Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Standard view
Full view
of .
Save to My Library
Look up keyword
Like this
0 of .
Results for:
No results containing your search query
P. 1
CAT T7 Key Notes

CAT T7 Key Notes

Ratings: (0)|Views: 571|Likes:
Published by Seah Chooi Kheng

More info:

Published by: Seah Chooi Kheng on May 09, 2011
Copyright:Attribution Non-commercial


Read on Scribd mobile: iPhone, iPad and Android.
download as DOCX, PDF, TXT or read online from Scribd
See more
See less





T7 Planning, control and performance management key notes - Seah
Use this notes together with study guide if you want. The underlined sentences are theone that follow study guide¶s requirement. This note works best together withtextbook.
Chapter 1: Accounting for management
unctions of managementPlanning ± setting objectives, selecting strategiesControlling ± measure and act, need to have performance measurement systemOrganizing ± establish sequences of tasksMotivating ± influence others¶ behavior Decision-making ± making choices between alternativesObjective of management accounting information is to help managers in planning,control, decision making and performance measurement.Role of management accountant is to provide the manager with assistance in planning,controlling, organizing, motivating and decision-making.Useful management information is ACCURATE:AccurateCompleteCost-beneficialUser-targetedRelevantAuthoritativeTimelyEasy to useLimitations of management information
ail to:(i)
Meet requirements of good information(ii)
Determine relevant costs and revenues(iii)
Account for non-financial information(iv)
Account for external informationCost accounting systems can be maintained and improved by making sure that it is:(i)
orward looking(ii)
Take into account internal and external information(iii)
Account for quantitative and qualitative matters(iv)
Chapter 2: Absorption Costing
Application of ACAC is an overhead recovery system which involves 4 steps:(i)
Allocation ± Assign costs which are not shared to departments(ii)
Apportionment ± Sharing of cost on an equitable basis(iii)
Reapportionment ± Transfer of service department cost to productiondepartment(iv)
Absorption ± calculate overhead absorption rate(OAR) and charge cost to products according to full production costOAR=Budgeted overhead/Budgeted level of activityAC can be applied to job costing, batch costing, contract costing (long-term of jobcosting), service costing and process costing. The cost per unit will be charged on full production cost basis.When our actual production units are higher than normal production, over-absorptionexists and this needs to be adjusted to gross profit figure.Preparation of management accounts and cost estimates using AC
rofit StatementRevenue
 Less: Full Production costsOpening inventory (at full cost) Production costs (variable + absorbed fixed overhead) Less: Closing inventory (at full cost)
=Gross profit+over-absorption/ (under-absorption)=Adjusted gross profitLess: Other cost=Net profit
Evaluation of ACAdvantages:(i)
An acceptable system of recovering inevitable fixed overheads(ii)
Complies with matching concept(iii)
Complies with financial statement need to include fixed overhead ininventory(iv)
Provides a practical way of job costing for estimating prices and profitanalysisDisadvantages:(i)
Overhead allocations and apportionment are arbitrary and can bemisleading(ii)
Increase or decrease of inventory can distort income statements(iii)
Under/Over absorption obscures true reasons for inefficiencies, makingoverheads difficult to control(iv)
Unit costs are distorted by absorption rates(v)
Cannot be used for decision-making because fixed cost is irrelevant
Chapter 3: Marginal Costing
Use of marginal costing in an organization is for short-term decision-making.MC is applicable to costing situations just as AC, but the cost per unit is charged onmarginal (variable) production cost basis.
Cost behavior is manner in which a cost will react to changes in the level of activity.Costs may be viewed as variable, fixed, stepped or mixed (semi-variable).Preparation of management accounts and cost estimates using MC
rofit StatementRevenue
 Less: Variable Production costsOpening inventory (at variable cost) Production costs (variable overhead) Less: Closing inventory (at variable cost)
Less: other variable cost=ContributionLess: fixed cost=Net profit
Reconcile marginal costing and absorption costing profitsAt marginal costing, closing inventories are valued at marginal production cost.At absorption costing, closing inventories are valued at full production cost.If inventory level increases, absorption costing reports higher profit because fixedoverheads included in closing inventory.If inventory level decreases, marginal costing reports higher profit.
ReconciliationAbsorption costing profit+ (Closing inventory-opening inventory) x fixed OAR per unit=Marginal costing profit
Evaluation of MCAdvantages:(i)
Appropriate for decision-making as it highlights those costs and revenueswhich will change as a result of the decision.(ii)
ixed costs are all treated as period costs and charged into incomestatement which avoids distortion in reported profit. Profit will be morerealistic.Disadvantages:(i)
Cost behaviour must be known(ii)
In longer term, all cost must be covered by revenue of the organisation if itis to make a profit(iii)
Pricing decisions based on marginal costing principles may be harmful tothe business in longer term.Use of absorption and marginal costingAbsorption costing is used for inventory valuation and financial reporting.Marginal costing is used for short-term decision making and CVP analysis.

You're Reading a Free Preview

/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->