F2

• Purpose and role of cost and management accounting

  To provide information to managers that will help them to: plan the activities, make decisions regarding activities, control the activities, evaluate the activities
• Cost accounting


  Mainly concerned with: Preparing statements (e.g. budgets, costing), Cost data collection, Applying costs to inventory, products and services
• Management accounting


  Goes beyond cost accounting
• Managerial processes


  • Planning
  • Decision-making
  • Control
• Planning


  Establishing objectives and selecting appropriate strategies to achieve these objectives
• Decision making


  Involves a choice between alternatives
• Control


  Managers use the information relating to actual results to take control measures and to re-assess and amend their original budgets or plans
• Types of planning


  • Strategic planning
  • Tactical planning
  • Operational planning
• Data


  Raw facts, events and transactions which have been recorded but not yet processed into a form suitable for use
• Information


  Data that has been processed in such a way as to be meaningful to the person who receives it
• Types of information


  • Financial
  • Non-financial
  • Combination of financial and non-financial
• Attributes of good information

  • Accurate
  • Complete
  • Cost-effective
  • Understandable
  • Relevant
  • Accessible
  • Timely
  • Easy to Use
• Limitations of management information

  • Failure to meet the requirements of good information
  • The problem of relevant costs and revenues
  • Non-financial information
  • External information
• Sources of Data


  • Machine / Sensor
  • Transactional
  • Human / Social
• Classification of data


  • Primary vs secondary data
  • Discrete vs continuous data
• Internal Sources of Information

  • Accounting System
  • Payroll System
  • Strategic Planning System
• Ad hoc reports


  Reports produced to help managers make specific decisions
• Payroll system


  Provides information concerning detailed labour costs
• Payroll system


  • Hours paid may be analysed into productive work and non-productive time such as training, sick, holiday, and idle time
  • Labour turnover by department or manager may be analysed and may help management to assess the employment and motivation policies
• Strategic planning system


  • Provides information relating to the organisation's objectives and targets
  • Assumptions relating to the external environment may be detailed
  • Details of the organisation's capital investment programme and product launch programme may also be recorded here
• Some of the information in the strategic planning system will be very commercially sensitive and only accessed by top managers in the organisation
• Environmental scanning/monitoring


  The process of collecting data from outside, as well as from inside, the organisation and using it in the decision-making process
• • Internal information is produced by the company itself so they are aware of any limitations in its quality or reliability
  • External information is not under the control of the organisation - they may not be aware of any limitations in its quality
• Government sources

  • Provide information for economic planning at the national level
  • Provide industry with useful background information for deciding on future policies such as raising new finance or recruiting specialised labour
  • The data is only published in general terms (e.g. for a particular industry or geographical area)
• Business contacts


  • Customers can provide information on product specification, delivery periods, packaging and distribution methods, and feedback on customer service
  • Suppliers may provide information on quantity discounts, availability of products and services, alternative products or services, and technical specifications
• Trade associations and trade journals

  • Represent member firms in legal and other disputes
  • Provide quality assurance schemes for customers
  • Lay down codes of practice to be followed by members
  • Publish trade journals and other information useful for the management and development of businesses
• Financial press, business press and other media

  Provide statistics, financial reviews, business and economic news, and commentary
• The internet


  • A global network allowing any computer with a telecommunications link to send and receive information
  • Information on the internet is not necessarily good information, the reliability and reputation of the provider is important
• Direct data


  Data captured directly from the source
• Indirect data


  Data obtained from secondary sources (e.g. a research firm)
• Direct data capture costs

  Costs of getting the data into the system in the first place, including use of data forms, machine-readable codes, and AI/algorithmic processing
• Indirect data capture costs

  Transactional costs of purchasing data from another entity, and costs of verifying the reliability of the data
• Production costs

  Costs identified with goods produced for resale, including direct material, direct labour, direct expenses, variable production overheads, and fixed production overhead
• Non-production costs


  Costs not directly associated with production of manufactured goods, including administrative, selling, distribution, and finance costs
• Administrative costs


  • Depreciation of office buildings and equipment
  • Office salaries, including salaries of directors, secretaries and accountants
  • Rent, rates, insurance, lighting, cleaning, telephone charges and others
• Selling costs

  • Salaries and commission of salesmen and sales department staff
  • Advertising and sales promotion, market research
  • Rent, rates and insurance of sales offices and showroom
• Distribution costs


  • Delivery costs
  • Wages of packers, drivers and despatch clerks
  • Insurance charges, rent, rates and depreciation of warehouse
• Finance costs


  Costs incurred in order to finance an organisation, e.g. loan interest
• Direct costs


  Costs which can be directly identified with a specific cost unit or cost centre, including direct materials, direct labour, and direct expenses
• Indirect costs


  Costs which cannot be directly identified with a specific cost unit or cost centre, including indirect materials, indirect labour, and indirect expenses