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business
management and cost accounting

Questions and Answers of Management And Cost Accounting

Describe the differences between management accounting and financial accounting. (pp. 6-7)
Explain each of the elements of the decision-making, planning and control process. (pp. 7-9)
Describe what is meant by management by exception.(p. 9)
Explain how the business environment that businesses face has changed over the past decades and discuss how this has had an impact on management accounting. (pp. 9-13)
Describe each of the key success factors that companies should concentrate on to achieve customer satisfaction. (pp. 13-14)
Explain why firms are beginning to concentrate on social responsibility and corporate ethics. (p. 15)
Describe the different functions of management accounting. (pp. 16-18)
Describe enterprise resource planning systems and their impact on management accountants.(p. 12)
Explain why management accounting practices tend not to differ across countries. (p. 16)
Define the meaning of the term ‘cost object’ and provide three examples of cost objects. (pp. 25-26)
Distinguish between a direct and indirect cost. (pp. 26-27)
Describe how a given direct cost item can be both a direct and indirect cost. (p. 28)
Provide examples of each of the following: (a)direct labour, (b) indirect labour, (c) direct materials,(d) indirect materials and (e) indirect expenses. (p. 27)
Explain the meaning of the terms: (a) prime cost,(b) overheads and (c) cost allocations. (pp. 25-28)
Distinguish between product costs and period costs.(pp. 29-31)
Provide examples of decisions that require knowledge of how costs and revenues vary with different levels of activity. (p. 31)
Explain the meaning of each of the following terms:(a) variable costs, (b) fixed costs, (c) semi-fixed costs and (d) semi-variable costs. Provide examples of costs for each of the four categories.
Distinguish between relevant (avoidable) and irrelevant(unavoidable) costs and provide examples of each type of cost. (pp. 34-35)
Explain the meaning of the term ‘sunk cost’. (p. 35)
Distinguish between incremental and marginal costs.(pp. 36-37)
What is an opportunity cost? Give some examples. (35-36)
Explain responsibility accounting. (p. 38)
Basic. Classify each of the following as being usually fixed (F), variable (V), semi-fixed (SF) or semi-variable (SV):(i) direct labour;(ii) depreciation of machinery;(iii) factory rental;(iv)
Basic. The audit fee paid by a manufacturing company would be classified by that company as:(a) A production overhead cost(b) A selling and distribution cost(c) A research and development cost(d) An
Basic. Which ONE of the following costs would NOT be classified as a production overhead cost in a food processing company?(a) The cost of renting the factory building(b) The salary of the factory
Basic. Which one of the following would be classified as indirect labour?(a) assembly workers on a car production line;(b) bricklayers in a house building company;(e) machinists in a factory
Basic. Fixed costs are conventionally deemed to be:(a) constant per unit of output;(b) constant in total when production volume changes;(c) outside the control of management;(d) those unaffected by
Intermediate. A manufacturing company has four types of cost (identified as T1, T2, T3 and T4). The total cost for each type at two different production levels is:Which cost types would be classified
Intermediate. Prepare a report for the managing director of your company explaining how costs may be classified by their behaviour, with particular reference to the effects both on total and on unit
Intermediate. Cost classifications used in costing include:(i) period costs;(ii) product costs;(iii) variable costs;(iv) opportunity costs.Required:Explain each of these classifications, with
Intermediate.(a) Describe the role of the cost accountant in a manufacturing organization. (8 marks)(b)Explain whether you agree with each of the following statements:(i) ‘All direct costs are
Intermediate. ‘Costs may be classified in a variety of ways according to their nature and the information needs of management.’ Explain and discuss this statement, illustrating with examples of
Intermediate. It is commonly suggested that a management accounting system should be capable of supplying different measures of cost for different purposes. You are required to set out the main types
Intermediate.Opportunity cost and sunk cost are among the concepts of cost commonly discussed. You are required:(i) to define these terms precisely; (4 marks)(ii) to suggest for each of them
Intermediate. Distinguish between, and provide an illustration of:(i) ‘avoidable’ and ‘unavoidable’ costs;(ii) ‘cost centres’ and ‘cost units’. (8 marks)
Intermediate: Cost behaviour.Average mileage from one gallon is 25 miles.(a) From the above data, you are required:(i) To prepare a schedule to be presented to management showing for the mileages of
Why are indirect costs not directly traced to cost objects in the same way as direct costs? (p. 49)
Define cost tracing, cost allocation, allocation base and cost driver. (p. 49)
Distinguish between arbitrary and cause-and-effect allocations. (p. 49)
Explain how cost information differs for profit measurement/inventory valuation requirements compared with decision-making requirements. (pp. 50-51)
Explain why cost systems should differ in terms of their level of sophistication. (pp. 51-52)
Describe the process of assigning direct labour and direct materials to cost objects. (p. 53)
Why are separate departmental or cost centre overhead rates preferred to a plant-wide (blanket) overhead rate? (p. 53)
Describe the two-stage overhead allocation procedure.(pp. 54-55)
Define the term ‘activities’. (p. 61)
Describe two important features that distinguish activitybased costing from traditional costing systems. (pp. 61-62)
Why are some overhead costs sometimes not relevant for decision-making purposes? (p. 64)
Why are budgeted overhead rates preferred to actual overhead rates? (pp. 64-66)
Give two reasons for the under-or over-recovery of overheads at the end of the accounting period. (pp. 66-67)
Explain how the cost assignment approach described for manufacturing organizations can be extended to nonmanufacturing organizations. (pp. 68-69)
Basic. A company uses a predetermined overhead recovery rate based on machine hours. Budgeted factory overhead for a year amounted to £720 000, but actual factory overhead incurred was £738000.
Basic. Based on the data below, what is the amount of the overhead under-/over-absorbed?Budgeted overheads $493 200 Budgeted machine hours 10960 Actual machine hours 10493 Actual overhead $514157(a)
Basic. A company has over-absorbed fixed production overheads for the period by £6000. The fixed production overhead absorption rate was £8 per unit and is based on the normal level of activity of
Basic. A company absorbs overheads on machine hours.In a period, actual machine hours were 17 285, actual overheads were £496 500 and there was under-absorption of £12520.What was the budgeted
Basic. Canberra has established the following information regarding fixed overheads for the coming month:Budgeted information:Fixed overheads £180000 Labour hours 3000 Machine hours 10000 Units of
Basic. An engineering firm operates a job costing system.Production overhead is absorbed at the rate of $8.50 per machine hour. In order to allow for non-production overhead costs and profit, a
Intermediate: Overhead analysis and calculation of product costs. A furniture making business manufactures quality furniture to customers’ orders. It has three production departments and two
Intermediate: Calculation of product overhead costs.Bookdon Public Limited Company manufactures three products in two production departments, a machine shop and a fitting section; it also has two
Intermediate: Make or buy decision. Shown below is next year’s budget for the forming and finishing departments of Tooton Ltd. The departments manufacture three different types of component, which
Intermediate: Calculation of ABC product costs.EF manufactures and sells; three products X, Y and Z. The following production overhead costs are budgeted for next year:Required:Calculate the total
Distinguish between an integrated and interlocking accounting system. (pp. 86-87)
Describe the first in, first out, last in, first out and average cost methods of stores pricing. (pp. 87-88)
Explain the purpose of a stores ledger account. (p. 86)
List the accounting entries for the purchase and issues of direct and indirect materials. (pp. 89-92)
List the accounting entries for the payment and the allocation of gross wages. (pp. 93-94)
List the accounting entries for the payment and allocation of overheads. (pp. 94-95)
Explain the circumstances when backflush costing is used. (p. 98)
Describe the major aims of backflush costing.(p. 98)
Explain the purpose of control accounts. (p. 88)
Basic. An organization's stock records show the following transactions for a specific item during last month:The stock at the beginning of last month consisted of 100 units valued at £6700.The
Basic. An organization's records for last month show the following in respect of one store's item:Last month’s opening stock was valued at a total of £2900 and the receipts during the month were
Basic. The following data relate to material J for last month:Using the LIFO valuation method, what was the value of the closing stock for last month?(a) £3300 (b) £3500(c) £3700 (d) £3900 ACCA
Basic. In an integrated bookkeeping system, when the actual production overheads exceed the absorbed production overheads, the accounting entries to close off the production overhead account at the
Basic. XYZ operates an integrated accounting system. The material control account at 34 March 2011 shows the following information:The $125000 credit entry represents the value of the transfer to the
Basic. The following data have been taken from the books of CB pic, which uses a non-integrated accounting system:The effect of these stock valuation differences on the profit reported by the
Intermediate. MN plc uses a JIT system and backflush accounting. It does not use a raw material stock control account.During April 1000 units were produced and sold. The standard cost per unit is
Basic: Stores pricing. Z Ltd had the following transactions in one of its raw materials during April:You are required to:(a) Write up the stores ledger card using (i) FIFO and (ii) LIFO methods of
Intermediate: Integrated accounts. In the absence of the accountant you have been asked to prepare a month’s cost accounts for a company which operates a batch costing system fully integrated with
Intermediate: Backflush costing.(a) Explain the term ‘backflush accounting’ and the circumstances in which its use would be appropriate. (6 marks)(b) CSIX Ltd manufactures fuel pumps using a
Describe the differences between process costing and job costing. (pp. 107-108)
What are equivalent units? Why are they needed with a process costing system? (pp. 114-115)
Why is it necessary to treat ‘previous process cost’ as a separate element of cost in a process costing. (p. 116)
How is the equivalent unit cost calculation affected when materials are added at the beginning or at a later stage of the process rather than uniformly throughout the process?
Describe how the weighted average and FIFO methods differ in assigning costs to units completed and closing work in progress. (p. 117)
Under what conditions will the weighted average and FIFO methods give similar results? (p. 121)
Explain the distinguishing features of a batch/operating costing system. (p. 122)
What are the implications for the accounting treatment of normal and abnormal losses if losses are assumed to be detected (a) at the end of the process, and (b) before the .end of the process? (pp.
Basic. R makes one product, which passes through a single process. Details of the process account for period 1 were as follows:There was no work in progress at the beginning or end of the period.
Basic. A company uses process costing to value its output.The following was recorded for the period:There were no opening or closing stocks.What was the valuation of one unit of output to one decimal
Basic. A company which operates a process costing system had work in progress at the start of last month of 300 units (valued at $1,710) which were 60 per cent complete in respect of all costs.Last
Basic. The following details relate to the main process of W Limited, a chemical manufacturer:2000 litres, fully complete as to materials and 40%complete as to conversion Opening work in progress
Basic. The following information is required for sub-questions(a) to (c).The incomplete process account relating to period 4 for a company which manufactures paper is shown below:Losses are
Basic. A company operates a process costing system using the first in, first out (FIFO) method of valuation. No losses occur in the process. All materials are input at the commencement of the
Basic. A company operates a process costing system using the first in, first out (FIFO) system of valuation. No losses occur in the process. The following data relate to last month:Last month the
Intermediate. CW Ltd makes one product in a single process.The details of the process for period 2 were as follows:There were 800 units of opening work in progress valued as follows:There were 500
Intermediate: Preparation of process accounts with all output fully complete. ‘No Friction’ is an industrial lubricant, which is formed by subjecting certain crude chemicals to two successive
Intermediate: Losses in process (weighted average).Chemical Processors manufacture Wonderchem using two processes, mixing and distillation. The following details relate to the distillation process
Intermediate: Equivalent production with losses (FIFO method). Yeoman Ltd uses process costing and the FIFO method of valuation. The following information for last month relates to Process G, where
Define joint costs, splitoff point and further processing costs.(p. 135)
Distinguish between joint products and by-products. (p. 135)

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