management accounting



Who are the main users of accounting information?	Managers, shareholders, employees, creditors/suppliers, and government agencies.
How are accounting users classified?	Internal users (managers and employees) and external users (shareholders, creditors, and government agencies).
What is management accounting?	The provision of information to people within an organisation to help them make better decisions and improve efficiency and effectiveness.
What is financial accounting?	The provision of information to external parties about the overall performance and position of the business.
Is management accounting mandatory?	No. Management accounting is optional and information is produced only if the benefits exceed the costs. Financial accounting is legally required.
What are the key differences between management accounting and financial accounting?	Legal requirement, scope of reporting, rules applied, time focus, and reporting frequency.
How does the business environment affect management accounting?	Changes in competition, technology, regulation, and customer expectations require changes in management accounting practices.
What factors characterise the changing business environment?	Global competition, shorter product life cycles, advances in manufacturing technology, digitalisation, sustainability pressures, ethical expectations, deregulation, customer orientation, and focus on value creation.
Why is ethical behaviour important in management accounting?	Unethical behaviour can harm stakeholders and threaten the long-term sustainability of an organisation.
What are the core ethical principles for management accountants?	Integrity, objectivity, professional competence, confidentiality, and professional behaviour.
What factors drive customer satisfaction?	Cost efficiency, quality, speed/time, innovation, and continuous improvement.
What are the three functions of management accounting?	Scorekeeping, problem solving, and attention directing.
What is a cost object?	Any activity for which a separate measurement of cost is desired, such as a product, service, department, or customer.
What are the two stages of cost collection?	Accumulating costs by category and assigning those costs to cost objects.
What are direct costs?	Costs that can be specifically and exclusively traced to a cost object.
Give examples of direct costs.	Direct materials, direct labour, and direct expenses.
What are indirect costs?	Costs that cannot be traced directly to a cost object and therefore must be allocated.
What are manufacturing overheads?	All manufacturing costs other than direct materials and direct labour.
What is prime cost?	The total of direct materials plus direct labour.
What is conversion cost?	Direct labour plus manufacturing overheads.
What are product costs?	Costs attached to goods produced or purchased for resale and included in inventory until sold.


What are period costs?	Costs expensed in the period incurred and not included in inventory valuation.
How are costs classified in manufacturing organisations?	Manufacturing costs are product costs; non-manufacturing costs are period costs.
What is a variable cost?	A cost that varies directly with activity level; total variable cost changes proportionally while unit cost remains constant.
What is a fixed cost?	A cost that remains constant over a relevant range of activity, while fixed cost per unit decreases as activity increases.
Why are unit fixed costs misleading for decision-making?	Because unit fixed costs change with activity level; decisions should focus on total fixed costs.
What is the purpose of a cost accounting system?	To value inventory, measure profit, support decision-making, and aid planning and control.
What is an integrated cost accounting system?	A system using one set of accounting records for both management and financial accounting.
What is an interlocking cost accounting system?	A system with separate financial and cost records that must reconcile using control accounts.
What is a time-based wage system?	Wages are calculated as hours worked multiplied by rate per hour.
What is an output-based (piecework) system?	Wages are based on units produced multiplied by a rate per unit.
What is an overtime premium?	The additional rate paid above the basic hourly rate for overtime hours worked.
How is overtime cost allocated?	Job-specific overtime is charged to Work in Progress; general overtime is charged to production overheads.
What is the overhead absorption rate (OAR)?	Budgeted production overheads divided by budgeted labour or machine hours.
What is under-absorption of overheads?	When absorbed overheads are less than actual overheads, the difference is charged to profit or loss.
What is over-absorption of overheads?	When absorbed overheads exceed actual overheads, the excess is credited to profit or loss.