ACCA F2 Management Accounting (MA)
The exam • 2 hours Marks • Forty 2-mark questions 80 • Ten 1-mark questions 10 90 • Pass mark – 50%
Chapter 1 The nature and purpose of management accounting
The nature and purpose ofmanagement 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 consists of numbers, letters, symbols, raw facts, events and transactions which have been recorded but not yet processed into a form suitable for use. • Information is 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: • A – Accurate • C – Complete • C – Cost-effective • U – Understandable • R – Relevant • A – Accessible • T – Timely • E – Easy-to-use!
Responsibility Centres An part of the business whose manager has personal responsibility for its performance. Cost Centre Responsibility Centre Investment Centre Profit Centre Revenue Centre Managers to plan & control areas of performance on which they are measured.
Chapter 2 Types of cost and cost behaviour
Production Costs Production costs are those incurred when raw materials are converted into finished and part-finished goods.
Non-Production Costs Non- Production costs are costs not directly associated with the production processes in a manufacturing organisation.
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
Cost Behaviour – variable cost The way in which costs vary at different levels of activity • A cost that varies with the level of activity, e.g. Material cost
Cost behaviour – Fixed Costs A cost that, within certain output and sales revenue limits, is unaffected by changes in the level of activity. 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.
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
Cost behaviour – Hi-low method Costs are analysed into variable & fixed elements using the hi-low method. Step1 : Select high and low activity levels and their associated costs. Step 2 : Variable Cost per unit = Change in Cost / Change in level of activity Step 3 : Find fixed cost by substitution Fixed cost per unit = Total cost – (Variable Cost per unit * Number of units)
Chapter 3 Business Mathematics
Expected Values The weighted average of a probability distribution, used in simple decision-making situations. EV = ∑px Where p = probability of outcome occurring x = outcome. • When using Expected Values : • Only accept projects if EV is positive • With mutually exclusive options, accept the one with the highest EV.
Expected Values - Limitations • Expected values : • Use past data and estimates, which may be inaccurate • Are not always suitable for one-off decisions as they are long-term average. The expected value might never occur for any single result • Do not take into account the time value of money • Do not take into account the decision maker’s attitude to risk.
Regression If 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.
Regression In the context of cost estimation : y represents the total cost xrepresents the production volume in units a represents the total fixed costs b represents the variable cost per unit (Given)
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.
Coefficient of determination r² shows how much of the variation in the dependent variable is dependent on the variation of the independent variable. E.g. If r = 0.95, r² = 0.90 or 90% This means that 90% of the variation in y (costs) is explained by the variation in x (level of output).
Chapter 4 Ordering and Accounting for Inventory
Chapter 5 Order Quantities and Reorder Levels
Holding & Ordering Costs Minimise total of holding, ordering and stock-out costs
Economic Order Quantity The EOQ minimises the total of holding, ordering & stock-out costs √ 2C0D EOQ = Ch Where : D = demand p.a. C0 = Cost of placing one order Ch = cost of holding one unit per year Annual ordering costs =C0D/Q Annual holding cost = Ch*Q/2
Economic Batch Quantity The number of manufactured items to produce in a batch, to minimise total costs √ 2C0D Ch(1-D/R) EBQ = Where : D = demand p.a. C0 = Cost of setting up batch Ch = cost of holding one unit per year R = Annual replenishment (annual production) rate Annual setup costs =C0D/Q Annual holding cost = Ch*Q/2 (1-D/R)
Re-order levels The pre-determined level of inventory at which 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 stock) = Re-order level – (average usage *average lead time) Average inventory = (Re-order quantity / 2) + minimum inventory
Chapter 6 Accounting for Labour
Direct or Indirect Costs? ‘Type’ of worker Directly involved in making products Indirect workers (Maintenance staff, supervisors, Canteen • Direct Labour cost • Basic Pay • Overtime Premium ‘on specific job’, ‘at customer’s request’ • Indirect Labour cost • General O/T premiums • Bonus payments • Idle time • Sick pay • Time spent on indirect jobs Indirect Labour cost ALL COSTS Dr Bank – Labour Costs Incurred Cr WIP – Direct Labour Costs Cr Production Overheads – Indirect Labour Costs