FIA MA1Management Information2012

FIA MA1The Syllabus:Cost and management accountingSource documents and codingCost classification and measurementRecording costsProviding informationSpreadsheets

FIA = MA1The exam:50 multiple choice questions worth 2 marks eachTime allowed: 2 hours2.4 minutes per questionCan be sat as a paper-based or computer-based exam

Business organisationFunctions of an office:PurchasingSalesControl of inventory, accurate record keepingInformation processingFilingCopying, typing, information

Business organisationCentralisation:Procedures are done centrally

Decentralisation:Each department has their own, independent office

Business organisationOrganisation chart:Names of individualsLine structureLevels of authorityLines of communication

Business informationPersonnel:Managing DirectorSales ManagerMarketing ManagerFinance ManagerProduction ManagerR & D ManagerHR ManagerAdmin ManagerIT Manager

Business organisationLayout:Open planLandscapedCorridor

Business organisationOrganisational information:Manual of best practiceOrganisation chartStaff planning chartCompany handbook

Business organisationDouble-entry bookkeeping:Books of prime entry =PDBPRDBSDBSRDBCBPCBJournals

Business organisationComputerised accounting:Batch processingReal-time processingIntegrated computerised accounting systems

Management informationFunctions of management:PlanningControllingOrganisingCommunicatingMotivatingDecision-making

Management informationEffective management information:RelevantReliableUnderstandableCompleteAccurateTimelyClearConsistentCost effective

Management informationSources:Internal various department in the company .e.g. Sales, production, personnelExternal Internet, journals, HMRC, banks, competitors, suppliers, customers

Management informationManagement accounts Internal, futuristic, detailed, monthly, any formatFinancial accounts External, historic, summarised, yearly, prescribed format

Management informationResponsibility centres:Cost centreProfit centreInvestment centre

Cost classificationsProduct costPeriod costControllable and uncontrollable costsDirect costsIndirect costsVariable costsFixed costsSemi-variable costsStepped costs

CodingTypes:BlockHierarchicalFacetedMnemonic

Materials costTypes of inventory:Raw materialWork in progressFinished goods

Materials costDirect materials .e.g. Wood in the manufacture of furnitureIndirect materials .e.g. Oil for the lubrication of the wood cutting machine

Materials costMaterials paperwork:Purchase requisitionPurchase order (PO)Delivery noteGoods received note (GRN)Purchase invoiceMaterials requisition noteMaterials returned noteBin card

Materials costPricing material issues:First in first out (FIFO)Last in first out (LIFO)Weighted average cost (AVCO)Periodic weighted average cost

Materials costControlling inventory:Free inventory = Inventory in stores + Inventory on order from suppliers Inventory already requisitioned for use

Labour costsRecording labour costs:Clock cards / time sheetsHolidaySicknessIdle time

Labour costsGross pay time related:Time relatedSalaried employeesHourly rated employeesOvertimeOvertime premium

Labour costsGross pay output related:Piece ratePiece rate with guaranteeDifferential piecework

Labour costsBonus schemes:Flat ratePercentage bonusTime related

Labour costsProductivity:The amount of output produced per labour hour

OverheadsCapital expenditure non-current assets are purchased (not intended for resale) .e.g. A factoryRevenue expenditure expenditure on everyday items .e.g. Rent, rates, insurance

OverheadsApportionment bases:Overheads which are shared should be split in a fair way across the cost centres that use them .e.g. Rent might be split across four departments on the basis of floor area. The biggest department incurs the most rent.

OverheadsAbsorption:By unitBy labour hoursBy machine hours

All based on BUDGETED information

OverheadsAbsorption:

Actual overheadX

Actual labour hours x Budgeted absorption rate(X)Under / over absorptionX

MC & TACMarginal cost = Variable cost

Contribution = Sales Variable costs

Absorption cost = Sales All costs

Job costingJob cost card:

Job no. 1Mrs. Smith2nd Jan 2011CostsMaterials100 kg$2 / kg$200Labour4 hours$10 per hour$40Overheads4 hours$1 per hour$4$244

Batch costingBatch costing is:Job costing divided over the number of units in the batch.

Process costingT-account:

kg$kg$Material2,5003,500Output2,4004,550Labour600Normal loss100-Overhead4502,5004,5502,5004,550

Process costingFormula:

Cost per unit of output =

Cost of inputs Normal loss receiptsExpected good output

Process costingEquivalent units:

Number of physical units x % complete

BudgetingPrincipal budget factor:

The factor that limits the level of activity for the organisation (usually sales).

BudgetingProduction budget:UnitsSalesX+ Closing inventoryXOpening inventory (X)ProductionX

BudgetingPurchases budget:kgProduction requirementX+ Closing inventoryXOpening inventory(X)PurchasesX

BudgetingFlexible budgets:

Variable costs vary dependent on outputFixed costs remain at the same level as before

Performance indicatorsComparators:

A performance indicator is useless on its ownNeed a different period, a budget, or a different company to establish whether activity is better or worse

Performance indicatorsProductivity measures:Production volume ratio =

Actual output in standard hours X 100%Budgeted production hours

Performance indicatorsCapacity utilisation ratio =

Actual hours worked x 100%Budgeted hours

Performance indicatorsEfficiency ratio =

Actual output in standard hours x 100%Actual production hours

Performance indicatorsProfit centre performance:

Profit margin = Profit x 100%Sales

Cost to sales ratio = Direct cost x 100%Sales

Performance indicatorsInvestment centre performance:

ROCE = Profit before interest and tax x 100%Capital employed

Where capital employed = Non-current assets + current assets current liabilities

Performance indicatorsResidual income = Investment centre profit (% interest x Capital employed)

Asset turnover = RevenueCapital employed

VariancesException reporting:

Highlighting for management attention only those variances which exceed a certain limit (by $ or %)

VariancesMaterials:

Total material cost variance =Original budgeted cost of materialsVActual cost of materials

VariancesMaterials activity (volume) variance =

Original budgeted cost of materialsvFlexed budgeted cost of materials

VariancesMaterials price and usage variance =

Flexed budgeted cost of materials vActual cost of materials

VariancesLabour:

Total labour cost variance =

Original budgeted cost of labourvActual cost of labour

VariancesLabour activity (volume) variance

Original budgeted cost of labourvFlexed budgeted cost of labour

VariancesLabour rate and / or efficiency variance =

Flexed budgeted cost of labour vActual cost of labour

VariancesSales:Total sales variance:

Budgeted sales revenuevActual sales revenue

VariancesSales activity (volume) variance =Original budget for sales revenuevFlexed budgeted sales revenueSelling price variance =Actual quantity sold @ actual pricevActual quantity sold @ budgeted price

VariancesCauses:Bad budgetingBad measurement or recordingRandom factorsOperational factors

VariancesInvestigation:ControllabilityCostSizeInter-relationshipsTrend

Data presentationPresentation:TablesDiagramsBar chartsPie chartsGraphs

Data presentationPresentation:NoteLetterEmailMemorandumReport

SpreadsheetsBasic features:RowsColumnsCopy and pasteEditing and deletingFormattingBorders and shading

SpreadsheetsFormulae:+ * - /Sum( )