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FUNDAMENTALS OF MANAGEMENT
ACCOUNTING QUESTIONS WITH
DETAILED VERIFIED ANSWERS
management accounting Ans: the application of the principles of
accounting and financial management to create, protect, preserve, and
increase value for the stakeholders of for-profit and not-for-profit
enterprises in the public and private sector
how does management accounting achieve its aims? Ans: by providing
good quality information to the different levels of the organization
characteristics of good quality information Ans: Accurate, Complete,
Cost-beneficial, User-targeted, Relevant, Authoritative, Timely, Easy to
use
Cost-beneficial Ans: cost of having info must outway the cost of
generating info
user targeted Ans: info targeted to who is going to use it, ex aggregated
for strategic, technical for operational
authoritative Ans: comes from good quality, reliable source
easy to use Ans: can actually understand it and know what to do with
the info
organizational levels Ans: strategic, tactical, operational
strategic Ans: -decisions have large impact on whole organization
-long term ramifications (3-5/10 years)
-tend to be unstructured decisions
tactical Ans: -decisions have a medium impact on whole organization
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-medium term ramifications (1-3 years)
operational Ans: -decisions only affect one department
-short term ramifications ( <1 year)
structured decisions Ans: well defined methodology for finding a
solution, repetitive and routine
unstructured decisions Ans: require judgment, evaluation, insight,
business acumen to solve the problem, may not have been encountered
before
where is info from? Ans: strategic tends to require info from external
sources, operational tends to from internal sources
what do management accountants do? Ans: -planning
-control
planning Ans: -future orientated generally
-formulating strategies to achieve goals and objectives
-often expressed formally as budgets
control Ans: -forward or backward looking
-performance measurement and evaluation (lagging indicators)
-differences between actual and planned results called variance (lagging
indicators)
-measures used depend on organization but ex variances,
financial/profitability measures, non financial measures (leading
indicators)
decision making Ans: choosing between 2 or more alternatives, looking
at financial and non-financial advantages and disadvantages
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historical cost Ans: original cost paid for asset at time of acquisition
economic value Ans: value the organization derives from owning and
using the asseet
cost unit Ans: a unit of product or service in relation to which costs are
ascertained (whatever size makes sense in the industry/company)
cost per unit Ans: cost of producing one unit of output
cost center Ans: production or service location, a function, an activity, or
an item of equipment for which costs are accumulated. Used for
collecting costs. (metaphorical bucket ex admin costs so all costs
associated with admin are put in cost center of admin costs)
cost object Ans: anything for which costs can be ascertained, ex a
product, a service (ex a hotel room night), an activity (ex team building),
a customer (ex top 20% of customers bring 80% of revenue in)
4 ways of classifying costs Ans: according to:
-element
-nature
-function
-behavior
classifying costs: Element Ans: -materials costs
-labor costs
-expense costs
element: materials costs Ans: components used in manufacturing.
includes cost of obtaining materials and receiving them within the
company.
FUNDAMENTALS OF MANAGEMENT
ACCOUNTING QUESTIONS WITH
DETAILED VERIFIED ANSWERS
management accounting Ans: the application of the principles of
accounting and financial management to create, protect, preserve, and
increase value for the stakeholders of for-profit and not-for-profit
enterprises in the public and private sector
how does management accounting achieve its aims? Ans: by providing
good quality information to the different levels of the organization
characteristics of good quality information Ans: Accurate, Complete,
Cost-beneficial, User-targeted, Relevant, Authoritative, Timely, Easy to
use
Cost-beneficial Ans: cost of having info must outway the cost of
generating info
user targeted Ans: info targeted to who is going to use it, ex aggregated
for strategic, technical for operational
authoritative Ans: comes from good quality, reliable source
easy to use Ans: can actually understand it and know what to do with
the info
organizational levels Ans: strategic, tactical, operational
strategic Ans: -decisions have large impact on whole organization
-long term ramifications (3-5/10 years)
-tend to be unstructured decisions
tactical Ans: -decisions have a medium impact on whole organization
, Page | 2
-medium term ramifications (1-3 years)
operational Ans: -decisions only affect one department
-short term ramifications ( <1 year)
structured decisions Ans: well defined methodology for finding a
solution, repetitive and routine
unstructured decisions Ans: require judgment, evaluation, insight,
business acumen to solve the problem, may not have been encountered
before
where is info from? Ans: strategic tends to require info from external
sources, operational tends to from internal sources
what do management accountants do? Ans: -planning
-control
planning Ans: -future orientated generally
-formulating strategies to achieve goals and objectives
-often expressed formally as budgets
control Ans: -forward or backward looking
-performance measurement and evaluation (lagging indicators)
-differences between actual and planned results called variance (lagging
indicators)
-measures used depend on organization but ex variances,
financial/profitability measures, non financial measures (leading
indicators)
decision making Ans: choosing between 2 or more alternatives, looking
at financial and non-financial advantages and disadvantages
, Page | 3
historical cost Ans: original cost paid for asset at time of acquisition
economic value Ans: value the organization derives from owning and
using the asseet
cost unit Ans: a unit of product or service in relation to which costs are
ascertained (whatever size makes sense in the industry/company)
cost per unit Ans: cost of producing one unit of output
cost center Ans: production or service location, a function, an activity, or
an item of equipment for which costs are accumulated. Used for
collecting costs. (metaphorical bucket ex admin costs so all costs
associated with admin are put in cost center of admin costs)
cost object Ans: anything for which costs can be ascertained, ex a
product, a service (ex a hotel room night), an activity (ex team building),
a customer (ex top 20% of customers bring 80% of revenue in)
4 ways of classifying costs Ans: according to:
-element
-nature
-function
-behavior
classifying costs: Element Ans: -materials costs
-labor costs
-expense costs
element: materials costs Ans: components used in manufacturing.
includes cost of obtaining materials and receiving them within the
company.
