MAC 3701 MANAGEMENT ACCOUNTING TECHNIQUES AND
APPLICATIONS FINAL END SEMESTER SUMMARY
QUESTIONS WITH WELL DETAILED ANSWERS GRADED A+
Identifying cost behaviour - ✔✔ As the costs stay the same for all months = fixed - If you take
the material cost / by the output that will give you the £ per unit and if it is the same each month
then it is variable - if the £ per unit changed each month then it is mixed - Then you have to
apply the low-high method to split the cost
Constructing a cost card - ✔✔ Once we have established the various costs associated with
business we identify the costs of producing a single cost unit - Typically will list direct costs
(direct material and labour) / prime costs (total of direct) / indirect costs (variable overheads and
fixed overheads) / total production cost (indirect + direct costs)
Implications (conclusion) of cost behaviour for decision making - ✔✔ Understanding of cost
behaviour will help management to prepare budgets / what level of outputs are necessary to
break even
Material costs - ✔✔ Anything physical that we purchase for our business - Direct costs like tires
- Indirect costs like light bulb usage
Types of material inventory - ✔✔ Raw materials - Any materials that are still in the same basic
state as when the business purchased them
WIP - Part completed units of production that have been started but not finished
Finished goods - Completed units ready to be sold for customer
,Holding buffer stock - ✔✔ To avoid the chance of suffering stock out (running out of stock)
businesses will often hold a minimum level of inventory known as buffer stock - This helps cope
with unexpected demand / delays to supplier deliveries
The economic order quantity model - ✔✔ Mathematical model which helps to minimise costs
associated with inventory policy - Helps to identify number of units to order from our supplier
each time we place an order
Formula to learn - ✔✔ EOQ = square root of 2cd / by h
C = the fixed cost incurred every time an order is placed
D = The annual demand for the material being ordered
H = The cost of holding one unit for one year
Times 2 by c by d then divide that by h then find the square root of that
Inventory control levels definitions - ✔✔ A minimum level of inventory - Will ensure we do not
have to turn away customers
A maximum level of inventory - Will ensure we are not suffering excessive costs
A reorder level - The level that inventory will have fallen which will prompt us to place a new
order
The lead time - The delay between placing an order and the order actually arriving
Inventory control levels calculations - ✔✔ Buffer inventory = reorder level - (average usage x
average lead time)
Re order level = (average usage x average lead time) + buffer inventory
, Maximum inventory level = Buffer inventory + maximum reorder quantity
Maximum reorder quantity = Maximum inventory level - buffer inventory
Minimum = Average usage x average lead time
Methods of inventory valuation - First in first out (FIFO) - ✔✔ The first items in will be the first
ones to be sold - We value the inventory assuming it's the last stock in - Take the first units in
inventory then take the next units received (take the amount that will match to the amount of
units sold) - Then the remaining inventory times that by how much the newest inventory cost as
we already got rid of the other inventory
Average cost (AVCO) - ✔✔ We do not know which units we are selling so we work out the
average cost of the inventory held at the time of the sale - Add up how much stock you have with
how much they cost - Then divide the cost by the amount of stock that gives you the cost per unit
- Then times that by the remaining inventory that gives you the closing inventory
Completing inventory record cards - Dealing with receipts - ✔✔ Dealt with the same under both
FIFO and AVCO - Fill in the receipts in the record card and then add that to the quantity and cost
balances - When we make issues from inventory then we start thinking about which valuation
method to use
Issues of inventory - FIFO - ✔✔ Selling oldest inventory first - Start at opening inventory units
at that cost purchase for - Then the next inventory units (until it adds up to the amount sold)
received at that cost - Then add up the total cost of them units sold - Then take the total units
minus the units sold for the closing quantity - Then take the total cost minus the costs we worked
out for the closing cost
APPLICATIONS FINAL END SEMESTER SUMMARY
QUESTIONS WITH WELL DETAILED ANSWERS GRADED A+
Identifying cost behaviour - ✔✔ As the costs stay the same for all months = fixed - If you take
the material cost / by the output that will give you the £ per unit and if it is the same each month
then it is variable - if the £ per unit changed each month then it is mixed - Then you have to
apply the low-high method to split the cost
Constructing a cost card - ✔✔ Once we have established the various costs associated with
business we identify the costs of producing a single cost unit - Typically will list direct costs
(direct material and labour) / prime costs (total of direct) / indirect costs (variable overheads and
fixed overheads) / total production cost (indirect + direct costs)
Implications (conclusion) of cost behaviour for decision making - ✔✔ Understanding of cost
behaviour will help management to prepare budgets / what level of outputs are necessary to
break even
Material costs - ✔✔ Anything physical that we purchase for our business - Direct costs like tires
- Indirect costs like light bulb usage
Types of material inventory - ✔✔ Raw materials - Any materials that are still in the same basic
state as when the business purchased them
WIP - Part completed units of production that have been started but not finished
Finished goods - Completed units ready to be sold for customer
,Holding buffer stock - ✔✔ To avoid the chance of suffering stock out (running out of stock)
businesses will often hold a minimum level of inventory known as buffer stock - This helps cope
with unexpected demand / delays to supplier deliveries
The economic order quantity model - ✔✔ Mathematical model which helps to minimise costs
associated with inventory policy - Helps to identify number of units to order from our supplier
each time we place an order
Formula to learn - ✔✔ EOQ = square root of 2cd / by h
C = the fixed cost incurred every time an order is placed
D = The annual demand for the material being ordered
H = The cost of holding one unit for one year
Times 2 by c by d then divide that by h then find the square root of that
Inventory control levels definitions - ✔✔ A minimum level of inventory - Will ensure we do not
have to turn away customers
A maximum level of inventory - Will ensure we are not suffering excessive costs
A reorder level - The level that inventory will have fallen which will prompt us to place a new
order
The lead time - The delay between placing an order and the order actually arriving
Inventory control levels calculations - ✔✔ Buffer inventory = reorder level - (average usage x
average lead time)
Re order level = (average usage x average lead time) + buffer inventory
, Maximum inventory level = Buffer inventory + maximum reorder quantity
Maximum reorder quantity = Maximum inventory level - buffer inventory
Minimum = Average usage x average lead time
Methods of inventory valuation - First in first out (FIFO) - ✔✔ The first items in will be the first
ones to be sold - We value the inventory assuming it's the last stock in - Take the first units in
inventory then take the next units received (take the amount that will match to the amount of
units sold) - Then the remaining inventory times that by how much the newest inventory cost as
we already got rid of the other inventory
Average cost (AVCO) - ✔✔ We do not know which units we are selling so we work out the
average cost of the inventory held at the time of the sale - Add up how much stock you have with
how much they cost - Then divide the cost by the amount of stock that gives you the cost per unit
- Then times that by the remaining inventory that gives you the closing inventory
Completing inventory record cards - Dealing with receipts - ✔✔ Dealt with the same under both
FIFO and AVCO - Fill in the receipts in the record card and then add that to the quantity and cost
balances - When we make issues from inventory then we start thinking about which valuation
method to use
Issues of inventory - FIFO - ✔✔ Selling oldest inventory first - Start at opening inventory units
at that cost purchase for - Then the next inventory units (until it adds up to the amount sold)
received at that cost - Then add up the total cost of them units sold - Then take the total units
minus the units sold for the closing quantity - Then take the total cost minus the costs we worked
out for the closing cost
