Summary Financial Management (FBS220)

FBS220 – Financial Management


Contents
LA 1: Chapter 1: Management accounting & the business
environment ............................................................................................ 2
LA 2: Chapter 2: Cost terms/ concepts/ classifications ..................... 3
LA 3: Chapter 3: Cost Behaviour ........................................................... 6
LA 4: Chapter 4: Systems Design – Job order .................................... 11
LA 4: Chapter 4 (Appendix 4A): Service department costing ........14
LA 5: Chapter 5: Process Costing ........................................................ 16
LA 6: Chapter 6: Cost-volume-profit Relationships ........................... 19
LA 7: Chapter 7: Profit reporting under variable costing and
absorption costing ................................................................................ 23
LA 8: Chapter 11: Budgeting ............................................................... 26

,LA 1: Chapter 1: Management accounting & the business
environment

1. DIFFERENCES
Managerial accounting Financial accounting
Definition  Provides info for managers  Provides info to
of an organization who stockholders/
direct/ control its creditors/ others
operations outside organization
 Work of management
- Planning
- Directing/
motivating
- Controlling
Users  External  Managers
 Make financial decisions  Plan for/ control
organization
Time focus  Historical perspective  Future emphasis
Verifiability vs  Emphasis on verifiability  Emphasis on
relevance relevance
 For planning/ control
Precision vs  Emphasis on precision  Emphasis on
timeliness timeliness
Subject  Primary focus on whole  Focus on segments of
organization organization
Requirements  Must follow prescribed  Need not follow
formats prescribed formats


2. PLANNING/ CONTROL CYCLE




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, LA 2: Chapter 2: Cost terms/ concepts/ classifications

1. COST TERMS
Manufacturing/  Direct materials
product costs  Direct labour
 Manufacturing overheads
Direct materials  Direct cost
 Become integral part of product
 Traced directly to it
Direct labour  Direct cost
 Easily traced to individual units of product
Manufacturing  Indirect cost
overheads  Cannot be traced to specific units produced
 Indirect labour/ materials
Prime cost  = Direct materials + direct labour
Conversion cost  = Direct labour + manufacturing overhead
Nonmanufacturing  Marketing/ selling costs
costs  Administrative costs
Variable costs  Changes when activity level changes
 Per unit: remains the same over wide ranges over
activity
Fixed costs  Remain unchanged when activity changes
 Per unit: goes up/ down as activity level goes up
Differential  = Job offer with higher salary – current salary
revenue
Differential cost  Commuting cost to new job
Opportunity cost  Potential benefit that is given up when an alternative is
selected over another
Sunk costs  Cannot be changed by any decision
 Shouldn’t be ignored when making decisions


2. PRODUCT VS PERIOD COSTS
Product costs  Direct materials
 Direct labour
 Manufacturing overhead
 Inventory in Balance sheet
 Cost of goods in Profit statement
Period costs  Not included in product costs
 Expensed on Profit statement
Income Statement
Sales X
Cost of goods sold (X)
Gross profit X
Period cost (X)
Net profit X




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