F2 - Revision 1

The Association of Chartered Certified Accountants
Paper F2 Management Accounting

December 2011 Intake

Vietsourcing Training Centre | Revision Page 1 of 27

Chapter 1: Management Information
1. Purpose of management information
Provide information for Management to make decision
2. data & information
Data: Is a collection of unprocessed facts or opinions
Information: Data has been processed then having meaningful
3. Qualities of good information
- Relevant
- Cost vs benefit
- Communication to right person/right channel
- Comparison
- Confidential
- Accurate
- Volume
4. Process of making budget
- Objective
- Search for alternative
- Gather data about alternative
- Select the best one
- Implement plan
- Monitoring actual result
- Taking control action
5. Different between financial account & management account
- External Internal
- Format strictly Not strictly
- Required by law Require by mgt
- Historical Historical, future
6. Cost unit: is a unit of product which has costs attached to it

Question practice:
1. Which of the following is not correct?
A Cost accounting can be used for stock valuation to meet the requirement of internal
reporting only
B Management accounting provide appropriate information for decision making,
planning, control and performance evaluation



C Routine information can be used for both short term and long term run
D Financial accounting information can be used for internal reporting purpose
2. Which of following would be included in the financial account, but may be excluded from
the cost account?
A Direct material cost
B Depreciation of storeroom handling equipment
C Bank interest and charge
D Factory managers salary
3. Which one of the following may be included in the cost account but excluded from
financial account?
A Depreciation of equipment
B Distribution expenses
C Supervisors salary
D Replacement value of fixed asset
4. Which of the following statements are true?
I Information is raw material for data processing
II External sources of information include an organisations financial accounting records
III The main objective of non profit making organisation is usually to provide goods and
services
A I and III only
B I, II and III
C II and III only
D III only
5. Which of the following statement is not true?
A Management accounts detail the performance of an organisation over a defined
period and the state of affairs at the end of that period
B There is no legal requirement to prepare management accounts
C The format of management accounts is entirely at management discretion
D Management accounts are both an historical record and a future planning tool



Chapter 2: The role of information
technology
1. Advantages of computer have over humans
- Speed
- Accuracy
- Volume & complexity
- Access to information
2. Data processing model
- Original data input
- Processing - storage
- Output
Data can be stored on disks, tapers or memory disks. Data can be output via output devices
(printer or monitor).
3. Stages of data input:
- Original of data: transaction giving rise to data which needs to be recorded and
processed
- Transcription of data on to a paper document suitable for operators to refer to while
keying in data
- Data input (by means of keyboard)
4. Means:
- Monitor (VDU)
- Window
- Icons
- Mouse
- Pull-down menu
5. Management information system: is hardware and software used to drive a database
system which provides useful information for management.
- The need for formal planning: to storage information out of head of manager incase he is
absences or leaving the company
- Avoid missing information
- Timely provide information
- Characteristics of MIS:
o Defined function of individual and their responsibility
o Areas control within the company should also be clearly defined
o Control overall
Cost accounting system is a part of the overall management information system



Practice question:
1. When visiting your local supermarket, the items that you have purchased are scanned by
a device which acts as a cash register. This device is known as:
A MICR
B OCR
C OMR
D EPOS
2. Printers which print a whole page at a time are known as:
A Bubble jet printers
B Daisy wheel printers
C Dot matrix printers
D Laser printers
3. Features of computer systems include:
(i) Icons
(ii) Keyboard
(iii) Optical mark reading
(iv) Pull-down menu
Which of the above are features of graphical user interfaces?
A (i) and (ii)
B (ii) and (iii)
C (i), (iii) and (iv)
D (i), (ii) and (iv)
4. Which of the following are used for capture and storage of management accounting data
by computer?
(i) Bar code
(ii) Disk
(iii) Printer
(iv) Tape
A (i) and (ii) only
B (i),(ii) and (iv) only
C (i),(iii) and (iv) only
D (ii),(iii) and (iv) only



Chapter 3: Cost classification
1. Cost classification
- By accounting for input cost
o Material
o Labor
o Expenses
- By function (department)
o Production
o Admin
o Selling
- Direct and indirect
o Direct: directly attributable to a particular cost unit
o Indirect: can not attributable to a specific cost unit
o Format: DM
DL
DE
Prime cost
Production overhead
Total factory cost
- Fixed and variable
o Fixed: do not change by number of activity
o Variable: change with level of activity
- By responsibility
o Cost centre:
o Revenue centre
o Profit centre
o Investment centre
- By final output: WIP->FG->COS account
2. Cost per unit
Cost per unit = Cost of input/No.of out put
3. Ratio
- Profit margin = Profit/Sales
- Gross profit margin = Gross Profit/Sales
- ROCE = Profit/Capital employed
- Asset turnover = Sales/Capital employed
- Profit margin x Asset turnover = ROCE



Practice question:
1. A cost unit is
A The cost per hour of operating a machine
B The cost per unit of electricity consumed
C A unit of product or service in relation to which costs are ascertained
D A measure of work output in a standard hour
2. A cost centre is
A A unit of product or service in relation to which costs are ascertained
B An amount of expenditure attributable to an activity
C A production or service location, function, activity or item of equipment for which costs
are accumulated
D A centre for which an individual budget is drawn up
3. Which of the following costs are parts of the prime cost for a manufacturing company?
A Cost of transporting raw materials from the suppliers premises
B Wages of worker in raw materials factory from the suppliers premises
C Depreciation of lorries used for deliveries to customers
D Cost of indirect production materials
4. Which of the following are indirect costs?
(i) The depreciation of maintenance equipment
(ii) The overtime premium incurred at the specific request of a customer
(iii) The hire of a tool for a specific job
A Item (i) only
B Items (i) and (ii) only
C Items (ii) and (iii) only
D All of them
5. A company has to pay a royalty of $1 per unit to the designer of a product which it
manufactures and sells. The royalty charge would be classified in the companys
accounts as:
A direct expense
A production overhead
An administrative overhead
A selling overhead



6. Prime cost comprise:
A All variable cost
B Direct labor and direct material only
C Direct labor and direct material, direct expenses
D Direct labor and direct material, production overhead
7. A semi-variable cost is one that:
A increase in direct proportion to output
B remain constant irrespective of the level of output
C contains an element of both fixed and variable cost
D increase throughout the year
8. Which of the costs listed below is not a fixed cost?
A Insurance
B Business rates
C Depreciation-based on straight-line method
D Materials used in production
9. Which of the following items would be treated as an indirect costs?
A Wood used to make chairs
B Metal used for the leds of the chairs
C Fabric to cover the seat of the chairs
D Staples to fix the fabric to the seat of the chair
10. What is gross profit margin if:
A company results as below:
Sales 160,000
Cost of sales: Direct material 40,000
Direct labor 40,000
Production overhead 22,000
Marketing overhead 42,000
Profit 144,000



Chapter 4: Cost behaviour
1. Cost behavour analysis
- Fixed cost: Total fixed costs do not change but fixed cost per unit reduces if level of
activity increase.
- Variable cost: total variable cost increase if level of activity increase but variable cost per
unit remains the same.
- Semi-variable: total semi-variable cost increase if level of activity change but semi-
variable cost per unit reduces if level of activity increase.
- Stepped fixed cost: total stepped fixed cost increase if level of activity increase but
stepped fixed cost per unit reduce if level of activity increase.

2. Estimated cost
Y=a + bx y= total cost
a=fixed cost
b=variable cost
x=No.of unit
3. High-low method
Step: Highest activity lowest activity
Highest cost lowest cost
VC = (Highest cost - lowest cost)/(Highest activity - lowest activity)
FC=total cost VC
Practice question
1. Four cost behaviour patterns are demonstrated on the chart below.
Which line on the chart represents the behaviour of total raw material costs where a volume
discount applies to all purchases in a period once a required level is reached?



A Line A
B Line B
C Line C
D Line D
2. The following data have been collected for four cost types W, X, Y, Z at two activity levels:
Cost type Cost @ 100 units
$
Cost @ 140 units
$
W
X
Y
Z
8,000
5,000
6,500
6,700
10,560
5,000
9,100
8,580
Where V = variable. SV = semi variable and F = fixed, assuming linearity, the four cost
types W, X, Y and Z are respectively
W X Y Z
A
B
C
D
V
SV
V
SV
F
F
F
F
SV
V
V
SV
V
SV
V
SV
3. A production worker is paid a salary of $650 per month, plus an extra 5 pence for each unit
produced during the month. This labour cost is best described as:
A A variable cost
B A fixed cost
C A step cost
D A semi-variable cost



4. A hotel has recorded that the laundry costs incurred were $570 when 340 guests stayed for
one night. They know that the fixed laundry cost is $400 per night. What is the variable
laundry cost per guest-night (to the nearest penny)?
A $0.50
B $1.18
C $1.68
D Impossible to calculate from the information available
5. The following charts demonstrate various costs in relation to activity:

Which of the above charts represents fixed cost per unit?
A Chart 1
B Chart 2
C Chart 3
D Chart 4
6. The following table details the totals cost Y, a step cost, for different production levels of
Product X.
Units of Product X Cost Y ($000)
0
10
20
30
40
100
100
100
150
150
What could have been the cause for the increase in the cost?
A Increased storage requirements
B Pay increase for direct labour



C Loss of material discounts
D Temporarily employing extra delivery drivers on hourly pay rates

The following information related to question 7 to 9
Direct material 10
Direct labor 29
Direct expenses 3
Factory expenses variable 7
Fixed 5
Non-manufacturing costs variable 2
Fixed 4

Total 60
Profit is 33% of total cost

7. What is the final selling price?
A 60
B 75
C 80
D 90
8. What is the variable cost?
A 54 per unit
B 42 per unit
C 51 per unit
D 49 per unit
9. What is prime cost?
A 54 per unit
B 60 per unit
C 42 per unit
D 49 per unit
10. A firm is trying to find a relationship between its sales volume in a quarter and its telephone
expenses that quarter
If a sales volume of 2 million units corresponds to a telephone expenses of $ 5000 and sales
volume of 4 million units corresponds to a telephone expenses of $ 6000, then if the sales
volume is 5 million, the telephone expense is likely to be:
A $ 2,500
B $ 6,500
C $ 7,000



D $ 7,500
11. The following data are records of output levels and overhead costs
January December
Hours worked 18,000 21,000
Total costs 86,000 97,438
There was 3% inflation between January and December. The variable cost per unit hour
worked at January level and to the nearest $ 0,01 is:
A $ 4.52
B $ 2.86
C $3.35
D $2.6
12. Bronze
Bronze recorded the following costs for the past six months
Month Level (unit) Total cost
1 80 6,586
2 60 5,826
3 72 6,282
4 75 6,396
5 83 6,700
6 66 6,054
a. Estimate the fixed costs per month and variable cost per unit using high-low method
b. Estimate the total cost for the following level in a month
(i) 75 units
(ii) 90 units



Chapter 5: Material
1 Inventory Classification
Raw material: Goods/ Materials purchased for incorporation into products for sales
WIP: An intermediate stage between the manufacturer purchasing the materials that go to
make up the finished product and the finished product
Finished Goods: ready for sale or despatch
2. Inventory Systems:
Perpetual Inventory system: updates inventory accounts after each purchase or sale
Periodic Inventory system: inventory quantities are updated on a periodic basis
3. Issuing inventory
Pricing issues of materials:
First in first out (FIFO)
Last in first out (LIFO)
Weighted average cost (AVCO)
- Cumulated Weight Average Cost
Calculate average price after each receipt of material (sometime called Moving Average
Cost), used in Perpetual Inventory System.
Weighted average price =
Inventory value of items in stores + Purchase cost of units
received
Quantity already in stores + Quantity received
- Periodic Weight Average Cost
Calculate at the end of the period which is then used to price all issues
Used in Periodic Inventory System
Periodic weighted avg. price =
Cost of opening inventory + Cost of all receipts in the period
Opening Inventory Quantity + Quantity received in the period
4. Ecomomic order quantity (EOQ)
EOQ = 2CoD/Ch
Average inventory held = (EOQ/2 + Buffer stock)
Total holding cost = Ch x Average inventory held
Re-order level = Maximum supply lead time x maximum demand for the item
Re-order level = Safety stock + Average supply lead time x Average demand for the item
Maximum Inventory Control Level = Re-order Level + Re-order Quantity (minimum usage x
minimum lead time)
Minimum Inventory Control Level = Re-order Level (average usage x average lead time)



Average inventory control level = Re-order level + Re-order quantity/2 (average lead time x
average usage)

Practice question
1. 2,400 units of component C, valued at a price of $6 each, were in stock (inventory) on 1
March. The following receipts and issues were recorded during March.
3 March Received 4,000 units @ $6.20 per unit
12 March Received 2,000 units @ $6.86 per unit
23 March Issued 5,100 units
Using the weighted average price method of stock (inventory) valuation, the total value of the
components remaining in stock (inventory) on 23 March was $
2. In a period of rising prices, which one of the following will be true with a first in first out (FIFO)
system of pricing stock (inventory) issues?
Product costs are overstated and profits understated
Product costs are overstated and profits overstated
Product costs are understated and profits understated
Product costs are understated and profits overstated
3. If the company using FIFO method for material issues at a time when material prices are
rising this will mean which of the following?
A Production cost will be lower and profit higher if LIFO had been used
B Production cost will be higher and profit lower if LIFO had been used
C Production cost will be lower and profit lower if LIFO had been used
D Production cost will be higher and profit higher if LIFO had been used

4. Hill Ltd wished to minimize its stock costs. At the moment its reorder quantity is 1,000 units.
Order costs are $10 per order and holding costs are $0,1 per unit per month. Hill Ltd
estimates annual demand to be 15,000 units.
What is the optimal reorder quantity
A 500 units
B 1,000 units
C 1,200 units
D 1,700 units

5. A company uses two very similar types of fixing bracket, Z99 and Z 100. The bracket are
purchase from an outside supplier. When the company undertakes a stock check it finds
some differences as show below:



Product Stock record Stock count
Z99 100 79
Z100 80 101
What is the most likely reason for the differences between the stock record and the stock
count for each bracket?
A. Production was higher than expected
B. Some bracket ware damaged during production
C. A customer asked the company to supply some extra bracket of both types
D. Some bracket were put in the incorrect storage racks

6. It a company wanted to ensure that its cost of production included the most recent cost for
material, it would be:
A Standard cost
B FIFO
C Weighted average cost
D LIFO

7. The following documents are used within a cost accounting system
(i) invoice from supplier
(ii) purchase order
(iii) purchase requisition
(iv) stores requisition
Which two of the documents are matched with the goods received nte in the buying process?
A (i) and (ii)
B (i) and (iv)
C (iii) and (ii)
D (iii) and (iv)



Chapter VI: Labour

1. Labour remuneration
Labour cost = Gross amount + Employer's contribution + Others (Recruiment cost, training...)
Basic pay: Time- related pay, Performance- related pay
Overtime: Direct or indirect cost
Incentives includes: Piece work, Time- saved bonuses, Discretionary bonus, Group bonus
scheme, Profit-sharing scheme
Idle time or down time is time paid for that is non-productive
2. Labour turnover
Average annual number of leavers who are replaced
Average number of employees
3. Labour efficiency and utilisation
Efficiency (productivity) ratio = Expected hours to make actual output/ Actual hours taken
Capacity ratio = Actual hours worked/ Budgeted hours
Activity ratio = Efficiency ratio x Capacity ratio

Practice question:
1. Gross wages incurred in department 1 in June were $54,000. The wages analysis shows the
following summary breakdown of the gross pay.
Paid to
direct labour
$
Paid to
indirect labour
$
Ordinary time
Overtime: basic pay
Premium
Shift allowance
Sick pay
25,185
5,440
1,360
2,700
1,380
36,065
11,900
3,500
875
1,360
300
17,935
What is the direct wages costs for department 1 in June?
A $25,185
B $30,625
C $34,685
D $36,065
2. Which of the following statements is/are true about group bonus schemes?
(i) Group bonus schemes are appropriate when increased output depends on a number
of people all making extra effort



(ii) With a group bonus scheme, it is easier to reward each individuals performance
(iii) Non-production employees can be rewarded as part of a group incentive scheme
A (i) only
B (i) and (ii) only
C (i) and (iii) only
D all of them
3. Guilt Trips Ltd budgets to make 50,000 units of output (in eight hour each) during a budget
period of 400,000 hours.
Actual output during the period was 54,000 units which took 480,000 hours to make.
The efficiency and capacity ratios are:
Efficiency ratio Capctity ratio
A
B
C
D
90%
90%
111%
111%
83%
120%
83%
120%
4. Which of the following statements is correct ?
A Idle time cannot be controlled because it is always due to external factors
B Idle time is always due to inefficient production staff
C Idle time is always due to inefficient production staff
D Idle time is not always the fault of production staff



Chapter VII: Expenses
1 Expense distinction
Capital expenditure is expenditure by a business on non-current (fixed) assets
Revenue expenditure is all expenditure other than capital expenditure and represents day to
day or operating expenses
Revenue expenditure is more relevance to the costing of products than capital expenditure.
Capital expenditure is only relevance when it is turned into revenue expenditure in form of
depreciation.
2 Depreciation
Straight line method
Reducing balance method
Machine hours method
Depreciation is the measure of the wearing out, consumption or other reduction in the useful
economic life of a non-current asset.
It spread out the capital cost of the asset over as long a period as the asset is used.
3 Obsolescence
Obsolescence is the loss in value of an asset because it has been superseded for example
due to the development of a technically superior asset or changes in market conditions. Loss
should charge direct to the costing income statement

Practice question:
1. Which of the following are examples of capital expenditure ?
(i) Purchase of a building
(ii) Extension to a building
(iii) Fixing broken windows
(iv) Replacing missing roof tiles
A (i) and (ii)
B (i) and (iii)
C (i) and (iv)
D (i), (ii), (iii) and (iv)
2. During 20X0, Joe Ltd bought new machinery for $40,000 and built an extension on its head
office at a cost of $20,000. Machinery was maintained at a cost of $4,000 during the year and
the head office was repainted at a cost of $5,000.
Joe Ltds capital expenditure in 20X0 is
A $40,000
B $60,000
C $64,000
D $69,000



3. New England plc purchases an asset for $20,000 which is depreciated over four years using
the straight line method. Assume a zero residual value after four years.
What is the next book value of the asset after three years ?
A $5,000
B $10,000
C $15,000
D $20,000
4. New England plc purchases another asset for $60,000 which is depreciated at a rate of 20%
per annum on the reducing balance. What is the net book value of the asset after four years?
A $12,000
B $19,661
C $24,576
D $30,720
5. The process by which whole cost items are charged direct to a cost unit or a cost centre is
known as
A Allocation
B Obsolescence
C Depreciation
D Expenditure



Chapter VIII. Costing approaches
1. Overview

2. Absorption Costing
Absorption costing is a method of determining a product cost that included a proportion of
all/ full production overheads incurred in the making the product and possibly appropriation
of other overheads such as administration and selling overheads.
(a) Absorption Costing procedures

Production Costs
Materials Labours Overheads
Variables Fixed
Period Costs
Absorption Costing Marginal Costing
Profit Statement Profit Statement
Reconciliation
Costing Approaches as Management Information



(b) Method of reapportionment
- Direct method: used where service cost centres do not provide services for one
another
- Step-down method: used where at least one of the service cost centres provides to
another service cost centre as well as to the production cost centre
(c)Absorption rate
- Absorption rate = Budgeted Overhead costs/ Budgeted volume of activity
(d) Over and under absorption
- Absorbed Overhead > Actual Overhead Over-absorbed (profit)
- Absorbed Overhead < Actual Overhead Under-absorbed (expense)
3. Marginal Costing
Marginal Production Cost consists Direct material, Direct labour, Variable Production
Overhead
Marginal cost of sales usually consists of the marginal cost of production adjusted for
inventory movement plus variable selling cost which would include items such as variable
Contribution = Sales Variable cost of sales
= Fixed cost + Profit
(a) Profit statements Under Absorption Costing and Marginal Costing
o Absorption Costing
Expenses
Overheads
Prime Costs
Cost centre
Cost centre
Specific O/H
Joint Expenses
Cost centre
1: Allocation
2: Apportionment & Reapportionment
Cost unit
3: Absorption



$ $ $
Sales X
Production cost of sales
Opening Inventory (full production cost) X
Production cost
Direct materials X
Direct labour X
Production overhead absorbed X
X
X
Less closing inventory (full production cost) (X)
Production cost of sales (X)
X
Production overhead absorbed X
Production overhead incurred X
Over-(under-) absorbed overheads X or (X)
Gross profit X
Administration overheads incurred X
Selling and distribution overheads incurred X
(X)
Net profit X

Marginal costing

$ $ $
Sales
Variable production cost of sales X
Opening Inventory (variable production cost) X
Variable production cost
Direct materials X
Direct labour X
Variable production overhead X
X
X
Less closing inventory (variable production cost) (X)
Variable production cost of sales X
Variable selling and distribution costs X



$ $ $
Total variable cost of sales (X)
Contribution X
Fixed costs (period costs)
Fixed production overheads X
Fixed administration overheads X
Fixed selling and distribution overheads X
Total fixed costs (X)
Profit X
(b) Reconciliation Statement for Marginal Costing and Absorption Costing Profit
$
Marginal Costing Profit X
ADD (Closing stock Opening Stock) x OAR X
= Absorption Costing Profit X
4. Job, batch, service costing
- Individual products designed and produced for individual customers, each individual
product is a cost unit use job costing;
- Group of different products (possibly in different styles, sizes, colours), produced to be
held in inventory until sold each of the batches of whatever style, size or colour is a cost
unit use batch costing;
- Many units of identical products produced from a single production process, held in
inventory until sold each batch from the process is a cost unit use process costing
Cost of each product or cost unit = total cost / number of products in the batch
- Service costing differs from other costing methods in the following ways:
Cost of direct materials consumed will be relatively small compared to the labour, direct
expenses and overhead costs
Indirect costs tend to represent a higher proportion of total cost compared with product
costing
Output of most service organizations is often intangible and it is therefore difficult to establish
a measurable unit cost.
Output is intangible: no inventory (Stimulation)
5. Process Costing
(a) Losses
- Normal loss is the expected amount of loss in a process. It is the level of loss or waste that
management would expect to incur under normal operating condition
If units of normal loss have no scrap value, their value or cost is zero;
If units of normal loss have a scrap value, the value of this loss is its scrap value, which is set
off against the cost of the process
- Abnormal loss = Actual loss Expected loss



= Expected output Actual output
Cost of abnormal cost is treated as an expense in the period it occurs.
Scrap value of abnormal loss is deducted from the the above expense
- Abnormal gain = Expected loss Actual loss
= Actual output Expected output
Abnormal gain is taken to Income Statement as an item of profit.
If loss has scrap value, profit should be reduced by the amount of income that would have
been earned from the sales of normal loss.
(b) Work-in-progress
- Unfinished production is valued using the concept of equivalent units;
- 1 finished output = 1 equivalent unit
Joint Products
Methods of apportioning joint cost:
- Physical quantity
- Sales values
- Net realisable value (Sales value Further processing cost)
(d) By Products
- Income from by-product added to sales of the main product
- By-product income treated as a separate source of income
- Sales income of the by-product deducted from the cost of production in the period
- Net realisable value of the by-product deducted from the cost of production in the period
Practice
Q1.



Q2

Q3



Q4

Q5



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Paper F2 Management Accounting

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