SYmon MK
Our aim is your success.
MAC2601
PRINCIPLES OF MANAGEMENT ACCOUNTING
PART 1: VALUING INVENTORIES USING BASIC TECHNIQUES
Question 1:
Answers
Disclaimer
Although this document has been meticulously crafted, it is provided without any express, implied, or representational
warranties.
The author assumes no liability or responsibility for any actions that are taken as a result of the information contained in thi
document.
The purpose of this document is to serve as a reference, research, and comparison tool.
It is strictly prohibited to reproduce, rescale, or transmit any portion of this document.
, CONTENTS
INTRODUCTION AND OVERVIEW ix
PART 1: VALUING INVENTORIES USING BASIC TECHNIQUES 1
Topic 1 – Nature and behaviour of costs 3
Study unit 1: Cost objects, classification and behaviour 5
1 Introduction 5
2 Cost objects and traceability 5
3 Classification of costs according to their nature or origin 7
4 Further classification of manufacturing costs according to
its components 8
5 Classification of costs according to cost behaviour 10
6 A closer look at relevant range and specific time frame 15
7 Classification of cost as product or period cost 16
8 Summary 17
Self-assessment Activity 17
Study unit 2: Estimation techniques and the linear equation 20
1 Introduction 20
2 The linear equation 20
3 The high-low method 21
4 The scatter diagram 22
5 Simple regression analysis (least squares method) 23
6 Summary 27
Self-assessment Activity 28
Study unit 3: Cost-volume-profit analysis 32
1 Introduction 32
2 What is the cost-volume-profit analysis? 32
3 Assumptions of the cost-volume-profit analysis 33
4 Contribution 33
5 Breakeven analysis 37
6 The effects of price and cost changes on the breakeven point 39
7 Margin of safety 42
8 Target profit analysis 43
9 Breakeven graph 45
10 Summary 46
Self-assessment Activity 46
iii . . . . . C. o.n.t .e n.t .s
,Topic 2 – Accounting for material, labour and overheads 59
Study unit 4: Material 61
1 Introduction 61
2 Material recording procedures 62
3 Accounting entries 63
4 Inventory planning and control 65
5 Summary 72
Self-assessment Activity 72
Study unit 5: Labour 76
1 Introduction 76
2 Labour cost control 76
3 Payroll accounting 79
4 Accounting entries in respect of labour remuneration 87
5 Labour recovery rate 90
6 Summary 94
Self-assessment Activity 94
Study unit 6: Overheads 98
1 Introduction 98
2 Why do manufacturing overheads present a problem? 98
3 Budgeted, applied and actual manufacturing overheads 101
4 Accounting entries in respect of manufacturing overheads 103
5 Multiple range of products: expanding on the overhead
concepts to date 105
6 Multiple range of products: departmentalisation/allocation of
overheads 115
7 Summary 125
Self-assessment Activity 125
Comprehensive Self-assessment Activity 131
Topic 3 – Methods of inventory valuation 135
Study unit 7: First-in-first-out (FIFO) method 137
1 Introduction 137
2 Categories of inventory 138
3 The FIFO method 139
4 Summary 140
Self-assessment Activity 141
Study unit 8: Weighted average method 144
1 Introduction 144
2 Weighted average method 144
3 Summary 146
Self-assessment Activity 146
........... iv
C o n t e n t s
, Topic 4 – Valuing completed inventories: the variable/direct costing method
versus the traditional absorption costing method 151
Study unit 9: The direct costing method versus the absorption
costing method 153
1 Introduction 153
2 Allocating manufacturing cost 153
3 Different costing concepts 154
4 Presentation formats of the different statements of
comprehensive income 155
5 Impact of the weighted average method and the FIFO
method on both costing methods 159
6 Summary 164
Study unit 10: Reconciling differences between net profits 165
1 Introduction 165
2 Reconciling profits that were determined using different bases 166
3 Advantages, disadvantages and uses of the direct costing
method 168
4 Advantages, disadvantages and uses of the absorption
costing method 169
5 Summary 171
Comprehensive Self-assessment Activity 172
Part 2: VALUING INVENTORIES USING MORE ADVANCED TECHNIQUES
Topic 5 – The activity-based costing (ABC) system 183
Study unit 11: Comparing ABC and the traditional costing method 185
1 Introduction 185
2 The emergence of a more complex business environment 185
3 Optimal environment for the ABC method 186
4 Comparison of the two-stage allocation process (between
traditional and ABC) 187
5 Differences between ABC and traditional costing 189
6 Advantages of the ABC method 189
7 Disadvantages of the ABC method 189
8 Summary 189
Self-assessment Activity 189
Study unit 12: ABC system design and application 191
1 Introduction 191
2 Designing an ABC system 191
3 Product costing with ABC 197
4 Summary 200
Comprehensive Self-assessment Activity 201
v ...........
C o n t e n t s
Our aim is your success.
MAC2601
PRINCIPLES OF MANAGEMENT ACCOUNTING
PART 1: VALUING INVENTORIES USING BASIC TECHNIQUES
Question 1:
Answers
Disclaimer
Although this document has been meticulously crafted, it is provided without any express, implied, or representational
warranties.
The author assumes no liability or responsibility for any actions that are taken as a result of the information contained in thi
document.
The purpose of this document is to serve as a reference, research, and comparison tool.
It is strictly prohibited to reproduce, rescale, or transmit any portion of this document.
, CONTENTS
INTRODUCTION AND OVERVIEW ix
PART 1: VALUING INVENTORIES USING BASIC TECHNIQUES 1
Topic 1 – Nature and behaviour of costs 3
Study unit 1: Cost objects, classification and behaviour 5
1 Introduction 5
2 Cost objects and traceability 5
3 Classification of costs according to their nature or origin 7
4 Further classification of manufacturing costs according to
its components 8
5 Classification of costs according to cost behaviour 10
6 A closer look at relevant range and specific time frame 15
7 Classification of cost as product or period cost 16
8 Summary 17
Self-assessment Activity 17
Study unit 2: Estimation techniques and the linear equation 20
1 Introduction 20
2 The linear equation 20
3 The high-low method 21
4 The scatter diagram 22
5 Simple regression analysis (least squares method) 23
6 Summary 27
Self-assessment Activity 28
Study unit 3: Cost-volume-profit analysis 32
1 Introduction 32
2 What is the cost-volume-profit analysis? 32
3 Assumptions of the cost-volume-profit analysis 33
4 Contribution 33
5 Breakeven analysis 37
6 The effects of price and cost changes on the breakeven point 39
7 Margin of safety 42
8 Target profit analysis 43
9 Breakeven graph 45
10 Summary 46
Self-assessment Activity 46
iii . . . . . C. o.n.t .e n.t .s
,Topic 2 – Accounting for material, labour and overheads 59
Study unit 4: Material 61
1 Introduction 61
2 Material recording procedures 62
3 Accounting entries 63
4 Inventory planning and control 65
5 Summary 72
Self-assessment Activity 72
Study unit 5: Labour 76
1 Introduction 76
2 Labour cost control 76
3 Payroll accounting 79
4 Accounting entries in respect of labour remuneration 87
5 Labour recovery rate 90
6 Summary 94
Self-assessment Activity 94
Study unit 6: Overheads 98
1 Introduction 98
2 Why do manufacturing overheads present a problem? 98
3 Budgeted, applied and actual manufacturing overheads 101
4 Accounting entries in respect of manufacturing overheads 103
5 Multiple range of products: expanding on the overhead
concepts to date 105
6 Multiple range of products: departmentalisation/allocation of
overheads 115
7 Summary 125
Self-assessment Activity 125
Comprehensive Self-assessment Activity 131
Topic 3 – Methods of inventory valuation 135
Study unit 7: First-in-first-out (FIFO) method 137
1 Introduction 137
2 Categories of inventory 138
3 The FIFO method 139
4 Summary 140
Self-assessment Activity 141
Study unit 8: Weighted average method 144
1 Introduction 144
2 Weighted average method 144
3 Summary 146
Self-assessment Activity 146
........... iv
C o n t e n t s
, Topic 4 – Valuing completed inventories: the variable/direct costing method
versus the traditional absorption costing method 151
Study unit 9: The direct costing method versus the absorption
costing method 153
1 Introduction 153
2 Allocating manufacturing cost 153
3 Different costing concepts 154
4 Presentation formats of the different statements of
comprehensive income 155
5 Impact of the weighted average method and the FIFO
method on both costing methods 159
6 Summary 164
Study unit 10: Reconciling differences between net profits 165
1 Introduction 165
2 Reconciling profits that were determined using different bases 166
3 Advantages, disadvantages and uses of the direct costing
method 168
4 Advantages, disadvantages and uses of the absorption
costing method 169
5 Summary 171
Comprehensive Self-assessment Activity 172
Part 2: VALUING INVENTORIES USING MORE ADVANCED TECHNIQUES
Topic 5 – The activity-based costing (ABC) system 183
Study unit 11: Comparing ABC and the traditional costing method 185
1 Introduction 185
2 The emergence of a more complex business environment 185
3 Optimal environment for the ABC method 186
4 Comparison of the two-stage allocation process (between
traditional and ABC) 187
5 Differences between ABC and traditional costing 189
6 Advantages of the ABC method 189
7 Disadvantages of the ABC method 189
8 Summary 189
Self-assessment Activity 189
Study unit 12: ABC system design and application 191
1 Introduction 191
2 Designing an ABC system 191
3 Product costing with ABC 197
4 Summary 200
Comprehensive Self-assessment Activity 201
v ...........
C o n t e n t s
