-mark questions 30
100
Pass mark 50%


Chapter 1
The nature and purpose of management accounting

The nature and purpose of

management accounting

Data and information.
Planning, decision making and control.
Responsibility centres.
The role of management accounting.

Data and information

Data and information are different.
- Data = numbers, letters, symbols, raw facts, events and transactions
which have been recorded but not yet processed into a form suitable
for use.
- Information = data which has been processed in such a way that it is
meaningful to the person who receives it (for making decisions).

Good information

The ACCURATE acronym:
- Accurate
- Complete
- Cost-effective
- Understandable
- Relevant
- Accessible
- Timely
- Easy-to-use!

Planning, decision making and control

8

Mission Statements

A statement in writing that describes the overall aims of
an organisation
Four key elements:

Purpose
Strategy
Policies and culture
Values

Strategic, technical and operational planning

10

Responsibility Centres
A part of the business whose manager has personal responsibility

for its performance.
Cost Centre
Profit Centre Responsibility Centre Investment

Centre
Revenue Centre
Managers plan and control areas of performance on which they are
measured.
11

Management Accounting versus Financial

Accounting

12

Management Accounting versus Financial

Accounting

Management Accounting Financial Accounting
Information mainly Internal users, e.g. External users e.g.

produced for Managers and employees Shareholders, payables, lenders,
banks, government
Purpose of To aid planning, control To record financial performance
information and decision making and position in a period
Legal requirements No Yes (limited companies)
Formats No set format managers Limited companies must produce
decide on content & financial accounts
presentation
Nature of Financial & non-financial Mostly financial
information
Time period Historical & forward- Mainly an historical record
looking
13


Chapter 2
Sources of information
14

Internal and External sources

Internal External
Accounting system Government
Payroll system Other businesses
Planning system Trade associations
Financial and
Business press
Internet
15

Types of Sampling
Multi-stage large

Random any
member of population population, broken
has equal chance of down into smaller
being chosen chunks, sample
Systematic random chosen at random
initial number then from chunk
regular number after Cluster as above
Stratified population but all of small chunk
is grouped and sample is sample
randomly chosen
Quota known
number to sample
16


Chapter 3
Presenting information
17

Simple bar chart

18

Component bar chart

19

Compound (multi) bar chart

20

Line chart

21

Pie chart

22


Chapter 4
Types of cost and cost behaviour
23

Cost Objects, Units & Centres

Cost
centre
Cost
object
Cost
unit
24

Classifying costs

25

Production Costs

Production costs are those incurred when raw materials
are converted into finished and part-finished goods.
26

Non-Production Costs

Non-Production costs are costs not directly associated with the
production processes in a manufacturing organisation.
27

Direct and Indirect costs

Direct costs : costs which can be directly identified with a

specific unit or cost centre
Total of direct costs =

Direct Materials + Direct labour + Direct expenses =
Prime Cost
Indirect costs : costs which can not be directly identified

with a specific unit or cost centre
Indirect costs =
Indirect Materials + Indirect labour + Indirect expenses =
Overheads
28

Cost Behaviour Variable cost

A cost that varies in total in direct proportion with the level of activity, e.g.
Direct material cost. The cost per unit of product is constant.
29

Cost behaviour Fixed Costs

A cost that, within certain activity levels, is unaffected by changes in the

level of activity.
30

Cost behaviour Stepped-Fixed Costs

Stepped Fixed Costs: A fixed cost which is only fixed within a certain
level of activity. Once the upper level is reached, a new level of fixed
costs becomes relevant.
31

Cost behaviour Semi variable costs

A cost with a fixed and a variable element, e.g.telephone charges with fixed
line rental and charge per call
32

Cost behaviour Hi-low method

Costs are analysed into variable and fixed

elements using the hi-low method.
Step1 :
Select highest and lowest activity levels and their
associated costs.
Step 2 :
Variable cost per unit
=
Change in Cost / Change in level of activity
Step 3 :
Find the fixed cost by substitution
Fixed cost per unit
=
Total cost (Variable cost per unit Number of
units)
33

Cost equations

Cost equations are assumed to have a linear function and therefore
the equation of a straight line can be applied:
y = a + bx
Where:
y = total cost
a = fixed cost
b = variable cost per unit
x = activity level
34

Cost Card

The cost car for a cost object, unit or centre brings
together all the costs relating to it.
35


Chapter 5
Accounting for Inventory
36

Ordering, Receiving and issuing materials

37

Inventory documentation
Information
Document Completed by Sent to

included
Goods required
Purchase Production Purchasing
Managers
Requisition form department department
authorisation
Supplier
Purchase order Purchasing Accounting (copy)
Goods required
form Department Goods receiving
department (copy)
Check of goods
Goods Receiving delivered against
Delivery note Supplier
Department order form
Verification of
Goods Received Goods receiving Purchasing
goods received to
Note department department
enable payment
38

Inventory documentation

Document Completed by Information
Sent to
included
Materials Production Stores Authorisation to
requisition note department release goods
Update stores
record
Materials returned Production Stores Details of goods
notes Department returned to stores
Update stores
record
Materials Transfer Production Production Goods transferred
notes Department A Department B between
departments
Update stores
records
39

Holding & Ordering Costs

Stock-out costs : Holding costs: Ordering costs :
running out of inventory holding inventory placing orders

Fixed costs
Cost of storage Administrative
Loss of sales
space, insurance costs
Variable costs
Loss of customers Interest on capital Delivery
and goodwill tied up in
inventory
Order costs vary

Reduced profits with number of
orders placed
Minimise total of holding, ordering and stock-out costs
40

Re-order levels
The pre-determined level of inventory when reached an

order is placed, to avoid stock-outs.
Re-order level = usage per day lead time in days
When lead time and demand in lead time is not constant :
Re-order level = maximum usage maximum lead time
Maximum Inventory level = Re-order level + re-order quantity

(minimum usage minimum lead time)
Minimum Inventory level (buffer inventory) = Re-order level
(average usage average lead time)
Average inventory = (Re-order quantity / 2) + minimum inventory
41

Economic Order Quantity

The EOQ minimises the total of holding, ordering &

stock-out costs
EOQ =
2CoD
Ch
Where :
D = annual demand
Co = Cost of placing one order
Ch = cost of holding one unit per year
Annual ordering costs = Co D/Q
Annual holding cost = Ch Q/2
42

Bulk Discounts

43

Economic Batch Quantity

The number of manufactured items to produce in a batch,

to minimise total costs
EBQ =
2CoD
Ch(1-D/R)
Where :
D = annual demand
Co = Cost of setting up one batch
Ch = cost of holding one unit per year
R = Annual replenishment (annual production) rate
Annual setup costs = CoD/Q
Annual holding cost = Ch*Q/2 (1-D/R)
44

Control Procedures

45

Inventory valuation

First in First Out (FIFO)
Last in First Out (LIFO)
Weighted Average (AVCO or WACO)
46

Double entry

47


Chapter 6
Accounting for Labour
48

Direct or Indirect Costs?

Type of worker

Indirect workers
Direct workers - directly involved in
(Maintenance staff,
producing output supervisors, Canteen)
Direct Labour cost Indirect Labour cost
Basic Pay General overtime

Indirect labour cost
premiums
Overtime Premium Bonus payments
on specific job, at
customers request
Idle time
Sick pay
ALL COSTS
Time spent on indirect
jobs
49

Double entry

Dr Bank Labour Costs Incurred
Cr WIP Direct Labour Costs
Cr Production Overheads Indirect Labour Costs
50

Remuneration Methods
Time Based Schemes

Total Wages = (hours worked basic pay/hour) + (overtime hrs worked
overtime premium/hour)
Higher quality if workers are happy to spend longer on units to get them right;
However, no incentive to improve productivity.
Piecework Schemes
Total Wages = Number of units completed agreed rate per unit.
May involve a guaranteed minimum wage

May use a higher rate per unit once productivity target achieved
Higher productivity at the expense of quality?
Other Schemes e.g. Flat salary and bonus
Bonus Schemes individuals or groups
51

Labour Turnover

52

Labour Related Ratios

53


Chapter 7
Accounting for Overheads
54

Absorption costing

OVERHEADS
Step1 : Overhead
allocated or apportioned
to cost centres using Production Production Service Service
suitable bases Department Department Department Department
A B C D
Step 2 : Service cost
centres reapportioned to
production cost centres A B
Step 3 : Overheads
absorbed into output
Cost Unit
55

Absorption costing
Step1 : Allocation is the charging of overheads directly to specific departments where

they can be identified directly with a cost centre or cost unit.
Apportionment is the sharing of overheads which relate to more than one
department on a fair basis.
Step 2 : Service department costs need to be reapportioned to the production

departments, using a suitable basis linked to usage of the service.
Step 3 : Costs within production cost centres are charged to a cost unit, using Overhead
absorption rates (OAR) based on :
Labour or machine hours
% of direct labour cost
OAR = Budgeted overheads / Budgeted level of activity
56

Under and over absorption

Overhead
Absorbed Under- or
Actual
OAR Actual over-
activity
overhead absorbed
incurred overhead
If Absorbed overhead > Actual overhead = over-absorbed

If Absorbed overhead < Actual overhead = under-absorbed
57

Ledger Accounting

In Production Debited to one
Overheads of the non-
Account production OH
accounts
Indirect Non-
Production production
Costs Overheads
Over- or
Absorbed
under-
Production
absorption
Overheads
Transferred to overheads Credited to the
income work in
statement at progress or
the end of the production
period account
58


Chapter 8
Marginal and Absorption Cost
59

Marginal costing and Contribution

Sales Revenue

Variable cost
Variable Production and Non-production cost
CONTRIBUTION
Fixed Costs
Fixed Production and Non-production cost
PROFIT
60

Absorption and marginal costing

ABSORPTION COSTING MARGINAL COSTING

Valuing units Total production cost Marginal (variable)
production cost
Valuing inventory Opening and closing Opening and closing
inventory valued at total inventory valued at
production cost marginal cost
Fixed production Carried forward from one Fixed costs charged in
overheads period to the next as part of full against profit in the
the closing / opening period in which they
inventory valuation. Only hit are incurred
profit when units are sold.
61

Absorption and marginal costing

ABSORPTION COSTING MARGINAL COSTING

Adjusting for Yes in the income None needed
over- or under- statement
absorption
Impact of Gives higher profit Gives lower profit
increase in
inventory levels
Impact of Gives lower profit Gives higher profit
decrease in
inventory levels
Inventory level Same profit under both systems
constant
62

Profit Statements
Sales Revenue Sales Revenue

Cost of sales
Cost of sales
Over/Under absorption
Variable non-production costs incurred
Gross Profit
Contribution
Variable non-production costs
Fixed costs
Fixed non-production costs
Net Profit / (Loss) Net Profit / (Loss)
63

Reconciliation

MARGINAL COSTING PROFIT
Change in inventory Fixed OAR
ASORPTION COSTING PROFIT
64

Absorption versus Marginal

65


Chapter 9
Job, Batch and Process Costing
66

Job Costing

Each job
is unique
Produce
a cost
card for
each job.
Use the same
principles of
costing
67

Batch Costing

Each batch
is different,
but items
within batch
are identical.
Determine
total cost of
batch.
Cost per unit : Total

Cost of batch /
Number of units in
a batch.
68

Process Costing - Features

Production is continuous.
Difficult to identify units of production.
Closing WIP
Output of one Period 1
process = By- products
Part-finished
= Losses and joint
input of next units
Opening WIP products
process
Period 2
69

Process Costing Losses & Gains

Normal Abnormal Abnormal
Losses losses Actual Losses Gains
> Normal Actual Losses
EXPECTED losses < Normal
to occur
losses
Pickup a
share of
process costs Abnormal
Do not pick up
gains debit
a share of
the process
process costs
Valued like a account
unit of good
Sometimes output
sold for scrap Benefit credits
credit the income
process Written off in statement
account. income
statement
Remember to
Cost reduced Credit the
by scrap scrap account
proceeds
70

Steps for answering questions

1 Draw

process
account
7 Value Good 2 Enter
output and
Abnormal Loss inputs and
or Gain value()
3 Enter
6 Calculate
Normal Loss
Average Cost
units and
per unit
scrap value
5 Balance
units 4 Enter
column with Good
Abnormal Output
Loss or Units only
Gain
71

WIP Equivalent Units

Any incomplete units at the beginning or the end

of a period are valued using the concept of
Equivalent Units (EU).
Process
costs can
E.g. 100 be spread OWIP
All material
physical evenly Conversion valued
is input is at
units, half between costs input using
start of the
completed completed over time AVCO or
process
= 50EUs and part- FIFO
completed
units.
72

OWIP Equivalent Units

2
AVCO FIFO
Methods
Opening WIP
Opening units are
inventory values completed first.
are added to
current costs to Process costs in
the period allocated
calculate the
between :
average cost per Opening WIP units
unit Units started and
completed in period
Closing WIP Units
73

Losses part way through production

74

Joint and by-products

75

Joint and by-products

Accounting
Treatment
76


Chapter 10
Service and Operation Costing
77

Service and operation costing

HETEROGENEITY INTANGIBILITY
Output from service

industries is different
from product of
manufacturing.
SIMULTANEOUS
PERISHABILITY PRODUCTION and
CONSUMPTION
78

Suitable Cost Units

May be
Based on their
necessary to use More than one
relevance to the
composite cost type of cost unit
service provided
units
Service Possible Cost Unit
Hotel Cost per guest per night
Transport Cost per passenger mile
College Cost per student
Hospital Cost per patient day / cost per

procedure
79

Service Cost Analysis

Labour may be the only
direct cost Overheads are likely to be
absorbed using labour
hours
80


Chapter 11
Alternative costing principles
81

Activity based costing

82

Target costing

83

Product life cycle

84

Total Quality Management (TQM)

85

TQM

86


Chapter 12
Forecasting Techniques
87

Regression

x is the independent variable and y the dependent variable,
least squares regression finds the line of best fit through the
scatter diagram.
y = a + bx
Where a is the y value when x is 0, and b is the change in y

when x increases by one unit.
88

Regression
In the context of cost estimation:

y represents the total cost
x represents the production volume in units
a represents the total fixed costs
b represents the variable cost per unit
(Given)
89

Correlation Coefficient
r measures the strength of a linear relationship between two

variables.
-1 < r < 1
If r = 1 perfect positive correlation

If r = 0, no correlation
If r = -1, perfect negative correlation.
(Given)
Correlation does not prove cause and effect it merely suggests it.
90

Coefficient of determination
r shows how much of the variation in the dependent

variable is dependent on variation in the independent
variable.
E.g. If r = 0.95, r = 0.90 or 90%
This means that 90% of the variation in y (costs) is

explained by the variation in x (level of output).
91

Time series analysis

Trend Seasonal variation
Component
Residual or random
Cyclical variation
variation
92

Index numbers

Chain
based
Simple Weighted
Types
93


Chapter 13
Budgeting
94

Purpose
A quantitative expression of a plan of action prepared in

advance. It sets out the costs and revenues that are
expected in future periods.
Planning
Co-ordinating Activities Controlling Costs
Budgeting
Communication of targets Performance Evaluation
Motivation Authorisation of expenditure
95

Preparing Budgets
Define the long-term objectives of the business

Form budget committee to communicate budget
policy, set and approve budgets.
Produce budget manual
Identify principal budget factor
Produce budget for principal budget factor
Produce and approve other budgets based on

budget for limiting factor
Review variances
96


Motivation
Behavioural
Aspects
Participative Incentive
budgeting schemes
97

Functional budgets

Sales
Budget
Overheads Production
Budget Budget
Functional
Budgets
Raw
Labour Material
Budget Usage
Budget
Raw
Material
Purchases
budget
98

Functional budgets

99

Functional budgets

100

Cash budgets

101

Control cycle

Budget
agreed
Next years
Expenditure
budget
agreed
prepared
Budget
Reasons
versus
identified
actual
102

Fixed, flexible and flexed budgets

Fixed Flexible Flexed
Budget Compares budget Prepared at the budget
start of the Changes as the
Original Budget
period, for volume of activity
with actual
different possible changes
results
levels of activity
Remains
unchanged even Useful for
Best, Most Likely,
budgetary control
though level of Worst
activity changes purposes
Cost behaviour
Does not assist
of the different
in variance
items in the
analysis
original budget
103

Flexed Budgets and budget variances

Variances are differences arising between the original

budget and actual results.
Volume Variance Expenditure Variance
Fixed Budget Flexed Budget Actual results
Original Original Actual

expenditure levels expenditure levels expenditure levels
for budgeted for actual activity for actual activity
activity level level level
Total Variance
104


Chapter 14
Capital budgeting
105

Relevant Cash Flows

INCREMENTAL
CASH FUTURE
Relevant
Cash
flow
106

Types of interest

Simple Compound
interest interest
Nominal Effective
interest interest
rate rate
107

Payback period

108

Net present value

109

Internal rate of return

110

Annuities and perpetuities

111


Chapter 15
Standard Costing
112

The purpose of standard costing

Standard Costing is a
control tool for management.
Standard Costs are

collected on a standard cost
card. They may be based on
Absorption Costing or
Marginal Costing.
113

Advantages and Disadvantages of Standard

Costing

114

Types of standard
Ideal

What would be expected under perfect operating conditions
Attainable Types of Standards Basic

What would be
A standard left
expected under
unchanged from
normal operating
period to period
conditions
Current
A standard adjusted for specific issues relating to the current
period
115

Sales Volume Variance

Marginal costing Absorption costing
Budgeted Budgeted
sales sales
Standard Standard
contribution profit per
per unit
unit
Actual Actual
sales sales
116

Sales Price Variance

Budgeted
selling
price
Actual
quantity
sold
Actual
selling
price
117

Direct Materials Variances

118

Direct Labour Variances

119

Variable Overhead variances

120

Fixed Overhead Variances

Marginal Costing
Fixed Production Overheads Total Variance
Expenditure
Variance
121


Absorption Costing

Fixed Production Overheads Total Variance
Expenditure Volume
Variance Variance
Efficiency Capacity
Variance Variance
122


Absorption Costing

Under- or over-absorption of overheads
Budgeted Fixed (Actual Production in

Overhead standard hours OAR)
Budgeted FOH
Actual Fixed
Overhead (Actual hours (Actual Hours
taken standard worked
hours for output budgeted hours
achieved) OAR worked) OAR
123

Causes of Variances

124

Causes of Variances

125


Chapter 16
Performance measurement
techniques
126

Financial performance profitability

127

Financial performance - liquidity

128

Financial performance - risk

129

Non Financial performance

Quality
Wastage
Customer satisfaction
Growth in sales
Product
improvements
Job satisfaction
130

Balanced scorecard

131

Benchmarking
Internal

Strategic Benchmarking Competitive
Functional
132


Chapter 17
Performance measurement
in specific situations
133

Divisional performance

134

Manufacturing industries

Contract Job
costing costing
Batch Process
costing costing
135

Service sector

Financial Quality
Revenue Staff costs
per product as a % of
group revenue Customer Management
surveys inspections
Space costs
Market
as a % of
share Fault Quality
revenue
monitoring control
Current ratio
136

Non-profit and public sector

Economy
Efficiency
Effectiveness
Value for Money
137


Chapter 18
Spreadsheets
138

Uses of spreadsheets

Budgets
Reports Uses Variances
What-if
139

http://freeaccastudymaterial.com
fb.com/freeaccastudymaterial

F2 Pocket Note Kap

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

F2 Pocket Note Kap

Uploaded by

Copyright:

Available Formats

http://freeaccastudymaterial.

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

Core syllabus areas

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial.com

Pass mark 50%

join us on facebook @ fb.com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial.com

The nature and purpose of management accounting

join us on facebook @ fb.com/freeaccastudymaterial

The nature and purpose of

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

Data and information

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

Planning, decision making and control

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial.com

Four key elements:

join us on facebook @ fb.com/freeaccastudymaterial

Strategic, technical and operational planning

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial.com

Profit Centre Responsibility Centre Investment

join us on facebook @ fb.com/freeaccastudymaterial

Management Accounting versus Financial

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

Management Accounting versus Financial

To download more visit http://freeaccastudymaterial.com

Information mainly Internal users, e.g. External users e.g.

join us on facebook @ fb.com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

Internal and External sources

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

Simple bar chart

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

Component bar chart

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

Compound (multi) bar chart

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial.com

join us on facebook @ fb.com/freeaccastudymaterial

To download more visit http://freeaccastudymaterial.com

Types of cost and cost behaviour

join us on facebook @ fb.com/freeaccastudymaterial