ACCA MA Section A Mind Map

Why Management Accounting

Accounting for
Management
Data vs Information
Data consists of the facts that are gathered and stored. Data has
no clear meaning until it is processed – analyzed and sorted –
into information.
Main Managerial Process
- Costing, Planning, Decision-making, Control, Performance Evaluation

Different Levels of Planning

1. Strategic; 2. Tactical; 3. Operational

Bases
Sources Presenting Information
Costs
of Data • Select an appropriate chart type for the data being presented.
• Presenting data in an inappropriate chart can convey
- Primary vs information which may be misleading. Classification
Cost classification is the
Secondary 1. Column, bar and line charts for a SINGLE DATA arrangement of cost items into
- Internal vs SET logical groups.
External 2. Column, bar and line charts for MULTIPLE DATA
SETS Cost unit, Direct cost, Indirect production
3. Component/Stacked column and bar charts cost, Non-production cost
4. Pie Charts Behaviour
5. 100% stacked column or bar charts Variable cost, fixed cost, Stepped fixed cost,
6. Scatter diagram or XY chart Semi-variable cost (High Low Method)
ACCA MA Section B Mind Map

1. Sampling Methods 2. Statistical Techniques

1. Random; General techniques: 1. Linear Regression; 2.
2. Systematic; Correlation coefficient; 3. Coefficient of determination
3. Stratified;
4. Multistage; Time series: 1. Trend; 2. Cyclical variations; 3.
5. Cluster; Seasonal variations; 4. Random variations.
6. Quota
Moving averages
Choose an appropriate sampling method in a specific situation.
The Multiplicative Model

3. Summarising and analyzing data 4. Spreadsheets

i) Understand how to calculate – i) What is the role of computer spreadsheet system?
Mean; Mode; and Media
ii) Apply spreadsheets in data analysis, cost and management
For ungrouped data and grouped data accounting

ii) Calculate measures of dispersion such as -

Variance; Standard deviation; and Coefficient of variation

iii) Understand how to calculate expected values for use in decision

making

iv) Normal distribution graphs and tables

ACCA MA Section C Mind Map

1. Accounting for Materials, Labour & Overhead 2. Cost Accounting Methods

Inventory: Valuation – 1) First In First Out (FIFO); 2) Last In First Out (LIFO); 3) Cumulative Job costing: Job costing is relevant in the situation where a customer orders a specific job.
Weighted Average. Batch costing: Batch costing is effectively the same as job costing except that we cost out
Inventory ordering system: Costs involved – 1) Purchase cost; 2) Reorder cost; 3) a batch of units.
Inventory-holding cost. Pay attention on safety inventory & re-order level. Service costing: Applicable to service industries while they are those that provide a service
as opposed to manufacturing a product. Examples include hotels, hairdressers, and airlines
Economic Order Quantity (EOQ) = √2COD / CH
Process costing: It is is a method of applying costing systems to goods or services that are
Accounting for Labour: Direct Labour Costs vs Indirect Labour Costs produced in a series of processes.
Remuneration methods: 1) Time work; 2) Piece work; 3) Bonus scheme 3 Areas to be seen in exam: Losses, Work-In-Progress (WIP) and Joint Products

Labour Ratios: 1) Idle time; 2) Labour turnover; 3) Labour efficiency; 4) Labour capacity Losses: Normal loss, scrap value, abnormal losses, abnormal gains
Accounting for Overhead: Absorption of overheads WIP: Closing WIP, Opening WIP, Equivalent Units
Joint Products: one process may produce several products.
The charging of overheads to relevant department is known as allocation
The splitting or sharing of overheads between departments is
known as the apportionment of overheads.
Cost Accounting
Techniques
3. Absorption & Marginal Costing 4. Alternative Cost Accounting
Absorption costing: It includes total (both variable & fixed) costs. Activity based costing (ABC): With ABC, the area where overheads are being incurred is
Overhead allocation to product based on absorption rate which can be unit based or labour identified and then decide what the reason or cause for these overheads.
hour based. Different products are charged with this part of the overheads on the basis of the number of
Marginal costing: Variable production costs are included in cost per unit (i.e. treated as a deliveries received for each of the products are made.
product cost). Fixed costs are deducted as a period cost in the profit statement.
Target costing: Target costing is particularly useful when a new product is being launched.
Contribution is an important concept in marginal costing. Contribution is an abbreviation of Life-cycle costing: Life-cycle costing tries to take account of all costs and all production
“contribution towards fixed costs and profit”. over the entire life of the product which can lead to much more sensible decisions
Total Quality Management: Total quality management involves getting the entire
It is the difference between selling price and all variable costs (including non-production workforce motivated to improve quality, and assessing the costs and benefits involved in
variable costs), usually expressed on a per unit basis. improving quality.
ACCA MA Section D Mind Map
1. What is budget?
Budgeting is an essential tool for 2. Budget Preparation
6. Behavioural aspects of budgeting management accounting for both Principal budget factor: The factor that limits the growth
Motivation: This will only work if our managers are planning and controlling future of the company
motivated to attempt to achieve the targets that have activity.
been set. Benefits of budget: Preparation of budget: Sales budget, production budget,
Participation of budget preparation: Planning, Controlling, Co-ordination, material usage budget, material purchase budget, labour
Top-down budgeting; Authorising & delegating, Evaluation budget
Bottom-up budgeting of performance, Communicating &
Cash budget
motivating
Incentive scheme:
(1) the promise of promotion Master budget
(2) an increase in salary
(3) a cash bonus
(4) a bonus given in shares in the company
Budgeting
5. Budgetary control & reporting
3. Flexible Budget
Simple variances: Between flexed budget, fixed budget Fixed budget: A fixed budget is a budget that does not
and actual sales, costs and profits change or flex when sales or some other activity
increases or decreases.
Controllable vs Uncontrollable costs
Flexible budget: A flexible budget is a budget that adjusts
Budgetary planning and control systems require that 4. Capital Budgeting or flexes for changes in the volume of activity.
managers of budget centres are made responsible for
the achievement of budget targets for the operations Discounted cash flow (DCF) analysis is a method of
valuing a project, company, or asset using the concepts The flexible budget is more sophisticated and useful than
under their personal control. a static budget, which remains at one amount regardless
of the time value of money.
Annuities of the volume of activity
Perpetuities
Net Present Value (NPV): a measurement of profit
calculated by subtracting the present values (PV) of cash
outflows from the present values of cash inflows over a
period of time.
Internal rate of return (IRR)
Payback period
ACCA MA Section E Mind Map

Variance Calculations Variance Analysis

Ensure you know all of the following variances calculations: If idle time arises, it is usual to calculate a separate idle time variance, and to base the
calculation of the efficiency variance on active hours only.
• Sales price and volume variance
The direct material total variance can be subdivided into the direct material price variance
• Materials total, price and usage variance and the direct material usage variance.

• Labour total, rate and efficiency variance The fixed production overhead total variance can be subdivided into an expenditure
variance and a volume variance.
• Variable overhead total, expenditure and efficiency variance
Materiality, controllability, the type of standard being used, the interdependence of
• Fixed overhead total, expenditure, volume, capacity and efficiency variance variances and the cost of an investigation should be taken into account when deciding
whether to investigate reported variances.

When two variances are interdependent (interrelated) one will usually be adverse and the
other one favourable, e.g. materials price & usage, labour rate and efficiency.

Standard Costing Systems Reconciliation of profit

A standard cost is a predetermined Standard vs Marginal vs Absorption Costing Operating statements Example of Reconciliation of
estimated unit cost, used for inventory It shows how the combination of contribution
valuation and control. Standard Costing variances reconcile budgeted Standard contribution on actual sales $1,000
Why standard costing? A control technique which compares standard profit and actual profit.
• Value inventories and cost costs and revenues with actual results to obtain Add: favourable sales price variance $ 200
production; variances which are used to improve
• To act as a control device (planned performance. It is also a regular report for Less: adverse total variable costs variance $ 100

costs), highlighting (variance Marginal Costing management of actual costs and Actual contribution $1,100
analysis) and alerting management Fixed costs are not absorbed into product costs revenues, usually showing
to areas which may be out of control and no fixed cost variances. variances from budget.
and in need of corrective action. Absorption Costing
Fixed and variable costs are absorbed into unit It is also known as statement of
costs.
variances.
ACCA MA Section F Mind Map

Performance Measurement Overview

Mission Statement: 4 elements which are 1) Purpose; 2) Strategy; 3) Policies & Standards; 4) Values
Objectives: Strategic, operational or tactical?
Others: Impact from economic, market conditions and government regulations

Performance Measurement Tools Monitoring & Reporting

Balanced scorecard Managerial performance: Personal performance of the manager is not the same as the
overall performance of the responsibility centre he/she manages. There are two main
FOUR aspects Critical Success Factors Examples Key Performance Indicators
ways of measuring managerial performance:
• Financial success Shareholder wealth Dividend yield %
1. Based on controllable costs and revenue;
• Customer satisfaction Flexibility Number of options to customers
2. Set specific managerial objectives against which performance can be measured at
• Process efficiency Resource utilisation % occupancy
regular intervals.
• Learning & growth Innovation products % of sales from < 1 year old
Benchmarking: Benchmarking is the management process which involves comparison
Financial performance of competences with best practice including comparison beyond the organisation’s own
Profitability ratios: Return on Capital Employed (ROCE), Net Profit Margin, Asset Turnover industry.
Liquidity ratios: Current ratio, Quick ratio, Receivable Days, Inventory Days Types of benchmarking –
Gearing ratios: Debt to equity ratio (Debt / Equity or Debt / (Long term debt + Equity)) 1. Internal benchmarks
2. Competitive benchmarks
Value for money – Non profit organisation focus 3. Functional (operational/generic) benchmarks
Economy: Paying a fair or reasonable price for resources 4. Strategic benchmarks
Efficiency: Using resources well – getting as much out as possible for what goes in
Effectiveness: Being successful at what we are trying to achieve

Profitability of division (or Investment Centre) Value enhancement & Cost reductions
Return on investment (ROI): Profit / Net Assets,
Cost control: Involves the setting of targets for cost centre managers and then
Residual income (RI): Residual income is the amount of net income generated in excess of the
monitoring performance against the targets.
minimum rate of return.

Other performance measures Cost reductions: The reduction in unit cost of goods or services without impairing
suitability for the use intended.
Resource utilization: 1. Service & manufacturing environment; 2. Specific situation
Quality of service: Performance measures for service industries
Value analysis: a form of cost reduction which it examines the factors affecting the cost
of product or service, to achieve the specified purpose most economically.
FOUR types of value: Cost value, Exchange value, Use value and Esteem value.