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  • MAnAgeMent Accounting

    Paper

    F2

    ACCA QuAlifiCAtionCourse notes

    June 2011 examinations

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    F1 Accountant in Business

    F2 Management Accounting

    F3 Finanticial Accounting

    F4 Corporate & Business Law

    F5 Performance Management

    F6 Taxation (UK)

    F7 Financial Reporting

    F8 Audit and Assurance

    F9 Financial Management

    P1 Governance, Risk & Ethics

    P2 Corporate Reporting

    P3 Business Analysis

    P4 Advanced Financial Management

    P5 Advanced Performance Management

    P6 Advanced Taxation (UK)

    P7 Advanced Audit & Assurance

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    aJune 2011 Examinations Paper F2

    Contents

    1 The Nature and Purpose of Cost and Management Accounting 12 Cost Classification and Behaviour 53 Overhead Allocation, Apportionment and Absorption 134 The Management Accountants Profit Statement Absorption Costing 215 The Management Accountants Profit Statement Marginal Costing 256 Process Costing Introduction 337 Process Costing Losses 378 Process Costing Work-in-Progress 419 Process Costing Joint Products 4910 Semi-Variable Costs 5511 Expected Values 6312 Cost Volume Profit Analysis 6513 Inventory Control 7314 Limiting Factors 8315 Relevant Costing 9116 Budgeting 9717 Variance Analysis 105

    Answers To Examples 115Answers To Multiple Choice Tests 135

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    Paper F2

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    Paper F2

    FormulaeFORMULAE SHEET

    Regression analysis

    Economic order quantity

    Economic batch quantity

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    iJune 2011 Examinations Paper F2

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    Chapter 1

    The NaTure aNd PurPose of CosT aNd MaNageMeNT aCCouNTiNg

    1 IntroductionThe purpose of management accounting is to assist management in running the business in ways that will improve the performance of the business.

    2 Data and informationOne way of assisting management is to provide them with good information to help them with their decisions.

    The information can be provided to them in different ways, but is usually in the form of reports. For example, a report analysing costs of producing each of several products may assist management in deciding which products to produce.

    It is the management accountant who will be expected to provide the information, and in order to do so he/she needs to collect data. Data consists of the facts that are gathered and stored. Data has no clear meaning until it is processed analysed and sorted into information.

    3 What makes good information?

    Good quality information should: have a purpose and be relevant for the purpose be timely be understandable (to the manager using it) be accurate be complete (but not excessive) be communicated to the right person be communicated by an appropriate channel (for example, be printed or be sent electronically)

    1June 2011 Examinations Paper f2

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    4 The main managerial processes

    The main areas of management accounting are: Costing

    Cost accounting is identifying the cost of producing an item (or providing a service) in order to, for example, assist in deciding on a selling price.

    Planninge.g. plan how many staff will be required in the factory next year

    Decision makinge.g. decide on what selling price to charge for a new product

    Controle.g. check month-by-month whether the company is over or under spending on wages

    5 The different levels of planning strategic planning

    long-term plans (e.g. 5 to 10 years) for the business

    e.g. what new offices to open? / what new products to launch?

    tactical planningmedium-term, more detailed, plans usually involving producing budgets for the next year

    e.g. how many staff to employ next year?

    operational planningshort-term planning and decisions

    e.g. which supplier to choose for a purchase next week

    June 2011 Examinations Paper f2

    ThE NaTurE aNd PurPosE of CosT aNd MaNagEMENT aCCouNTiNg Chapter 1 2

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    6 Comparison of management accounting with financial accounting

    example 1

    Financial Accounting Management Accounting

    3June 2011 Examinations Paper f2ThE NaTurE aNd PurPosE of CosT aNd MaNagEMENT aCCouNTiNg Chapter 1

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    TEST 1

    Question 1

    The following assertions relate to financial accounting and to cost accounting:(i) The main users of financial accounting information are external to an organisation.(ii) Cost accounting is that part of financial accounting which records the cash received and payments

    made by an organisation.

    Which of the following statements are true?

    A Assertions (i) and (ii) are both correct.

    B Only assertion (i) is correct.

    C Only assertion (ii) is correct.(1 mark)

    Question 2

    For which of the following is a profit centre manager responsible?A Costs onlyB Revenues onlyC Costs and revenues.

    (1 mark)

    Question 3

    Data is information that has been processed in such a way as to be meaningful to its recipients.

    Is this statement true or false?A TrueB False

    (1 mark)

    Question 4

    The following statement refers to a quality of good information:The cost of producing information should be greater than the value of the benefits of that information to management.

    Is this statement true or false?A TrueB False

    (1 mark)

    June 2011 Examinations Paper f2

    ThE NaTurE aNd PurPosE of CosT aNd MaNagEMENT aCCouNTiNg Chapter 1 4

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    Chapter 2

    Cost ClassifiCation and Behaviour

    1 Cost classificationCost classification is the arrangement of cost items into logical groups. For example: by their nature (materials, wages etc.); or function (administration, production etc.).

    The eventual aim of costing is to determine the cost of producing a product/service; for profitability analysis, selling price determination and stock valuation purposes.

    Cost unitA cost unit is a unit of product or service in relation to which costs may be ascertained.

    The cost unit should be appropriate to the type of business, for example:

    Example 1

    Suggest appropriate cost units for the following businesses

    Solution

    Business Appropriate cost unit

    Car manufacturer

    Cigarette manufacturer

    Builder

    Audit company

    5June 2011 Examinations Paper f2

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    Types of expenses$

    Production/manufacturing costs XAdministration costs XSelling and distribution costs X TOTAL EXPENSES X

    Only the production costs will be relevant in costing.

    Direct costsDirect costs are those costs which can be identified with and allocated to a particular cost unit.

    TOTAL DIRECT COSTS = PRIME COST

    Example 2

    Direct costs

    Indirect production costs (overheads)Indirect production costs (known as production overheads) are those costs which are incurred in the course of making a product/service but which ca

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