ACCT20001 Cost Management
Cost Management Notes:
Table of Contents
Week 1: Accounting Information for Management ............................................................................ 2
Week 2a: Fundamental Cost Concepts .................................................. Error! Bookmark not defined.
Week 2b: Resource Flow and Basic Cost Classification .......................... Error! Bookmark not defined.
Week 3a: Basic Cost Accumulation and Assignment:............................. Error! Bookmark not defined.
Week 3b: Job Costing: .......................................................................... Error! Bookmark not defined.
Week 4a: Process Costing ..................................................................... Error! Bookmark not defined.
Week 4b: Indirect Cost Allocation ......................................................... Error! Bookmark not defined.
Week 5: Activity-Based Costing (ABC) ................................................... Error! Bookmark not defined.
Week 6a: Cost-Volume-Profit (CVP) Analysis......................................... Error! Bookmark not defined.
Week 6b: Cost Estimation ..................................................................... Error! Bookmark not defined.
Week 8: Short-Term Decisions .............................................................. Error! Bookmark not defined.
Week 9: Long-Term Decisions ............................................................... Error! Bookmark not defined.
Week 10: Introduction to Budgeting ..................................................... Error! Bookmark not defined.
Week 11: Flexible Budgets, Standard Costs and Variance Analysis ........ Error! Bookmark not defined.
Week 12: Variance Analysis of Indirect Costs ........................................ Error! Bookmark not defined.
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ACCT20001 Cost Management
Week 1: Accounting Information for Management
1) Differentiate between financial accounting and managerial accounting, and explain how cost
accounting is related to both.
Financial accounting focuses on external reporting that is directed by authoritative guidelines /
prescribed accounting principles, whereas management accounting measures and reports financial
information as well as other types of information that are intended primarily to assist managers in
fulfilling the goals of the organisation.
Categorical differences include:
Regulations
Management Accounting
Generally prepared for
internal use
Preparation not governed
by external regulations
Range and detail of information
May encompass financial,
non-financial and
qualitative information
Very detailed to highly
aggregated
Reporting interval
Reports produced at
intervals dictated by
decision-making and control
needs of the information
users
May include historical an
current information but also
provides info on expected
future performance and
activities
Time period
Financial Accounting
Generally prepared for
external use
Prepared according to
accounting regulations and
guidelines imposed by law
Financial information
Broad based and intended
to provide a high level
overview of the position
and performance of an
organisation over a period
of time
Typically produced annually
(can be bi-annually or
quarterly)
Provide information on the
past period performance
and position
Cost accounting measures and reports financial and non-financial information related to the
organisation’s acquisition or consumption of resources, and provides information for both
management accounting and financial accounting.
2) Explain what is meant by ‘cost management’ and how it is related to managerial accounting and cost
accounting
Cost management describes the actions undertaken by managers in the short-run and long-run
planning and control of costs that increase value for customers and lower the costs of products and
services.
It is important to recognise the importance of prior management decisions that commit the
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ACCT20001 Cost Management
organisation to subsequent incurrence of costs. Thus, cost management has a broad focus. Typically
includes the continuous reduction of costs and encompasses the whole life cycle of the product from
conception to deletion.
Cost management is often carried out as a key part of general management strategies and their
implementation. Cost accounting contributes financial information to enable strategic impacts and
value creation potential of decisions to be recognised in order for management to effectively
integrate activities and functions of the business.
3) Explain the distinction and connection between planning and control.
Planning refers to choosing goals, predicting results under various ways of achieving those goals,
and then deciding how to attain the desired goals, whereas control refers to both the action that
implements the planning decision and deciding on performance evaluation and the related feedback
that will help future decision making.
A budget is the quantitative expression of a plan of action and an aid to the coordination and
implementation of the plan. Budgets can highlight variance, which refers to the difference between
the actual results and the budgeted amounts.
4) Differentiate between decision facilitating and decision influencing roles of information within
organisations, and explain their significance for the quality and completeness of accounting
information.
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ACCT20001 Cost Management
1. Explain the characteristics of standard costing and variance analysis that make these techniques
more or less applicable to different business problems and evaluate their suitability to a given
business problem as required (pg 588?)
Standard costing is a costing method that traces direct costs to a cost object by multiplying the
standard price(s) or rate(s) times the standard inputs allowed for actual outputs achieved, and
allocates the indirect costs on the basis of the standard indirect rate(s) times the standard inputs
allowed for the actual outputs achieved.
With a standard costing system, the costs of every product or service planned to be worked on
during that period can be calculated at the start of that period. This feature enables a simplified
recording system to be used.
No records need to be kept of the actual cost of items used or of the actual quantity of the cost
allocation base used on individual products or services worked on during the period. Once standards
have been set, the costs of operating a standard costing system can be low relative to an actual or
normal costing system.
2. Contrast and compare flexible budgeting variable analysis of indirect costs with alternatives such as
ABC/ABM to explain why or under what circumstances an organisation might choose to use one or
both for either planning or control
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Key Concepts:
Fixed vs Variable Overhead
Overhead Efficiency Variance
Overhead Spending Variance
Denominator Level
Fixed-Overhead Volume Variance
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ACCT20001 Cost Management
Engineered Costs
Discretionary Costs
Infrastructure Costs
Standard vs Normal vs Actual Costing
Set-Up Cost
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