ACCA Paper F2 – Management accounting

ACCA Paper F2 – Management accounting Course slides For exams to June 2008

Syllabus

Examiner & Format of the Exam Examiner: David Forster

The BPP Learning Media classroom slides What do these slides cover? • A selection of key areas of the syllabus Using the slides • Use the slides as a point of reference • Add detail by talking around the slides (eg using material from the corresponding Study Text chapter) • Consider adding slides yourself to suit your course • Recommend students attempt appropriate questions from the Practice & Revision Kit

Chapter 1 Study Text Chapter 1 Information for management

Purpose • Assist management in running their business to achieve an overall objective • What is the overall objective of a business?

Data and information • Data is the RAW MATERIAL • Information is the PROCESSED DATA

Planning, control and decision making • Planning – Long term strategies – Short term targets • Control –Performance of the organisation –Review corporate plan • Decision making –autonomy of managers

Key roles of a management accountant • Costing • How to put a cost on our products and services • Decision-making • What to produce/how should we finance it etc • Planning • Assessment of business requirements/budgeting • Control • Assessing inefficiencies • Performance Evaluation • Comparison to targets

Question practice – end of Chapter 1 You should now be able to attempt the following question sets from the BPP Learning Media Practice and Revision Kit. Set 1 Set 20 You should now be able to attempt the following questions from BPP Learning Media i-Pass. Test 1: Information for management

Chapter 2 Study Text Chapter 2 Cost classification

Introduction • Arrange costs into logical groups • By function e.g. production, admin, finance • By nature e.g. labour, materials, stationery • Grouping by function: Pool of costs Production costs Non production costs

Introduction • Grouping by nature: Pool of costs materials Labour Expenses

Cost classification DirectProd’n cost Admin costs Indirect Prod’n cost Selling & Distribution £ Production costs X Non-production costs X TOTAL COST/EXPENSES X

Cost classification Direct Production costs Direct materials X Direct labour X Direct expenses X Indirect Production costs Indirect materials X Indirect labour X Indirect expenses X Total Production costs X Non-production costs Administration costs X Selling and distribution costs X TOTAL COSTS X

A typical cost card for a cost unit Direct Production costs Direct materials (5kg @ $3/kg) 15.00 Direct labour (3hrs @ $6/hr) 18.00 PRIME COST 33.00 Indirect Production costs Variable overheads 2.00 Fixed overheads 3.00 FULL PRODUCT COST 38.00

Terminology • Cost object • Cost unit • Divisional structures • Cost centre • Profit centre • Revenue centre • Investment centre

Question practice – end of Chapter 2 You should now be able to attempt the following question sets from the BPP Learning Media Practice and Revision Kit. Set 2 Set 21

Chapter 3 Study Text Chapter 3 Cost behaviour

Accountant’s Linear Assumption • Economist’s version • Accountant’s version Total cost ($) Variable cost (VC) Fixed cost (FC) output Y = a + bX Total cost = Fixed cost + (VC/unit x Output)

‘Hi-Low’ Method Four step approach • Find the highest and the lowest output and the total costs at these levels of output. • Find the difference in output units and total cost. • Calculate the variable cost per unit (VC/unit). • Calculate the fixed cost by substitution.

Question practice – end of Chapter 3 You should now be able to attempt the following question sets from the BPP Learning Media Practice and Revision Kit. Set 3 Set 22 You should now be able to attempt the following questions from BPP Learning Media i-Pass. Test 2: Cost classification and behaviour

Chapter 4 Study Text Chapter 4 Correlation and regression; expected values

Costs vs output - scattergraph $ y = a + bx (y) dependent variable output (x) independent variable

Linear regression a = y - b x n n • Finds the mathematical line of best fit b = nxy - xy nx2 - (x)2 y = a + bx

Correlation coefficient r = nxy - xy ([n(x2) - (x)2][n(y2) - (y)2]) -1 < r < +1 - perfect positive correlation r = +1 - perfect negative correlation r = -1 - no correlation r = 0

Coefficient of determination The amount of variation in y which appears to be explained by variation in x Does NOT prove “cause and effect” Coefficient of determination = r2

Expected Values • Long term weighted average of possible outcomes: • Expected Value (EV) = np • If +ve EV = accept • If -ve EV = reject

Chapter 5 Study Text Chapter 5 Spreadsheets

Definition • Electronic piece of paper • Divided into rows and columns • Data is input into ‘cells’ i.e. A5, D8 • Data can either be numbers, text or symbols • Output is derived by applying a formula to data cells e.g. addition A5 + D8

Uses of spreadsheets • Preparation of management accounts • Cash flow analysis, budgeting and forecasting • Account reconciliation • Revenue and cost analysis • Comparisons and variance analysis • Sorting and categorisation of data

Formulae with conditions • We can build a range of options into our data • = IF (logical_test, value_if_true, value_if_false) Example • = IF (A5>500,”Hurray!”,”More Sales Please!”)

Presentation of spreadsheets • Split into sections; Inputs, Calculations and Results • Use titles and column and row headings • State data source and purpose of spreadsheet • Apply consistent format i.e. 2 decimal places • Use colours, borders and shadings to highlight and differentiate

Question practice – end of Chapter 5 You should now be able to attempt the following question sets from the BPP Learning Media Practice and Revision Kit. Set 5 Set 24 You should now be able to attempt the following questions from BPP Learning Media i-Pass. Test 3: Business maths and spreadsheets

Chapter 6 Study Text Chapter 6 Material costs

Order, receipt and issue of raw materials Purchase requisition Purchase order Goods received note

Accounting for materials Materials inventory account (1) Material purchased (2) Issues to production __ __ c/d closing inventory balance X X X X X

Monitoring inventory levels • To maintain accurate records of inventory • Visual methods of inventory control • Theoretical methods of inventory control • Re-order level • Minimum level • Maximum level Learn for the exam

Costs associated with stock P x D + C x D/Q Order costs + H x Q/2 Holding costs = TOTAL COSTS WANT TO MINIMISE THESE Purchase costs

Economic order quantity • Number of units to order to minimise costs Given in Exam

Discounts • Available above a certain order quantity • Is it worth ordering above the EOQ to get the discount? • Steps: • Calculate EOQ • Recalculate EOQ if it falls within a discount band • Calculate total costs at EOQ • Calculate total costs at the lower boundary of each discount band

Economic batch quantity • Used when stock replenished gradually • internally or; • from supplier • Similar to EOQ but factors in replenishment rate • Total EBQ never held in stock – as stock is being replenished during the period

Economic batch quantity Given in Exam

Chapter 7 Study Text Chapter 7 Labour costs

Method of remuneration • Piecework systems • Bonus/incentive schemes • Time-based systems

Measuring labour activity • Productivity • Standard hours of production • Efficiency x capacity = production volume

Accounting for labour costs • Direct or Indirect labour – learn the rules • Ledger accounting • Dr Wages account Gross wages • Cr Bank / PAYE / NIC accounts • Dr WIP account Direct wages • Cr Wages account Direct wages • Dr Production o/h Indirect wages • Cr Wages account Indirect wages

Labour turnover • The rate at which employees leave the company • Reasons may be controllable or uncontrollable by the company

ACCA Paper F2 – Management accounting