Management Accounting

1.6. REVIEW QUESTIONS CHAPTER 1. INTRODUCTION TO COST

ACCOUNTING. BASIC CONCEPTS.

1.- Identify which of the questions below can be posed to top management, and for which of
them Financial Accounting does not provide enough information.
a/ What products must be manufactured? Which ones should stop being manufactured?
b/ How much corporate tax has been paid in the last financial year?
c/ How much do customers owe us?
d/ What prices should we fix for our manufactured goods?
e/ How much did we earn or lose last year?
2.-Cost or Internal Accounting therefore allows us to answer questions such as (mark those
you think are true):
a/ What products are profitable?
b/ How much does a specific department cost?
c/ What is the lowest selling price for a specific product in order to avoid losing money?
d/ How much does each stage of the production process cost?
e/ What is the profitability of a specific product?
f/ Is it worth it to outsource a specific activity?
3.- Which regulation do we have to take into account when working on Cost Accounting?
a/ Constitutional norms
b/ Royal Decree 1515/2007,
c/ Codes of commerce
d/ International accounting standards
e/ None of the above
4.- The internal movement of values generated by manufacturing activity:
a/ Is conveniently represented by Financial Accounting, in some cases.
b/ Is beyond the scope of Financial Accounting.
c/ Is adequately represented by Financial Accounting.
d/ None of the above.
5.- Choose which you consider to be a “true statement” concerning Cost or Management
Accounting from the statements below:
a/ The aim of Management Accounting is to give relevant and timely information to managers
for decision-making.
b/ Along with the support of highly developed software for financial statement information (i.e.
info provided mainly by balance sheets and profit and loss accounts), current accounting
development (IAS and PGC) is more than enough for managers to properly analyse and make
decisions.

3rd year Business Administration Degree Theory BG 1

 Management Accounting

c/ The aim of Cost Accounting is to valuate stocks, obtain information for decision-making and
support planning and control activities within a company.
d/ When reading the expression “Internal Accounting” or “Analytical Accounting”, we
understand they refer to Cost and Management Accounting.

EXERCISE 01:
On 1st October of a specific accounting period a company buys a machine for €10,000 and
commits to paying it back in six months. Among the conditions a payment of €2,000 must be
made upon signing the agreement. This payment represents the cost of installing the machine
on site at the factory. The internal depreciation of the machine is 16% per year.
Question: Please determine the dates and amounts for the following concepts of cost and
payment.

Date Amount

Year X Cost……………………………………..

Cost ……………………………………

Payment

Year X+1 Cost …………………………………….

Payment

3rd year Business Administration Degree Theory BG 2

 Management Accounting

EXERCISE 02:
A company buys 1,000 kilos of materials at €50 per unit on 1st November and pays for it on 1st
December. During the month of December 300 kilos are consumed in the production process
and on 31st December 100 kilos are sold to another company in the sector at €60 per unit.
Question: Determine the dates and corresponding amounts for the concepts: expense, cost,
payment and revenue. Also determine the value of the final stock in the same way.

Date Concept Amount

EXERCISE 03:
Indicate in the following table which of these concepts are expense, cost of production, and
payment. Mark with an X in the correct column.

Concept Expense Cost Payment

Wages of the labour force
Theft of warehouse products (exceptional expenses)
Income tax
Depreciation of fixed assets
Repayment of loan principal at 5 years
VAT included in the bills of suppliers

3rd year Business Administration Degree Theory BG 3