ACCA F2 Study Text eBook Free Download - ACCA F2 Training Course

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ACCA F2 EBOOK DEC 2013

EXAM TOPICS Note: click the cross-reference below for easy navigation. Click press Ctrl+Home to see table of exam topics.

or

EXAM TOPICS ........................................................................................................................... 1 KEY TERMS ................................................................................................................................ 3 INTENDED BENEFITS OF THE E-BOOK ...................................................................... 11 AUTHOR’S PROFILE ............................................................................................................. 24 IMPORTANT!........................................................................................................................... 25 USER GUIDE ............................................................................................................................ 27 INTRODUCTION TO F2 MANAGEMENT ACCOUNTING ........................................ 29 EXAMINER'S GUIDANCE .................................................................................................... 32 MURTAZA’S GUIDANCE ..................................................................................................... 35 STUDY PLANNER .................................................................................................................. 36 FORMULA SHEET .................................................................................................................. 38 Exam Topic 1: ACCOUNTING FOR MANAGEMENT ................................................ 39 Exam Topic 2: SOURCES OF DATA ................................................................................ 51 Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR ......................................... 63 Exam Topic 4: PRESENTING INFORMATION............................................................ 92 Exam Topic 5: ACCOUNTING FOR MATERIALS .................................................... 101 Exam Topic 6: ACCOUNTING FOR LABOUR ........................................................... 106 Exam Topic 7: ABSORPTION COSTING SYSTEM .................................................. 109 Exam Topic 8: ABSORPTION & MARGINAL COSTING ........................................ 111 Exam Topic 9: JOB & BATCH COSTING ..................................................................... 113 Exam Topic 10: PROCESS COSTING SYSTEM ......................................................... 115 Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

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Exam Topic 11: SERVICE COSTING SYSTEM .......................................................... 117 Exam Topic 12: ALTERNATIVE COST ACCOUNTING ......................................... 119 Exam Topic 13: NATURE & PURPOSE OF BUDGETING ..................................... 121 Exam Topic 14: STATISTICAL TECHNIQUES ......................................................... 123 Exam Topic 15: BUDGET PREPARATION ................................................................ 126 Exam Topic 16: FLEXIBLE BUDGETS ........................................................................ 128 Exam Topic 17: CAPITAL BUDGETING & DISCOUNTED CASH FLOWS ...... 130 Exam Topic 18: BUDGETARY CONTROL & REPORTING ................................... 133 Exam Topic 19: BEHAVIOURAL ASPECTS OF BUDGETING ............................. 135 Exam Topic 20: STANDARD COSTING SYSTEMS ................................................. 137 Exam Topic 21: VARIANCE ANALYSIS ...................................................................... 139 Exam Topic 22: RECONCILIATION OF BUDGETED & ACTUAL PROFIT ..... 141 Exam Topic 23: PERFORMANCE MEASUREMENT OVERVIEW ..................... 143 Exam Topic 24: PERFORMANCE MEASUREMENT -APPLICATION .............. 145 Exam Topic 25: COST REDUCTIONS & VALUE ENHANCEMENT................... 148 Exam Topic 26: MONITORING PERFORMANCE & REPORTING .................... 150 RELATED PRODUCTS ....................................................................................................... 152 REPORT ABUSE .................................................................................................................. 153 Exam Focused ACCA Study Text Books Free Download

Special Offer Place a http://accasupport.com link at any ONE of your or other account to get any TWO exam topics above of your choice for free not included in free version by emailing at [email protected] or [email protected] Email should contain web page URL where you have placed a link and name of any TWO exam topics you want. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

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KEY TERMS BROWSE BY KEY TERM

A

Blanket Rate or Single Factory Wide Rate......................................... 106

Absorption Costing..................... 106

Budget Committee ..................... 118

Accurate ....................................... 41

Budget Period............................. 118

Achievable .................................. 147

Budget Policy Manual ................ 118

Acid Test Ratio ........................... 142

Budgeting ................................... 118

Activity Based Costing (ABC) ...... 116

Buffer Stock ................................ 100

Additive Model........................... 120

C

Administration Overheads ........... 61 Attendance Sheet ...................... 103 Authoritative. ............................... 41

Capacity Ratio .................... 104, 143 Cash Budgets .............................. 123 Chain Based Index Number ........ 121

Average Inventory Level ............ 100 Clear ........................................... 147 Avoidable Cash Flows................. 127 Avoidable Idle Time Cost............ 103

Clustered Sampling ...................... 55 Coefficient of Correlation ........... 120

B

Coefficient of Determination ..... 120

Balance Score Card .................... 142

Committed Cost ......................... 127

Bar Charts..................................... 93

Competitive Benchmarking ........ 147

Batch Costing ............................. 110

Competitive Performance .......... 147

Benchmarking ............................ 147

Complete ...................................... 41 Compound Interest .................... 127

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Compounding............................. 127

Departmental Overhead Absorption Rate......................................... 106

Consumer Price Index (CPI) ........ 120 Contribution ............................... 108 Control ......................................... 39

Deseasonalisation ...................... 120 Determinants ............................. 147 Dimensions ................................. 147 Control Reports .......................... 130 Direct Cost .................................... 62 Controllability ............................ 147 Controllable Cash Flows ............. 127 Conversion Cost ......................... 112 Cost Centres ........................... 78, 79 Cost Objects ................................. 78

Direct Expense ............................. 63 Direct Labour................................ 63 Direct Labour Budget ................. 123 Direct Materials............................ 63 Direct Method ............................ 106 Cost Units ..................................... 78 Direct Relationship ................. 76, 77 Cost Value .................................. 145 Cost-beneficial. ............................ 41 Costs Behaviour ........................... 67 Critical Success Factors (CSF) ..... 142 Current Asset Ratio .................... 142

Directly Attributable Fixed Cost . 127 Discounted Cash Flow ........ 126, 127 Discounting ................................ 127 Discretionary Costs .................... 145 Dispatch Note............................... 98 Cyclical Variations ...................... 120 Distribution .................................. 51

D Data .............................................. 40

Dividend Cover ........................... 142

E

Decision Making ........................... 39 Delivery Note (DN) ....................... 98

Easy to use. .................................. 41 Economy..................................... 143 Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

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Effective Interest Rate ............... 127

Flexibility .................................... 147

Effectiveness .............................. 143

Forecasting ................................. 120

Efficiency .................................... 143

Free Inventory .............................. 98

Efficiency Ratio................... 104, 143

Frequency..................................... 50

Equity ......................................... 147

Functional Benchmarking........... 147

Equivalent Cost Units ................. 112

Functional Budgets..................... 123

Esteem Value ............................. 145

Future Cash Flows ...................... 127

Exchange Value .......................... 145

G

Extrapolation.............................. 120

Goods Received Note (GRN) ........ 98

F

grapevine ..................................... 47

FIFO (first in first out) ................. 100

Gross Profit Margin .................... 142

Finance Overheads....................... 62

Group Bonus Schemes ............... 103

Financial accounting .................... 36

H

Financial Gearing........................ 142 Financial Performance ............... 147 Finished Goods ............................. 98 Fisher Formula ........................... 127

Heterogeneity ............................ 143 High Low Method ......................... 73 Holding Cost ............................... 100 Hourly Rate Basis ....................... 103

Fixed Costs ........................... 69, 127 Fixed Costs per Unit ..................... 70 Fixed Production Overhead Capacity Variance .................................. 136 Fixed Production Overhead Variance .................................. 136

I Idle Time Costs ........................... 103 Incremental Piece Work System 103 Index Numbers ........................... 120

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Indirect Cost ................................. 62 Indirect Expenses ......................... 64 Indirect Labour ............................. 64 Indirect Materials ......................... 64 Indirect Relationship .................... 76 Individual Bonus Schemes.......... 103 Information .................................. 40

L Labour Cost Variance ................. 136 Labour Turnover......................... 103 Life Cycle Costing ....................... 116 LIFO (last in first out) .................. 100 Line Graphs .................................. 91 Linear Relationship ....................... 75

Innovation .................................. 147 Intangibility ................................ 143 Interest Cover ............................ 142 Internal Rate of Return (IRR) ...... 128 Interpolation .............................. 120 Inventory Turnover .................... 142 Investment Centre ....................... 80 Irrelevant Cash Flows ......... 126, 127

M Management accounting ............. 36 Margin ........................................ 100 Marginal Costing ........................ 108 Mark up ...................................... 100 Master Budgets .......................... 123 Material Cost Variance ............... 136 Material Requisition Note (MRN). 98

J JIT ............................................... 145 Job Costing ................................. 110 Job Sheet .................................... 103

Maximum Inventory Level ......... 100 Minimum Guaranteed Pay ......... 103 Minimum Inventory Level .......... 100 Mission Statement ..................... 140

K

Motivation.................................. 147

Key Performance Indicators (KPI) ................................................ 142

Moving Averages ........................ 120 Multiplicative Model .................. 120

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Multistage Sampling .................... 56

P

N

Payback Period ........................... 128

Net Present Value (NPV) ............ 127

Periodic Inventory System ......... 100

Non Controllable Cash Flows ..... 127

Perish-ability .............................. 143

Non Financial Performance Measures ................................ 142

Perpetuity .................................. 128

Non Linear Relationship ............... 76 Non-production costs .................. 60

Physical Measurement Method . 112 Physical Stock Taking.................... 99 Pie Charts ..................................... 94

O

Piece Work Systems ................... 103

Objectives .................................... 38

Planning ....................................... 38

Operating Profit Margin ............. 142

Population .................................... 49

Operational Gearing................... 142

Pre-determined Overhead Absorption Rate .............. 105, 106

Operational Objectives .............. 140 Prime Cost .................................. 112 Operational Planning ................... 40 Principle Budget Factor .............. 123 Opportunity Cost ....................... 127 Probability .................................... 52 Optimal or Economic Batch Quantity (EBQ) ........................ 100 Optimal or Economic Order Quantity (EOQ) ....................... 100 Ordering Cost ............................. 100

Process Costing .......................... 112 Production Budget ..................... 123 Production costs........................... 60

Overhead Budget ....................... 123

Production or Factory Overheads (F.O.H) ....................................... 64

Overtime Premiums ................... 103

Production Volume Ratio ... 104, 143

Ownership .................................. 147

Profit Centres ............................... 79

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Purchase Invoice (PI) or Supplier Invoice ...................................... 98

Resource Utilization ................... 147 Responsibility Accounting .. 129, 130

Purchase Order (PO) .................... 98 Purchase Requisition Note (PRN) . 98

Responsibility Centres .................. 78 Results ........................................ 147 Purchase Return Notes or Debit Note .......................................... 98

Retail Price Index (RPI) ............... 120

Q

Return on Capital Employed (ROCE) ................................................ 143

Quality........................................ 147

Return on Equity (ROE) .............. 143

Quick Ratio ................................. 142

Return on Investment (ROI) ....... 143

Quota Sampling............................ 56

Revenue Centres .......................... 79

R

Rewards ..................................... 147

Random Sampling ........................ 52

S

Random Variations..................... 120

Salary .......................................... 103

Raw Materials .............................. 98

Sales Budget ............................... 123

Raw Materials Budget ................ 123

Sales Invoice ................................. 98

Reciprocal Method (Repeated Distribution Method) .............. 106

Sales Return Notes or Credit Note. .................................................. 98

Regression Analysis .................... 120

Sales Value Method ................... 112

Relevant ....................................... 41

Sales Variance ............................ 136

Relevant Cash Flows........... 126, 127

Sample.......................................... 49

Reorder Level ............................. 100

Sample Size .................................. 50

Re-Order Quantity ..................... 100

Scatter Graph ............................... 92

Residual Income (RI) .................. 143

Scenario Planning ....................... 123

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Seasonal Variations .................... 120

Stratified Sampling ....................... 53

Selling & Distribution Overheads . 61

Sunk Cost .................................... 127

Semi-Variable Costs ..................... 72

Systematic Sampling .................... 53

Share Options ............................ 132

T

Simple Aggregate Index Numbers ................................................ 121

Tables ........................................... 91

Simple Interest ........................... 127

Tactical Objectives ..................... 140

Simultaneity ............................... 143

Tactical Planning .......................... 40

Spread Sheet .............................. 121

Target Costing ............................ 116

Spurious Relationship .................. 77

Tender Document ........................ 98

Standard Costing ........................ 134

Time Based Schemes .................. 103

Standard Deviation ...................... 52

Time Series Analysis ................... 120

Standard Error.............................. 51

Time Sheet ................................. 103

Standards ................................... 147

Timely. .......................................... 41

Step Down Method .................... 106

Total Cost ..................................... 73

Step-Fixed Costs ........................... 71

Total Quality Management (TQM) ................................................ 116

Stipends ..................................... 103 Stock Out Costs .......................... 100 Store Ledger Card ........................ 98

Trade Payable Turnover ............. 142 Trade Receivable Turnover ........ 142 Trend .......................................... 120

Strategic Benchmarking ............. 147 Strategic Objectives ................... 140

U

Strategic Planning ........................ 40

Unavoidable Cash Flows............. 127

Strategies ..................................... 39

Unavoidable Idle Time Cost ....... 103

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Under & Over Absorption .......... 106

Variable Costs per Unit................. 68

Unit Costs ..................................... 78

Variable Production Overhead Variance .................................. 136

Use Value ................................... 145 User-targeted. .............................. 41

V

W Wage Rate Basis ......................... 103 Weighted Average Method ........ 100

Value Analysis ............................ 145 What If Analysis.......................... 123 Value for Money ........................ 143 Variable Cash Flows ................... 127 Variable Costs (Marginal Costs) ... 67

Work in Progress (WIP) ................ 98 Work Study................................. 145

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INTENDED BENEFITS OF THE E-BOOK Features & 1) Exam Focused:

Benefits of ACCA Study Text Ebook Exam focused ACCA study text ebooks are aimed to help you passing exams by allowing you spend efforts and time smartly. ACCA study text books aim to educate you in the way you are expected to apply your knowledge in the exam. ACCA study text books are updated prior to each exam session and during the exam session in the light of recent information available such as examiner published an article in student accountant. In that case, you will receive updated version of relevant ACCA study text book via e-mail.

accasupport.com Usually ACCA students look for ACCA exam tips at the end of exam session to learn important syllabus areas much better. Therefore, those ACCA students usually do exam focused study only 2 weeks or 1 month before. ACCA students can greatly improve the probability of passing exams if they do exam focused study from the beginning. Exam Focused ACCA Study Text Books bring all relevant information under one roof to eliminate information gathering on relevant ACCA Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

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exam paper and prevents the chances of omission of important information about the relevant ACCA exam paper. These study materials take account of examiners comments and reports, past exam papers, student accountant articles, tips from other tutors, syllabus areas examined by other professional accountancy bodies, publications in business magazines etc. 2) Examiner's Guidance:

Examiner's Guidance are exam preparation tips given by the examiner in student accountant, examiner's interview and other documents.

3) Author's Guidance:

Author's guidance are applicable to all syllabus areas. It also includes tips to enable you to prepare for exams and perform during exams effectively .

4) Exam Awareness:

5) Exam Support:

Exam Awareness shows the frequency and magnitude (marks) of each syllabus area. It also shows the relationship between various syllabus areas and how each syllabus area contributes toward passing exams. Exam Support provides guidance on application of knowledge in exam context. Just knowledge is not enough for passing exams rather you have to use it wisely in limited time available in the exams.

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6) Past Paper

Past paper analysis is given at the beginning of

Analysis (F5, F9, the study text and also directly below relevant P1, P3):

headings. Past paper analysis at the beginning of the study text enables you to practice past exam questions relevant to each syllabus area on ACCA global website. Therefore, you do not need to buy expensive practice kit or search for relevant questions to practice a particular syllabus area. Past paper analysis directly below each relevant heading gives an idea about the length, complexity of requirements and VERBS (Explain, Evaluate, Report etc) in which each syllabus area can be examined.

7) Learning Objective (F2/FMA only):

Learning objective sets the knowledge and skills expected to be achieved after reading particular syllabus area. F2 Management Accounting exam format does not provide significant benefit from past paper analysis. In CBE (computer based exams) each candidate may be examined different set of questions.

8) Illustrations (if any):

However, importance of each exam topic is discussed under exam awareness and exam support headings. Illustrations are simple numerical examples given to prepare students for more challenging exam standard questions. Illustrations depend on the type of ACCA

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paper. Discussion based ACCA papers may not include illustrations. 9) Explanations (if any):

Explanations are given to explain the rationale (why & how) behind steps involved in calculations. Explanations depend on illustrations provided in the study text book.

10) Examples:

Examples are given to explain technical theoretical knowledge in simple and understandable way. Technical jargons are used to prepare you for different technical terms used by the examiner to dodge you to ensure that you understood the text rather than rote learn the text. These technical jargons are explained in parenthesis or as separate example to make you understand the technical term and syllabus area as whole. It also shows the application of knowledge into practice. It is especially useful when you are expected to apply your knowledge to answer scenario based questions. Processing information meaningfully and logically leads to better retention of information. Linking new information to information already committed to your memory, such as every day

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experiences, is proven technique for learning new knowledge. It will also motivate you to learn harder, as you will understand the benefits of technical knowledge in your career as chartered accountant. 11) Diagrams:

Diagrams are given to explain complex concepts and procedures, which are difficult to understand in words. Diagrams also lead to better memorization of knowledge. Diagrams lead to the use of right brain while text lead to the use of left brain. Combination of text and diagrams enables you to learn ACCA papers using both brains to avoid getting overstressed left part of the brain due to excessive reading. Left brain is responsible for reading, calculation, analysis. Right brain is responsible for establishing relationships, reading graphs & charts and dealing with non-financial aspects, such as motivation of managers and employees.

12) Practice Questions:

Practice questions are exam standard questions to provide a clue about length complexity and format of questions likely to be asked in the exams.

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Solutions are given in a format that will save time, while solving questions during the exams. Time management is important during exam, ability to solve question but taking more than time available is of no use. You must be able to solve question within given time. Therefore, you must identify, which steps will be rewarded and which steps can be omitted without losing marks. In addition, you solution should be properly crossreferenced such as working 1, 2, 3 etc and labeled using descriptive text rather than abbreviations. Solution is supported with explanations to tell you why and how that particular step is performed. 13) Hyperlinks:

14) Bookmarks:

Hyperlinks are links to other areas of study text book. In addition, table of exam topics are linked to exam topics and table of sub exam topics are linked to sub exam topics given at the beginning of each exam topic. Hyperlinks will save several minutes per day, which you may spend navigating through ordinary printed and ebooks. Hyperlinks will save large amount of time during the whole exam session. Bookmarks are given for reaching quickly to relevant syllabus area. It is an alternative to hyperlinks.

15) Key Terms:

Table of key terms shows important terms across the study text book that you must understand in order to learn relevant topic and pass the exams.

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It allows you to reach to the place inside study text book, where you can develop basic understanding about particular term. 16) Colours:

Colours are used for demarcation between essential text, supporting examples, exam support etc. It will enable you to find required ebook feature such as example, exam support, diagram etc easily. It also make learning interesting. Writing golden words without motivating reader to read it is of little use.

17) Annotations:

You can highlight text and add comment anywhere in the study text book. Highlighting will enable you to highlight phrases and sentences you want to read again. Commenting will allow you to make a brief note in the study text book. You can use commenting to: 

Save mnemonics.



Mark as read important, unread, read, Revised etc.

However, most publishers do not allow these features to enforce their copyrights. 18) Readout Loud:

Readout load enables students to listen written text. You can use any screen reader of your choice

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to convert text to speech. Those who have problem reading text can particularly benefit from this feature. Others can have a break from reading text. Listening involves the use of Right brain opposed reading, which involves the use of Left brain. Listening allows your Left brain to revitalize for future reading. It will also help revision of your syllabus before exams much faster. It is usually believed that listening is many times faster process than reading. You can adjust the speed according to your preference.

19) Accessibility:

Each point of theory is started from separate line to enable you to listen only the text of your interest. These study text books have legible fonts type & size and high contrast colours to enable you read easily without producing strain on your eyes. You do not need to zoom and then scroll horizontally to read study text.

20) Study Planner:

You can switch to two pages per screen layout to avoid frequent vertical scrolling, without compromising readability to significant extent. Study planner is a method allows you to plan for study within limited time available. It also allows you to track your progress against plan; therefore, you can adjust your speed

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of study and study hours accordingly. Time management is specially important for professional students that you have to meet other commitment such as job, friends and family. 21) Printer Friendly: ACCA study text books are economical to print. Diagrams, tables and other formatting are made to keep the cost of printing to minimum. You may consider printing two pages side by side to save papers and cost, without compromising readability to significant extent. Most other publishers do not allow printing an ebook at all or just allow to printed 25% - 60% of the ebook pages. accasupport.com allows 100% printing of the ebook pages. It will also provide portability as you can easily carry it in our bags. 22) PDF File Format: PDF (Portable document format) files can be viewed using free adobe reader. Adobe reader is compatible with most operating systems such as windows, Mac, Android etc. You can also read ACCA study text ebook on tablets and cell phones supporting PDF format to take these ebooks on the way or at workplace in your pocket. Therefore, you also do not need to buy pocket Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

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notes too. It can be used on multiple computers and mobile device without any limitation imposed on the number of devices. PDF file format is widely used file format used to compress file size of electronic documents such as ebooks and takes very little time to load as compare to ebooks having EXE file format. ACCA study text ebook is searchable through any software having find and replace function. However, conversion of PDF into DOC, TXT etc format may distort structure of an ebook or make it unreadable at all. 23) Environment Friendly:

Reading Ebooks on digital media such as PC, laptop, tablets, cell phones are among the best ways to save papers and therefore, environment from greenhouse effect. Millions of papers can save thousands of trees each day. It also prevents CO2 emission in traveling or delivery of printed books in addition to traveling or delivery cost and time.

24) Instant Download:

In addition, it is our moral duty to care for environment and society who lives in that environment. You can benefit from studying immediately after download. Step-by-step guidance is given for downloading ebook for first time buyers. One step secured order form without any

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registration. All major credit cards & paypal accepted. No installation required of custom software design to enforce copyrights. Custom software may not work well with different PCs, laptops, mobile devices etc, as it is virtually impossible to test custom software against different hardware and software specifications. Some anti-virus softwares prevent unpopular softwares from running on the system. Therefore, you may need to disable anti-virus prior to executing the application. PDF file format is widely used file format for sharing documents online and offline. Therefore, it is very unlike to have issues with PDF file. There are numerous free PDF readers available to suit your needs. No licensing and online registration requirements. No waiting time for receiving password or ebook itself.

25) Guaranteed Pass: (nothing to lose)

Please! Note that ebook cannot be refunded due to instant download and no DRM (Digital Rights Management) protection software imposed, as others. You will be granted 100% free study text ebook for subsequent exam session until you pass your exams. Unfortunately, if an ACCA student does not

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26) Harmony

27) Core Activity

28) Direct Access

make a pass, then he/she has to send an e-mail along with ACCA result screen shot/PDF file and customer order number or transaction identification number. Most publishers do not involved writing and editing their books. They hire writers having expert knowledge on particular topic. However, they are not connected with ACCA training provision and therefore, not aware of practical challenges, jargons etc faced by students during the exams and areas of weakness on the part of students. It creates lack of harmony between different syllabus areas. Each syllabus area seems to be unrelated to each other while studying. However, most examiners require students to demonstrate the understanding of overlapping nature of the syllabus. This would not be a case, if entire syllabus of relevant ebook was written by one mentor. Many publishers using their study text books as marketing tool for other highly profitable activities such as tuition providing, recruitment agency, paid advertising etc. Ebook publishing is not their core competency. They tend to direct their resources towards more profitable activities, while quality of ebooks may suffer as a result. accasupport.com is devoted full time to ebook publishing and continuously acquire new skills (memory techniques, for example) and resources (word processing software, for example) to compile an ebook to support students in much better way. You will have direct access to author & administrator, without having to wait for information to be transfer to and from more than one desk to reach the person responsible for making decision. It will result in quicker response to inquiries. In addition, you need to send only single email to resolve your all issues rather than dealing with different personnel for each issue, regarding purchasing and usage of ebooks.

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29) No Hidden Policies

Many publishers provide money back guarantees and gifts etc. However, it is subject to hidden charges and conditions, which are not communicated on sales page and ebook description page. Instead, such policies are communicated on FAQs, Terms of Service, Delivery etc pages. accasupport.com has no such hidden polices. Refund policy is communicated at the bottom of home page and instant download feature.

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AUTHOR’S PROFILE Name: Murtaza Lanewala Career Status: Freelance writer & tutor for professional accountancy qualifications. Professional bodies include ACCA, CIMA and ICAEW. Author & CEO of accasupport.com E-mail: [email protected] or [email protected]

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IMPORTANT! 1 Disclaimer This study material is sold only through accasupport.com website. However, Clickbank.com is the credit card processing organization for collecting payments for this study material. This study material is not available offline (shops, schools etc.) in any form such as DVDs, CDs, Printed books etc. Study materials purchased from unauthorized source can be out of date and incomplete. In addition, you will not be able to receive free updates given to the buyers of original material. Demo version of this material is available free of cost, please take care, not to pay for demo version of this ebook to unauthorized sellers. This material is for ACCA examination Dec 2013 only. Students who are reading out-dated material are at risk, as it will not be representative of current examination format, terminologies and syllabus. Readers of this material will be solely responsible for the consequences of any decisions made in real life. Author & accasupport.com are not responsible to the readers of this material under any circumstances. Recommendations made of any kind are intelligent guesses to the best of author’s knowledge. Names of individuals, organizations, countries, religions etc are used for educational purpose only. It is not intended to abuse, discriminate and heart anyone's feelings and dignity.

2 Copyright Notice This material is subject to copyright protection law. Infringement of copyright law results in criminal liability (fine or imprisonment or both). Copyright infringement is effectively theft of intellectual property; therefore, it is unethical from social viewpoint and sinful act from religious viewpoint as well. Copyright ©2012 Murtaza Lanewala. All rights reserved. 2.1 Do You can make a backup copy of this material.

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You can use parts of this material provided you quote the appropriate reference to the author and material. 2.2 Do Not You cannot publicly share this material in the form of hard copy or soft copy (physically and over the internet) for cash or for free. You cannot transform this material into other means of communication such as photocopy, video, audio etc. Unless needed for accessibility purpose or personal use. You cannot change the file format of this material or make it editable. You cannot resell this material unless you are selling the original copy purchased. You cannot use any part of this material in or with contents associated with violence, politics, religious and pornographic contents in any way. Earn

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USER GUIDE E book features Learning Objective Sub Exam Topics Exam Topic Awareness Exam Support Example Illustration Explanation Formula Diagram Cross reference

Highlighting Bookmarks

Details Learning objective sets the motive of learning particular exam topic. It provides list of main headings at the beginning of each exam topic. You have to just click relevant heading in a list to reach there. It provides broad information on composition (theoretical v computational) and importance of each paper in exam context. Exam Support provides detailed information on application of theory and calculations in exam context. Example provides practical application of technical theoretical knowledge. Illustration provides numerical applications of theoretical knowledge. Explanations provide the reasons for correctness or un correctness of particular statements and calculation. Formula is mathematical equations and tabular formats. Diagrams are visual (Graph, Charts, Tree formats etc) presentations of theoretical knowledge. Cross-referencing are hyperlinks to other exam topics. Click previous view button to go back. Highlighting is used show the relationship or connection between words and figures. Click bookmark icon in the side bar (see below) to jump to specific exam topic in the ebook.

Screen Shot:

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If you not currently using adobe reader, then I recommend you to download adobe reader; to get maximum benefits from this ebook. Click http://get.adobe.com/reader/ to download.

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INTRODUCTION TO F2 MANAGEMENT ACCOUNTING 1 Examiner The F2 examiner is David Forster.

2 Aim To develop the knowledge and understanding of providing basic management information in an organization to support management in planning and decision-making.

3 Position of F2 Performance Management in ACCA

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4 Main Capabilities & Relationships

5 Exam Paper Format The examination will consist of 50 two mark questions.

6 Duration of Exam The syllabus is assessed by a two hour paper-based or computer-based examination.

7 Resources: http://www.accaglobal.com/en/student/qualification-resources/accaqualification/acca-exams/f2-exams.html http://www.accaglobal.com/en/student/Essentials/pass-exams.html http://updates.accasupport.com Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

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http://accasupport.com/blog/

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EXAMINER'S GUIDANCE Examiner’s Name Steve Jay F2 problems are highlighted by the examiner.  Lack of knowledge.  Careless reading.  Lack f understanding.  Narrative questions generally.  Failure to practice questions. Examiner’s recommendations to these problems  Cover the full syllabus.  Understanding.  MCQ technique.  Objective testing question practise. Poorly performed areas due to lack of knowledge identified by the examiner:  Abnormal losses.  Cost classifications.  Fixed overhead variances.  Standard cost operating statements. Poorly performed areas due to careless reading:  Relevant costing (relevant costing is now only examinable in the context of capital budgeting).

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Poorly performed areas due to lack of understanding :  Under or over absorption of overhead.  The apportionment of joint costs.  Constructing spreadsheet formula (no longer in study guide).  Calculation of allowances for idle time (no longer in study guide). Syllabus areas specifically referred to by the examiner: Performance measurement  Relationship b/w mission, objectives and performance measurement.  The effect of market conditions and government regulation on performance measurement.  Calculating and interpreting financial ratios.  Selecting performance indicators.  Calculation of return on investment on residual income.  Difference between cost control and cost reduction.  The application of value analysis.  Financial indicators.  Service industry,  Not for profit organizations,  Managerial performance.  The problem of “short termism” and benchmarking. Forecasting &Budgeting  Statistical techniques of correlation.  Ordinary least squares regression.  Time series techniques and calculating moving averages, trend and seasonal variations (additive and multiplicative).  Product life cycle costing and its effects on forecasting.  Index numbers both single and multiple (multiple index numbers is not mentioned in study guide). Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

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Capital Budgeting  Administrative procedures for constructing a capital budget.  Compounding and discounting.  NPV, IRR and simple and discounted payback period.  Distinguish between capital and revenue expenditure.  Relevant and irrelevant cost  Annuities and perpetuities.  Behavioural aspects of budgeting focusing on motivation and participation. Sources of data  Sampling methods.  Tables, charts and graphs. Alternative costing techniques  ABC costing.

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MURTAZA’S GUIDANCE Please! Buy Full Version.

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STUDY PLANNER Determine number of days available Formula: Idle time can be incurred due to sickness, computer crash, social events etc. It depends on your daily activities and environment. I recommend you to make a printed copy to read when computer is not available. Allocation of number of days available to exams Formula:

Number of pages will include allowance for solving past paper questions, student accountant articles etc. Please note that different syllabus areas will take different amount of time. Calculations will take more time than theoretical areas. Therefore, it will give you only rough idea of your progress. Tracking progress Formula:

If revised number of page per day is > than originally plan; it means you are lagging behind and now you have to do study more per day. Troubleshooting Study at time of day when you are fresh. This will enable you to learn more in available time. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

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Consider skip reading examples, if you understood theory by reading main text. Study in the end sub exam topics, which is less likely to be examined in your exam session. You can see past paper analysis given below each sub exam topic.

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FORMULA SHEET

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Exam Topic 1: ACCOUNTING FOR MANAGEMENT | Page 39 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Exam Topic 1:

ACCOUNTING FOR MANAGEMENT Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) Pg.no 1 Purpose & Role of Management Accounting 40 2 Financial Accounting Vs Cost & Management Accounting 41 3 Planning, Decision Making & Control Process 42 4 Types of Planning 44 5 Difference between Data & Information 45 6 Attributes of Good Information 45 7 Limitations of Management Accounting Information 46 8 Practice Questions & Solutions 46 Exam Topic Awareness Analysis Details Composition Accounting for management is examined as text based questions. Importance Accounting for management provides the reason for studying other exam topics. It will enable to you make reasonable guess if you are not sure about the answer of a particular question. .

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1 Purpose & Role of Management Accounting Learning Objective: Describe the purpose and role of cost and management accounting within an organization. 1.1 Purpose of Management Accounting Cost and management accounting is about providing necessary financial and non-financial information to management and employees at all levels inside the organization for decision making purpose, so that they can better be able to make rational decisions in timely manner. Example: Reporting information on a cost of product to marketing department so the selling price of the product can be determined. For this purpose, cost and management accounting also involves information gathering from inside as well as outside the organization. Example: Inside information can be number of units made by production department each month. Outside information can be market demand of the product offered by the organization. Diagram: Strategic Management Management Accountant

Tactical Management

Macro environment Operational Management 1.2 Role of Management Accounting Cost and management accounting can have different types of roles in different organizations. Following are the roles, which are commonly performed by the cost and management accounting function or management accountant. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 1: ACCOUNTING FOR MANAGEMENT | Page 41 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Roles Setting product costs & selling price

Details Management accountant works out the product cost using suitable costing techniques such as absorption and marginal costing methods (see later). They calculate selling prices based on mark-up (Profit % on cost) set by the senior management. Budgeting and Management accountant prepares budgets based on forecasting present and future objectives and strategies of the organization. For this purpose, they forecast (estimate) many variables such as sales volume and cost changes. Communicating Management accountant gathers data and information & Reporting from internal and external sources. They compile this information in an appropriate format, structure and report it to appropriate level of management (strategic, tactical or operational) in an organization in timely manner. Assisting in Management accountant provides financial and nondecision financial information, which can assist managers to making make informed decisions. They use techniques such as Linear programming (not in syllabus) and marginal costing method (see later) etc. Performance Management accountant establishes performance management & measures (such as ROCE, RI etc) against which control performance of individuals & organization as a whole can be evaluated. He/she gathers information and compares it against standard so that performance can be rewarded or penalized.

2 Financial Accounting Vs Cost & Management Accounting Learning Objective: Compare and contract financial accounting with cost and management accounting (K). Financial Accounting Financial accounting is required by law, such as company law. Non-compliance can result in penalties and punishments. Financial accounting is for providing information to external parties such as shareholders government and bankers etc.

Management Accounting Management accounting is not required by law. Management accounting is for providing information to internal parties such as Board of directors, managers and employees.

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Exam Topic 1: ACCOUNTING FOR MANAGEMENT | Page 42 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Financial accounting uses international and local frameworks and accounting standards to prepare standardized financial statements. Financial accounting mostly provides financial information along with minimum nonfinancial disclosure required by accounting standards in notes to the financial statements. Financial accounting information is historical and do not provides information on future prospects of an organization. Financial accounting provides information on performance and position of an organization at regular intervals usually 12 months.

Management accounting adopts flexible approach to internal reporting. Format, structure, level of details and channel of communication depend on situation to situation. Management accounting provides both financial and non-financial information. Usually explanation and interpretation of technical financial figures. Management accounting is present and forward looking. It assists management in efficient and effective operation of an organization. Management accounting provides information for decision-making purpose whenever needed, so that organizational objectives can be achieved.

3 Planning, Decision Making & Control Process Learning Objective: Outline the managerial processes of planning, decision-making and control (K). Diagram: Planning

Decision Making

Control

Feedback 3.1 Planning Planning is about looking into the future. It involves asking following questions. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 1: ACCOUNTING FOR MANAGEMENT | Page 43 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Where we are? Where we want to be? How do we get there? How external factors will influence the organization? (PESTEL factors) What skills and resources will be needed? (SWOT analysis) After considering all above questions at minimum, Organizational Objectives are set and strategies are decided to achieve those objectives as part of planning process. Everything considered during the planning process should be recorded and updated each time plan is revised. 3.1.1 Objectives Objectives are long term SMART (specific, measureable, attainable, relevant and time bounded) targets set by the organization. Examples: Increase Profitability (specific) of the organization (relevant) by 10% (measureable, attainable) in two years (time bounded). This can be an objective of profit motive organization. Increase number of users (specific) of the golf club (relevant) by 20% (measurable, attainable) in five years (time bounded). This can be an objective of Not for profit organization. Objectives should be consistent with the mission of the organization. Example: If organization mission is to provide high quality goods or services to its customer then objective of cost reduction will not lead fulfilment of mission. Rather organization should set the objective of lowering no of complaints. 3.1.2 Strategies Strategies are short-term plans made to achieve organizational objectives. Examples: Making new products and selling them into existing market. Sell existing products into new market. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 1: ACCOUNTING FOR MANAGEMENT | Page 44 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Provide luxurious environment to golf club members. Strategies made by the organization should be consistent with mission, objectives. Example: If organization set the objective implies very fast growth then use of internal savings (retained earnings) will not lead to fulfilment of objective. Rather organization should raise finance (shares or loan) to support the objective of very fast growth. 3.2 Decision Making Management at all levels needs to take decisions to fulfil objectives. Decisions made by the managers must be consistent with the organizational mission, objectives and strategies. All decision made by the managers should be recorded so that they can be made accountable for their decisions. 3.3 Control Control is exercised to evaluate the results of decision-making. Whether the decisions made are correct or different course of action should be taken. Actual results should be compared with plan and variance (divergence) from plan needs to be investigated to determine causes. Any information obtained during the control process is feedback into the planning process so that realistic plans can be made next time and informed decision can be taken.

4 Types of Planning Learning Objective: Explain the difference between strategic, tactical and operational planning (K). Strategic Planning Long term planning. Brief planning.

Tactical Planning Medium term planning. Moderate planning.

Operational Planning Short term planning. Detailed planning.

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Exam Topic 1: ACCOUNTING FOR MANAGEMENT | Page 45 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Largely planning based on external environmental information. Issues covered by the strategic planning include product development and marketing strategy.

Break up of strategic plans into plans capable of implementation. Deciding, how much units need to be manufactured for each product? What kind of pricing technique to adopt?

Planning based on internal historical data (past experiences). Issues covered by operational planning include, how frequent machine maintenance should be carried out?

5 Difference between Data & Information Learning Objective: Distinguish between data and information (K). Data Data is the collection of raw facts and figures. Data do not support decisionmaking. Statement of comprehensive income and statement of financial position are examples of data.

Information Information is the meaningful compilation of data. Information supports decisionmaking. Reports, such as monthly control reports to the management on organizational performance are an example of information.

6 Attributes of Good Information Learning Objective: Identify and explain the attributes of good information. Attributes Accurate Complete

Details Information should be free from any arithmetical or grammatical mistakes. Information should not be less than 100%.

CostBenefits of obtaining information must exceed its costs. beneficial User-targeted Information should be targeted to appropriate person i.e. who have the ability to make decisions based on such information. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 1: ACCOUNTING FOR MANAGEMENT | Page 46 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Relevant Authoritative

Information should be relevant to the matter under consideration. Information should be from trustworthy source. If anyone has to believe it to be true.

Timely

Information should be communicated in time. Example news would not be of any use if communicated late.

Easy to use

Users of the information must able to understand and apply it for decision-making purpose.

7 Limitations of Management Accounting Information Learning Objective: Explain the limitations of management information in providing guidance for managerial decision-making (K). Limitations of management information for decision-making purpose are given below. 7.1 Lack of technical expertise Managers may not have enough knowledge and experience to understand technical jargons and methodologies used for preparing reports. 7.2 Lack of time Managers may not have enough time to read every report thoroughly presented to them or management accountant may not able to supply information within time. 7.3 Lack of understanding Managers may not understand the importance and role of management accounting information for decision-making purpose. They may consider provision of such information useless or reduction in their autonomy to make decisions. 7.4 Lack of Relevant & Reliable Information Sufficient (relevant) and appropriate (reliable) data may not be available to management accountant to analyse and report information based on them.

8 Practice Questions & Solutions

8.1 Question (12/06, Q2) The following assertions relate to financial accounting and to cost accounting: Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 1: ACCOUNTING FOR MANAGEMENT | Page 47 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

(i) The main users of financial accounting information are external to an organisation. (ii) Cost accounting is that part of financial accounting, which records the cash received and payments made by an organisation. Which of the following statements are true? A. Assertions (i) and (ii) are both correct. B. Only assertion (i) is correct. C. Only assertion (ii) is correct. Solution: Correct answer is B. Explanation: (i) The main objective of financial accounting information (financial statements) is to provide information to shareholders on the performance of the company those are external to the organization. However, it is also useful for other stakeholders (interested parties) such as bankers, suppliers, tax authorities, customers etc. Management and other employees of the company needs detailed information those are internal to the company. Detailed information can be on elements of product cost such as material, labour and production overheads, account receivable and payable of individual customer and suppliers respectively. (ii) Management accounting is separate function/department from financial accounting. They are both sub departments of accounts department. Management accounting department is not responsible for recording cash receipts and payments it is the responsibility of financial accounting department. Management accounting may make use of financial accounting information for providing feedback to management on their performance. 8.2 Question (P/P, Q31) Which of the following statements relating to management information are true? 1. It is produced for parties external to the organisation

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2. There is usually a legal requirement for the information to be produced 3. No strict rules govern the way in which the information is presented 4. It may be presented in monetary or non-monetary terms A. 1 and 2 B. 3 and 4 C. 1 and 3 D. 2 and 4 Solution: Correct answer is B. Explanation: 1) Management accounting information is produced for internal management and other employees to the organization. 2) Management accounting information is not required by law. 3) Management accounting information is presented flexibility depending on urgency, relevance to the user and reliability (estimated or actual) of information required. 4) Management accounting information can be presented in monetary terms such as variable cost and non-monetary terms such as number of goods reworked. Please! Remember that non-monetary information can be alphabetic as well as numerical. 8.3 Question (12/06, Q38) Management accounting information is financial as well as nonfinancial. Management accounting reports also involves interpretations of fact and figures and recommendations on the course of action taken by the management. Data is information that has been processed in such a way as to be meaningful to its recipients. Is this statement true or false? (1 mark) Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 1: ACCOUNTING FOR MANAGEMENT | Page 49 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

A. True B. False Solution: Correct answer is B. Explanation: Data is separate bits of information. Data has to be processed in some way to be meaningful. Data is not information in itself; it is merely raw facts and figures used to produce information. Example: Financial statement does not provide information for investment decision. Investor has to perform ratio analysis to obtain information for investment decisions. Return on investment (ROI) of 14% is calculated based on data given in financial statement to obtain information on profit generated on investment in the company. 8.4 Question (12/06, Q49) The following statement refers to a quality of good information: The cost of producing information should be greater than the value of the benefits of that information to management. Is this statement true or false? (1 mark) A. True B. False Solution: Correct answer is A. Explanation: In business, quality of information depends on cost of obtaining information and other non-financial factors expressed as ACCURATE mnemonic. Business activities are pursued to increase economic wealth. If cost of obtaining information does not exceed benefits, then it will lead to reduction in wealth. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 1: ACCOUNTING FOR MANAGEMENT | Page 50 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

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Exam Topic 2: SOURCES OF DATA | Page 51 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Exam Topic 2:

SOURCES OF DATA Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) Pg.no 1 Sources of Data & Information 52 2 Uses & Limitations of Published Information/Data 52 3 Impact of Economic Environment on Cost & Revenue 53 4 Sampling Methods or Techniques 53 5 Choosing Sampling Methods 61 6 Practice Questions & Solutions 61 Exam Topic Awareness Analysis Details Composition Sources of data is examined as text based questions. Importance Knowledge of this exam topic does not affect performance on other exam topics.

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Exam Topic 2: SOURCES OF DATA | Page 52 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

1 Sources of Data & Information Learning Objective: Describe sources of information from within and outside the organization (K). 1.1 Sources Outside the Organization Newspaper, magazines and published books. Work done by government departments such as monetary policy and fiscal policy. References from other organizations. These can be competitors, suppliers and customers. Tele communication media such as television and internet. Labour unions, trade associations and shareholders through general meetings both annual & extraordinary. Academic and professional education providers. External market research. 1.2 Sources Inside the Organization Invoice, GRN, Vouchers and other internal documents. Informal gossip (grapevine) around the organization. Formal team meetings. Memo and reports. Intranet and e-mails. Surveys in the form of questionnaires to employees. Observing employees attitudes and morale.

2 Uses & Limitations of Published Information/Data Learning Objective: Explain the uses and limitations of published information/data (K). 2.1 Uses of Published Information Published information is used as cost effective way of gathering information for initial planning. Published information is used for those areas where information gathering by organization is not possible due to lack of expertise or cost associated with obtaining information. It is used where information is immediately needed. 2.2 Limitations of Published Information Published information may not be available in a format and medium organization wants. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 2: SOURCES OF DATA | Page 53 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Published information can be too general and not precisely applicable to the type of organization in question. Published information can create information overload such as lengthy books. Information from media such as internet may not be reliable unless we have the information on knowledge and experience of publisher. They take no responsibility for information provided as opposed to in-house employees who can be held accountable.

3 Impact of Economic Environment on Cost & Revenue Learning Objective: Describe the impact of general economic environment on costs/revenue. Economic environment decides the demand for goods or services. Business cycle such as recession or growth can influence what and how much organization produce. Economic environment decides the price for goods or services. If economy is prospering, higher pricing can be charged to customer than economy is contracting. Economic environment affects the investment decision. If inflation increases, it will affect the net present value (NPV) of future cash flows of the organization. Economic environment affects source and duration of finance to be used for operating organization and growth. If interest rate is rising then, organization will prefer issuing shares to avoid paying interest at higher rate. Rise in foreign exchange rate of home currency will make exports expensive for buying organization in other country, which can lead to reduced sales.

4 Sampling Methods or Techniques Learning Objective: Explain sampling techniques (random, systematic, stratified, multistage, cluster and quota). 4.1 Statistical Terms 4.1.1 Population Population is the whole set of items subject to statistical matter under consideration. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 2: SOURCES OF DATA | Page 54 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Example: Population can be whole workforce within an organization for the purpose surveying labour attitude towards work. 4.1.2 Sample Sample denotes individual items selected from a population. Example: Selection of 10% of workforce represents sample for total workforce (population). Samples are used to reduce the amount of work, time and cost associated with research work. Result obtained based on examination of samples are assumed as result for whole population. Example: Conclusion reached on attitudes of workforce either good or bad based on sample is assumed as attitude of whole workforce in a population. 4.1.3 Sample Size Sample size is the number of items selected as sample from a population. Example: 10 out of 100 workers are selected from total workers. It represents sample size of 10. Sample size depends on judgement of researcher, which in turn is influenced by time available, cost required and need for accuracy of outcome. 4.1.4 Frequency Frequency is the average distance among samples in a population. Lower distance leads to higher frequency and higher distance leads to lower frequency. Example: If we take number of years of experience at one axis and number of workers in workforce at other axis then frequency depends on difference between numbers of year experience among workforce. If difference between highly experienced and least experienced worker is of 30 years then it is said to have lower frequency than difference between highly experienced and least experienced worker would be of 10 years. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

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Diagram Low Frequency

x

High Frequency

x x

x

x

x

x

x

x

x

4.1.5 Distribution Distribution is the shape represented by individual coordinates when joining them together. Alternatively, the way in which samples is spread along the graph paper. Normal distribution is also called bell shaped curve. It means frequency of samples will reduce we will move farther from means or average. Diagram:

Normal Distribution Mean

x

x x x x x

Distribution x x x x x

x

4.1.6 Standard Error Standard error is difference in conclusion reached or decision taken because of using sample rather than if whole population is used. In case of low frequency, risk of standard error increase as there can be situation sufficiently different, which is not covered by sample. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 2: SOURCES OF DATA | Page 56 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Therefore, sample size has to be increased to cover every possible situation. 4.1.7 Standard Deviation Standard deviation is the probability that estimated results will be different from actual results. 4.1.8 Probability Probability is the likelihood of occurrence or non-occurrence of particular outcome. 4.2 Random Sampling Random sampling is a type of non-statistical sampling method. It is also called non-probability sampling. Random sampling involves selection of number of items within population without any planning. In random sampling, each sample in a population has an equal chance of being selected. Example: If there are 100 samples in a population then each sample has 1% probability (chance) of being selected. 4.2.1 Benefits Random sampling is cost effective, efficient method and does not require any technical knowledge, resources and planning time for determining samples. 4.2.2 Limitations Random sampling involves the risk of bias by the researcher. Researcher may deliberately choose those samples which are easy to interview. Example: Researcher may choose workers, which he/she considers cooperative. Samples selected based random sampling may not be representative of whole population even if samples are fairly selected by researcher. This will expose the sample selected to standard error. Example: Random selection of may lead to selection of most experienced workers those are likely to have good attitudes towards work. This will lead to wrong conclusion of research work because inexperienced workers are not interviewed in the research. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

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4.3 Systematic Sampling Systematic sampling makes use of statistical techniques. Systematically sampling is used to reduce the chances of standard error. It involves usage of unbiased (fair) formula so that wide variety of samples can be selected, which is more likely to be representative of whole population. However, systematic sampling involves selection of first sample randomly. It forms the input to the formula for selection of subsequent variable. Randomly selected sample is also counted as the sample. Example: Selection of 5th worker in a payroll register randomly then each subsequent sample is selected after 8 number of workers from recent worker (14th, 23th, 32th etc) until required sample size is achieved. 4.3.1 Benefits Systematic sampling does not involve risk of bias by the researcher. It helps to reduce the risk of standard error. 4.3.2 Limitation Samples selected based on systematic sampling depends on statistical formula used to select samples from the population. 4.4 Stratified Sampling Diagram: Stratums Range in $ Average Sales Revenue in $ 500 customers (Poor) 50 – 150 50,000 300 customers (Middle class) 151 – 500 97,650 150 customers (Rich) 501 – 1000 112,575 Stratified sampling makes use of stratums (layers). Samples in a population having identical characteristics are combined into one layer. Range is established for each layer so that characteristics of each sample can be determined. Example: Number of customers who brought goods or services of value from $50 to $150 are grouped into one layer. Similarly, number of customers who brought goods or services of value from $151 to $500 are grouped second layer, which is placed below the first layer. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 2: SOURCES OF DATA | Page 58 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

This process continues until all the population are allocated to layers. From each layer certain percentages of samples are chosen for examination. Example: 10% samples from top layer, 20% samples from second layer and 100% percent samples from third layer. 4.4.1 Benefits It provides the basis for justification in case data gathered results in undesired outcome. It allows layer of high importance can be identified and makes certain that no sample of high importance is unexamined. Example: Usually, large amount of sales revenue depends on small numbers of customers. Therefore, organization can secure large amount of sales revenue by interviewing small number of customers. It saves cost as layers of low importance can be examined in part. Example: Small amount of sales revenue depends on large number of customers. Therefore, organization can spent comparatively less time and money to secure small amount of sales revenue. 4.4.2 Limitations Stratified sampling is very time consuming in terms of allocation of each member of population into layers. However, spreadsheet software can do this quickly and accurately. Stratified sampling requires data to be available in electronic format in order to use spreadsheet software. If data is not available in electronic format then additional cost will be incurred to convert data into electronic format. Stratified sampling involves selection of samples from each layer randomly.

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Exam Topic 2: SOURCES OF DATA | Page 59 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

4.5 Clustered Sampling Exam Support: Do not get confused clustered sampling with systematic sampling. Examiner would try to dodge you. Clustered sampling makes use of groups. Clustered sampling involves grouping of samples in a population into physically identifiable blocks. Example: Grouping of customers with respect to location (East, West, North and South). Samples inside each group must be different in characteristics from each other. Example: At the East (cluster) of the country, number of customers (samples) of different economic status such as poor, middle class, rich etc can be interviewed. Number of cluster chosen depends on the judgement of researcher. Example: Researcher may choose the East and the North cluster. However, if he/she chooses the East and the West then it will require more travelling time and cost. Samples in each cluster chosen should be examined in full. Examination of part of the cluster will not provide results, which are representative of whole population. Example: If the East location (cluster) is chosen then all the customers (samples) having different economic status should be interviewed. Result of cluster examined is assumed as result for whole population. Example: If the East location is interviewed, then interviews of customers in the East location are considered as viewpoints of customers in other locations (West, North and South). Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 2: SOURCES OF DATA | Page 60 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

4.5.1 Multistage Sampling Multistage sampling is advanced form of clustered sampling. It also makes use of groups. It sub divides each groups into sub groups. Example: Locations inside the country, can be sub divided into towns, towns can be sub divided into blocks and soon. These sub groups are also known as secondary groups. It is useful where primary group is too large to be used for the purpose of research. It allows the selection secondary groups, which provide most benefits in least cost. Example: Selection of particular town (sub group) for research may be made, as it is easy to approach customers in that town. Customers may live nearer (high frequency) to each other. It will reduce travelling cost and increase speed of research. 4.6 Quota Sampling Quota sampling involves selection of definite number of samples from various categories of population. Population can be categorized with respect to age, sex, economic status, cultural background, language etc. Example: Selection of 100 samples for interviewing persons from age 25 to 40 and selection 50 samples interviewing persons from age 41 to 60. Number of samples to be selected from each segment depends on judgement of researcher. Quota sampling is especially useful when demographic balance of different group is known. Example: Suppose demographic balance of two females for each male in a country. Based on that researcher can select samples from a particular category in the ratio of (female to male) 2:1.

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5 Choosing Sampling Methods Learning Objective: Choose an appropriate sampling method in a specific situation (Skills). Exam Support: Skills cannot be taught. It can be achieve through practice. This equally applies to all learning objectives requiring skills in this ebook. Choosing an appropriate sampling method is a skill, it is not knowledge that you can learn. Therefore, you need to know following factors to choose between various sampling techniques. Effectiveness of choice of sampling method depends on skills of researcher. Factors Cost Efficiency Risk Resources Relevance

Factors Cost Efficiency Risk Resources Relevance

Details Cost of sampling must exceed benefits. Cost of obtaining information must not exceed benefits. Sampling method should enable researcher to conclude its researcher within available time. Sampling method should be able to reduce or eliminate the risk of standard error. Sampling method is feasible using the men, equipment, material and money available to the organization. Sampling method should be helpful in targeting required samples depending on research work. Random Low High High Less Low

Systematic Low High Low Less Low

Stratified High Low Low More High

Clustered High Low Low More High

Multistage High Low Low More High

Quota Low High High Less Low

6 Practice Questions & Solutions 6.1 Question (P/P, Q1): Under which sampling method does every member of the target population have an equal chance of being in the sample? A. Stratified sampling B. Random sampling C. Systematic sampling D. Cluster sampling Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 2: SOURCES OF DATA | Page 62 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Solution: Correct answer is B. Explanation: A Stratified sampling involves categorizing samples (members of population) into layers. Samples are categorized based on some established criteria. Therefore, each member of population does not have equal chance of being in the sample. B Random sampling is the selection of sample without any planning. It means it does not involve any bias and provides equal opportunity of being selected is available to every single sample in the population. C Systematic sampling involves the selection of members of population based on established formula. Therefore, each member of population does not have equal chance of being in the sample. D Cluster sampling involves categorizing samples into groups. Samples having particular characteristics are included in a group. Therefore, each member of population does not have equal chance of being in the sample.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 63 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Exam Topic 3:

COST CLASSIFICATION & BEHAVIOUR Sub Exam Topics S.no 1 2 3 4

Headings (click the cross-ref below for easy navigation) Pg.no Production & Non Production Costs 64 Elements of Non Production Costs 65 Elements of Production Cost 66 Reason for Distinction b/w Production & Non Production 69 Costs 5 Costs Behaviour 71 6 High Low Method 78 7 Structure of Linear Functions & Equations 79 8 Cost Units, Unit Costs, Cost Objects & Cost Centres 82 9 Responsibility Centres 83 10 Information Needs of Responsibility Centres 85 11 Practice Questions & Solutions 86 Exam Topic Awareness Analysis Details Composition Cost classification & behaviour is examined as text, visual & computation based questions. Importance Knowledge of this exam topic can highly affect performance on other exam topics such as accounting for material, labour and overheads. .

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 64 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

1 Production & Non Production Costs Learning Objective: Explain and illustrate production and non-production costs. 1.1 Production costs Production costs are the costs incurred in manufacturing products (goods or services). It includes all the cost relating to activities performed inside the production department. Example: In chair manufacturing company, costs incurred in manufacturing of chair can be following: Cutting cost is incurred to cut wood into pieces. Assembling cost is incurred to join pieces to make a chair. Finishing cost is incurred to make chair of merchantable quality. Inspection cost is incurred to ensure chair meets quality requirements of the customer. Packaging cost is incurred to ensure chair reaches to customer in good condition. Material movement cost to transfer raw material from warehouse to production department. 1.2 Non-Production Costs (Period Costs) Non-production costs are overhead costs incurred for the purpose other than manufacturing of products. Non-production overheads are incurred to enable fluent operation of production and other organizational activities. Example: Sales commission paid to sales personnel to enable organization achieve its profit-making objective. Office rent paid to coordinate organizational activities. Interest expense paid against raise funds to carryout production and selling activities. For management accounting purpose, it depends upon organization policy whether to include non-production overheads into product cost or not. Organization may want to include non-production overheads for

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 65 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

pricing products to ensure full recovery of all the cost incurred by the organization from customers. For financial accounting purpose, these costs are treated as period cost (Period cost is the cost incurred during an accounting period. It is stated below the gross profit as operating cost).

2 Elements of Non Production Costs Learning Objective: Describe the different elements of non-production costs- administrative, selling, distribution and finance. 2.1 Selling & Distribution Overheads It includes every costs incurred after the manufacturing of product until delivery to the end customer (user of the product). Examples: Storage cost incurred to be able to sell finished goods when required by the customer. Freight cost (carriage outwards) incurred which includes wages paid to the driver & fuel. Insurance cost to cover the risk of loss of goods in transit. Note: Carriage outwards is selling and distribution cost while carriage inwards is purchasing cost. Later is included in the cost of raw materials. 2.2 Administration Overheads Administration overheads include all costs incurred in planning, coordinating and controlling activities and resources of the organization. These costs are incurred to ensure the efficient and effective operation (manufacturing or service provision) of the organization. Examples: Office rent expense incurred to provide place for contact to customers and suppliers. Depreciation of office equipments used to record transactions made by organization.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 66 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Cleaning and maintenance of workplace to provide better working conditions to employee so that they can work efficiently. 2.3 Finance Overheads Finance overheads are costs incurred on raising capital (money) for investment in resources, which are needed for administration of organization and manufacturing of products. Examples: Interest paid on bank loans, debentures, overdrafts etc. Dividend paid to preference (redeemable) shareholders. Dividend paid to equity (ordinary) shareholders against capital invested is not considered as finance overheads as they are proprietor (owners) of the organization.

3 Elements of Production Cost Learning Objective: Describe the different elements of production cost- materials, labour and overheads. 3.1 Types of Production Costs Direct Cost Identifiable to individual units of product or type of product or cost centre.

Indirect Cost Non-identifiable to individual units of products or type of product or cost centre.

Example: Quantity of wood used in each chair. Significant monetary value.

Example: Depreciation of cutting machine.

Example: Wood used in making can be of significant value.

Example: Nuts and bolts used in making chair can be of insignificant value.

Insignificant monetary value

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 67 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Monetary value can be determined reasonably

Monetary value cannot be determined reasonably.

Example: Example: Reasonable monetary value of Polished used in finishing of each wood can be determined by chair cannot determined multiplying price per kg of wood reasonably. by it weight of wood used in each chair. For cost to be classified as direct Indirect cost lacks one or more of cost all the above conditions should the conditions required to be be met. classified as direct cost. Elements of product cost are as follows: 3.2 Direct Materials Material used in the manufacturing of products having properties of direct costs. Example: In Car manufacturing, Quantity of iron used is direct material. 3.3 Direct Labour Labour used in the manufacturing of products having properties of direct costs. Skilled labour used in manufacturing of products are considered as direct labour Reasons: They do work of specialized nature and can be indentified for each product separately. They are paid higher wages and incur significant part of product cost. Their cost is determined reasonably such as from payroll register. 3.4 Direct Expense Direct expenses incurred in the manufacturing of a product or operating a cost centre having properties of direct cost. Examples: Supervisor (foreman) salary expense incurred in construction of a building (product). Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 68 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Salary of storekeeper to look after inventory in a warehouse (cost centre). 3.5 Production or Factory Overheads (F.O.H) These are costs having properties of indirect costs. These costs are incurred for the manufacturing of products in the production department. Following are the components of factory overhead costs. 3.5.1 Indirect Materials Indirect materials are the material costs having properties of indirect costs. Example: Amount of adhesive material used to join pieces wood in making chair. 3.5.2 Indirect Labour Labour costs having properties of indirect costs. Semi-skilled & unskilled labours are considered indirect costs. Reasons: They do multiple jobs of general nature. Example: Handling material and providing tools to skilled labours when needed. They are paid relatively lower wages or salaries than skilled workers and unlikely to be form major part of product cost. They may be temporary workers so formal records may not be present to determine its cost to the organization in exact monetary value. 3.5.3 Indirect Expenses Indirect expenses are costs having properties of indirect cost. They are not identifiable to individual products. Example: How it would be possible to identify factory rent expenses to each individual product? Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 69 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

They may or may not be of significant monetary value. Example: Oiling of delivery vehicles during routine maintenance. Sufficient financial records may not be available. Example: It is usual in most organizations to group all small expenses into single account as sundry expenses. Therefore, value of each individual expense cannot be determined. Diagram: Full Cost Product Cost

Period Cost

Production Cost

Non Production Cost

Direct Cost

Indirect Cost

Direct Materials

Production Overhead Cost

Direct Labour Direct Expense

Indirect Materials Indirect Labour Indirect Expense

Indirect Cost Selling & Distribution Overhead Cost Administration Overhead Cost Finance Overhead Cost

4 Reason for Distinction b/w Production & Non Production Costs Learning Objective: Explain the importance of the distinction between production and nonproduction costs when valuing output and inventories. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 70 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Planning

Decision making

Control

Importance Budgeting

Details Distinction b/w production and nonproduction costs allow allocation of resources between resources needed for production and resources needed for undertaking operating (administration, selling & distribution) activities. Forecasting It allows estimating production and nonproduction cost separately. Production cost usually changes with production and sales volume. Non-production cost such as administration cost usually changes with operating philosophy of the organization than production and sales volume. Pricing It enables management to set productselling price more rationally. Production costs which are directly identifiable to the products can be justified to customer where as non-production costs are treated as period cost because it would be unfair to charge customers for administration and selling cost. They are cost to the organization itself. Product mix It allows finding appropriate product mix (combination of products) for production and sale by recognizing products according to the ability to incur operating cost to the organization. So that those products generating lower gross profit than operating cost incurred could be weeded out. Performance It enables senior management to held measurement accountable operational managers for their area of responsibility such as production, sales, administration and finance etc. Reporting Financial reporting standards require separate disclosure of production and nonproduction cost. Separate information available for production and nonproduction cost help to discharge responsibly under financial reporting requirement.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 71 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

5 Costs Behaviour Learning Objective: Explain and illustrate with examples classifications used in the analysis of the product/service costs including by function, direct. Fixed and variable, stepped fixed and semi variable costs. Describe and illustrate, graphically, different types of cost behaviour. All the types of costs discussed above can have one or more of the following cost behaviours. 5.1 Variable Costs (Marginal Costs) Variable costs change in proportion with change in the activity level (sales volume, units produced). Example: Material cost will increase as each additional unit is made. If there is no production then there will be no material cost. In theory it results in diagonal straight line when plotted on graph, but in practice this may not be the case because of economies of scale (bulk purchase discounts) or diseconomies of scale (penalties for additional usage). Example: Supplier may offer 10% discount for each additional unit purchased after first 10,000 units. Taxable income above certain level is subject to higher tax rate.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 72 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Diagram:

5.2 Variable Costs per Unit Variable costs per unit remain constant regardless of change in activity level. Example: Material cost (sugar) per unit (kg) for 10th unit will be same material cost per unit for 1st unit. In theory it results in horizontal straight line when plotted on graph, but in practice it is different because of economies of scale (bulk purchase discounts) or diseconomies of scale (penalties for additional usage). Example: Material cost per unit for 11th unit would be lower if supplier offers discount on each extra unit purchased after 10 units.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 73 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Diagram:

5.3 Fixed Costs Fixed costs are costs, which remain constant regardless of change in activity level. However, fixed costs only remain constant within limited range of activity level. Beyond that range, it may no longer be fixed. It means fixed costs are fixed only in short-term. In the longer-term organization’s activity level may be different resulting in different fixed cost. Therefore, in the long term all costs have tendency to be variable. Example: Opening of new retail shop due to increased sales demand for business products can give rise to additional rent expense. As a result, total fixed cost borne by the business will be increased. When plotted on graph, it gives horizontal straight line same as variable cost per unit.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 74 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Diagram:

5.4 Fixed Costs per Unit Fixed costs per unit decrease with the increase in the activity level. Reason is that, total fixed cost will be charged to more units of product (activity level) than before. As a result fixed costs per unit fall. Example: If budgeted fixed cost of $10,000 is divided by 10,000 units then fixed cost per unit will be equal to $1. However, if budgeted fixed cost of same $10,000 is divided by 20,000 units then fixed cost per unit will be equal to $0.5.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 75 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Diagram:

5.5 Step-Fixed Costs Step-fixed costs are costs, which rise in steps. These costs remain constant within one range of activity level, and then increase suddenly in the next range of activity level. In longer term, fixed costs tend to be step fixed. Example: In purchasing internet broadband connection, base package can be of $10 for 2 GB but if you exceed this limit, additional $12 can be charged from 2 GB to 5 GB.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 76 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Diagram:

5.6 Semi-Variable Costs Semi-variable costs are costs, which have both variable and fixed elements. Semi- variable costs start with certain amount of fixed cost, and then subsequent costs are variable cost. Do not get confused to it with step-fixed cost. Step fixed costs does not necessary arise in proportion (linear or straight line). While in semivariable cost, variable part rises in proportion. Example: Landline telephone bills include line rent charges (fixed) regardless of usage of facility, but calls (variable) are charged say, $0.5 per call (proportion or straight line).

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 77 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Diagram

5.7 Total Cost Total cost is the sum of all costs such as variable and fixed cost. Semi variable costs are separated into variable and fixed parts. If it will involve fixed cost then it will be greater than zero at zero activity level. Diagram: y b

Cost

Total Cost Y=a+bx

a

Activity Level

x

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 78 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

6 High Low Method Learning Objective: Use high/how analysis to separate the fixed and variable elements of total costs including situations involving semi variable and stepped fixed costs and changes in the variable cost per unit. It is used to split total cost and semi variable cost into its fixed and variable components. To forecast total cost at given activity level. Formula:

6.1 Applying High Low Method Illustration Following data relates to ABC plc. Production volume Total cost (activity level) 10,000 12,000 13,000 11,000 9,000

$12,000 $13,500 $13,200 $12,500 $12,000

Required: Calculate the fixed and variable components of the total cost. Solution: Identifying highest and lowest activity level as in this case is production volumes. Highest production volume = 13,000 units. Lowest production volume = 9,000 units. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 79 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Step2: Determining variable cost per units using highest and lowest production volume and corresponding costs.

Step3: Determining fixed cost.

7 Structure of Linear Functions & Equations Learning Objective: Explain the structure of linear functions and equations. 7.1 Linear Relationship Linear means straight. Linear line means straight line. Linear relationship is the fashion in which variable increases or decreases resulting in the straight line if plotted on graph paper. Example: If we divide sales revenue by sales volume in that year, then each year sales revenue per unit will be $1. This relationship is said to be linear. Year Sales volume Sales revenue Sales revenue per unit

1 2,000 $2,000 $1

2 4,000 $4,000 $1

3 6,000 $6,000 $1

Example: Sales volume 2,000, 4,000 and 6,000 units in year 1, 2 and 3 respectively will result in a straight line if plotted on graph paper. It means sales volume is arising in linear fashion. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 80 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

7.2 Types of Linear Relationships There are following types of relationship exists between variables, such as production volume (x) and total cost (y). Direct or Positive Linear relationship. Inverse or Negative Linear relationship. Non-linear relationship. Spurious Linear relationship (having linear relationship but do not have any meaning). 7.2.1 Direct Relationship Diagram:

Increase or decrease in one variable leads to increase or decrease in other respectively. 7.2.2 Indirect Relationship Increase or decrease in one variable leads to decrease or increase in other variable respectively.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 81 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Diagram:

Example: Sales of ice cream may decrease 7.2.3 Non Linear Relationship Co-ordinates of variables if plotted on graph paper do not result in straight line. Diagram:

7.2.4 Spurious Relationship Increase or decrease in one variable result in increase or decrease/decrease or increase in other variable respectively. However, variables are not responsible for the change in other. Example: Increase in birth rate and increase in national income both can increase and decrease at the same time. It does not mean that national income is responsible increased birth rate.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 82 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Diagram:

Similarly, increase in market demand for product and decrease in total cost can happen at the same time. It does not mean that increase in market demand is responsible for decrease in total cost. Diagrams:

8 Cost Units, Unit Costs, Cost Objects & Cost Centres Learning Objective: Explain and illustrate the concept of cost objects, cost units and cost centres.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 83 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Cost Units Cost unit is individual product for which cost is calculated. Example: Cost units for automobile company can be Car.

Unit Costs Unit cost is measurement basis for product. Example: Unit cost for Oil can be per litres Unit cost for metals can be per kg or pounds.

Cost Objects Cost objects are inputs used to make products. Example: Material (wood), Labour and overheads (electricity) used in making of chairs.

Cost Centres Cost centre is department or area of the organization responsible for cost incurred. Example: Wood purchased for making of chair are cost to production department. No matter who arranges the transaction or pay the bills.

9 Responsibility Centres Learning Objective: Distinguish between cost, profit, investment and revenue centres. Responsibility centre are collective term for all below centres in an organization. Diagram: Investment centre (Head Office)

Profit centre 1 (West branch)

Cost centre (Production)

Profit centre 2 (East branch)

Revenue centre (Sales)

Cost centre (Purchase)

Revenue centre (Sales)

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9.1 Cost Centres Cost centres are those functions or departments of the organization having an authority to incur costs within the limits of their authority and assume equal responsibility to account for those costs. Example: Production department having authority to incur costs for producing products and having equally responsible to account for those costs. Similarly, marketing and research & development departments having authority to incur costs for product promotion and development respectively and having equally responsible for costs. 9.2 Revenue Centres Revenue centres are those functions or departments of an organization having an authority to generate revenues probably by selling products and are equally responsible to account for those revenues generated for the organization. Example: Sales department having authority to sale products and having equally responsible to account for those sales made. 9.3 Profit Centres Profit centres are autonomous subsidiaries, divisions and branches of an organization having authority to generate profits and are equally responsible to account for those profits. Example: Organization may be dispersed in branches such as east and west branch in the country. Each branch may have complete authority to set selling price and incur costs for purchasing or manufacturing products according to local market conditions. Profit centres can include several cost and revenue centres. Profit centres are higher in organizational hierarchy at tactical level, rather than cost and revenue centres which are at operational level in an organization. All cost and revenue centres report to their respective profit centres.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 85 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Example (continued): Each of the branch (profit centre) has their own sales (revenue centre) and production & marketing (cost centre) departments. These cost and revenue centres report on their performance to their respective branches. 9.4 Investment Centre Investment centre are autonomous entity having authority to make investments and responsibility to account for those investments. It does not mean that other responsibility centres cannot make investments. They can, but their authority is limited to certain amount of investment. Example: Purchase of new printer by a branch. Investment centre are usually head office of the organization where major investment decisions are made. Example: Purchase of new land, plant and taking over another organization. Investment centre can include several profit centres. Investment centre are highest in the hierarchy at strategic level. All profit centres report to their respective investment centres. Example: A multi-national organization may have several subsidiaries across the globe. Each subsidiary (profit centre) depends for resources, such as products, machinery, money etc on head office (investment centre) in home country. These subsidiaries report on their performance to head office.

10 Information Needs of Responsibility Centres Learning Objective: Describe the differing needs for information of cost, profit, investment and revenue centre managers.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 86 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Cost centre

Revenue centre

Profit centre

Cost centres need detailed information for day-to-day decision-making purpose.

Revenue centres need detailed information for day-to-day decision-making purpose.

Profit centres need moderate information to be able to control performances of their cost and revenue centres.

Cost centres need frequent information on timely basis, such as on weakly, daily or unplanned basis. Information would be on costs and production volume requirements.

Revenue centres need frequent information on timely basis, such as on weakly, daily or unplanned basis. Information would be on revenues and sales volume forecasts.

Profit centres need relatively moderately frequent information, such as on monthly basis. Information would be variance reports, such as on material price and usage, labour rate & efficiency.

Investment centre Investment centres need brief information for major planning and controlling performances of their profit centres and cost and revenue centres. Investment centres need least frequent information, such as on yearly basis. Information would be financial and non-financial, such as on cash flow position and government policy on taxation.

11 Practice Questions & Solutions 11.1 Question (12/06, Q28): In an organisation manufacturing a number of different products in one large factory, the rent of that factory is an example of a direct expense when costing a product. Is this statement true or false? (1 mark) A. True B. False

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 87 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Solution: Correct answer is B. Explanation: Rent expense relates to factory and factory is used to make more than one product. Therefore, amount of rent is not directly identifiable to the product. Therefore, it is not a direct cost for the product. 11.2 Question (12/06, Q17): A manufacturing organisation incurs costs relating to the following: (1) Commission payable to salespersons. (2) Inspecting all products. (3) Packing the products at the end of the manufacturing process prior to moving them to the warehouse. Which of these costs are classified as production costs? A. (1) and (2) only B. (1) and (3) only C. (2) and (3) only D. (1), (2) and (3) Solution: Correct answer is C. Explanation: (1) Commission payable to sales person is obviously classified as selling cost. (2) Inspection of products is done in production department. It is because inspection is part of production process. Inspection is made to check the quality of production processes. (3) Packing products is part of the product. Customers frequently make purchase considering packaging of products as indicator of quality. Therefore, it is considered as production cost. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 88 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

11.3 Question (12/06, Q12): Which one of the following should be classified as indirect labour? A. Assembly workers on a car production line B. Bricklayers in a house building company C. Machinists in a factory producing clothes D. Forklift truck drivers in the stores of an engineering company. Solution: Correct answer is D. Explanation: A Assembly is core activity in the manufacturing of cars. Cost of assembly work can be directly and reliably identifiable to each car. B&C Same reasons as above are applicable for bricklayers and machinists. D Forklift truck drivers are used in the stores department outside the production department. Stores department is established to facilitate efficient supply of raw materials for production and finished goods for selling. Therefore, salaries of forklift drivers cannot be directly identified to each product or department. Hence, it is classified as indirect labour cost. 11.4 Question (12/06, Q45) A semi-variable cost is one that, in the short term, remains the same over a given range of activity but beyond that increases and then remains constant at the higher level of activity. Is this statement true or false? A. True B. False Solution: Correct answer is B.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 89 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Explanation: Semi variable cost has an element of both fixed and variable cost. Fixed part of semi variable cost remains constant regardless of activity level. Variable part changes in proportion (straight line) with each unit increase in activity level. The above statement represents the definition of step fixed cost rather than semi variable cost. 11.5 Question (12/06, Q16: P/P, Q8): Up to a given level of activity in each period, the purchase price per unit of a raw material is constant. After that point, a lower price per unit applies both to further units purchased and retrospectively to all units already purchased. Which of the following graphs depicts the total cost of the raw materials for a period?

Solution: Correct answer is D. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 90 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

Explanation: A Graph A shows the behaviour of variable cost at zero activity level and subsequently shows the behaviour of fixed cost. B Graph B shows the behaviour of semi-variable cost at zero activity level and subsequently show the behaviour of variable cost. C Graph C shows the impact of decrease in cost per unit to only further units purchased rather than all the units purchased from zero activity level. D Graph D shows the impact of decrease in cost per unit to all activity levels from zero activity level. 11.6 Question (12/06, Q6): For which of the following is a profit centre manager responsible? A. Costs only B. Revenues only C. Costs and revenues. Solution: Correct answer is B. Explanation: Profit centre must be responsible for cost as well as revenues so that it can be held responsible for profits of the organization. 11.7 Question (P/P, Q45): The following statements relate to responsibility centres: (1) Return on capital employed is a suitable measure of performance in both profit and investment centres. (2) Cost centres are found in manufacturing organisations but not in service organisations.

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Exam Topic 3: COST CLASSIFICATION & BEHAVIOUR | Page 91 of 153 ACCA F2 Ebook Management Accounting | Specially for Dec 2013 Exam | Author & Owner: Murtaza Lanewala

(3) The manager of a revenue centre is responsible for both sales and costs in a part of an organisation. Which of the statements, if any, is true? A. 1 only B. 2 only C. 3 only D. None of them Solution: Correct answer is D. Explanation: (1) ROCE (return on capital employed) takes account of investment made by the organization. Therefore, profit centres performance should not be evaluated based on ROCE because it does not have 100% control over investments. ROCE is useful for evaluating performance of investment centre and their managers. (2) Cost centre exists in both manufacturing organization as well as service organization. Example: Repair shop where mechanic repairs vehicles. Classroom in the school where professor delivers lectures. (3) Manager of revenue centre is only responsible for sales. Revenue centre is different from profit centre. Later is responsible for revenues as well as costs.

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Exam Topic 4: PRESENTING INFORMATION

Exam Topic 4:

PRESENTING INFORMATION Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Preparing & Representing Reports 2 Presenting Information Using Tables, Graphs & Charts 3 Interpreting Tables, Charts and Graphs 4 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Presenting information is examined as text based questions. Importance Knowledge of this exam topic does not highly affect performance on other exam topics.

Pg.no 93 94 99 99

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Exam Topic 4: PRESENTING INFORMATION

1 Preparing & Representing Reports Learning Objective: Prepare written reports representing management information in suitable formats according to purpose. 1.1 Users of Reports Management information reports are different from reports such as annual report, which are required for external reporting purpose. Users of management information reports are internal to the organization. Management at different levels (strategic, tactical and operational) require information for planning, decision making and control purpose. 1.2 Purpose of Reports Purpose Details Planning Planning requires both financial and non-financial information. Planning involves downwards communication from senior management to junior management. Senior management need to communicate plan to junior managers for effective implementation of plan. Control Control usually requires financial information such as variances. Control involves upwards communication from junior management to senior management. Senior management need information from junior management involved in day-to-day operations to be able to exercise control. Decision Decision-making requires both financial and non-financial making information. Decision-making requires the use of planning and control reports as well as reports on ad hoc (unplanned) basis according to opportunity or threat faced by management at different levels. 1.3 Content of Reports 1.3.1 To Name of person being reported is mentioned. 1.3.2 From Name of person reporting is mentioned.

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Exam Topic 4: PRESENTING INFORMATION

1.3.3 Date Date represents the time at which report is written. However, date of receipt can be different from date it was written depending on the channel of communication (electronic, post etc) selected to send report. 1.3.4 Subject Purpose of report is mentioned. It should be brief no more than one line so that reported person can quickly get an idea about the subject matter (topic) and urgency of action needed. 1.3.5 Introduction Scope of report is mentioned. Introduction gives brief description of information contain in the following report. Introduction should enable manager to get an overview of the report. It should be no more than three to four lines. 1.3.6 Body Text Body text contains the detailed information. Body text may contain several headings and sub headings. Headings should be descriptive and should enable manager to have an idea about the underlying information. Manager should be able to navigate to relevant information quickly. Order of writing should be logical. It means it should present all necessary information at single place without requiring manager to move back and forth. However, supporting information can be presented in appendix. 1.3.7 Appendix Appendix contains all supporting and related information in the body text. Appendix should be properly cross-referenced so that reader can quickly find information in appendix. 1.3.8 Authorization Authorization is the signing of report before it is sent to the manager being reported. Authorization suggests the recipient that report is sent and reviewed by appropriate person.

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Exam Topic 4: PRESENTING INFORMATION

2.1 Tables 2.1.1 Benefits Tables are cost effective and easy to present. Tables are used to compare data and information. Tables are used to analyse trend. Tables are used to summaries information. Tables save time as it avoids relabeling data and information each time they are presented. 2.1.2 Limitations Tables are not useful for explaining and discussing financial and nonfinancial issues. 2.2 Line Graphs Diagram:

Currency unit

Y

Selling price

Cost per unit Sales volume

X

2.2.1 Benefits Line graphs are time consuming to present manually. Line graphs are also difficult to present manually. It requires artistic skill to draw neat and clean graph. However, spreadsheet programs such as Microsoft Excel or Lotus can do it automatically and cost effectively using the data fed. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

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Exam Topic 4: PRESENTING INFORMATION

Line graphs are used to present data visually. Line graphs can be used to graphically present the movement in one variable due to increase or decrease in other variable. Line graphs have three dimensions such as X, Y & Z axis. It can be used to present relationship up to three variables. Line graphs can be used to show trends. Line graphs also show extreme increase or decrease in variable. Line graphs can accommodate more than one line so the performance of different entities (organizations or individuals) regarding same variable (for example, sales) could be compared. 2.2.2 Limitations Line graphs cannot accommodate alphabetic data so there it cannot be used to present non-financial information. Graphs require statistical knowledge to read. 2.3 Scatter Graph 2.3.1 Benefits Scatter graphs can be quickly drawn manually. Scatter graphs can be used to find relationship (direct or indirect) between two variables. Scatter graphs can be used to find trend (increasing or decreasing). Scatter graphs are used for forecasting where accuracy is not necessary. 2.3.2 Limitations Scatter graphs do not provide 100% accurate results. Line of best is drawn based on observation where majority of the coordinates can be joined using one straight line. Graphs require statistical knowledge to read.

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Exam Topic 4: PRESENTING INFORMATION

2.4 Bar Charts Diagram: Y $

Sales revenue Cost Scaleof=sales $(000)

6 5 4 3 2 1 0

Q1 Q2 Q3 Q4 1 1 1

X

2.4.1 Benefits Bar charts can be used to present data visually. Bar charts have two dimensions. Bar charts enable comparison of variable more accurately as it provides scale for measurement of variables along the vertical Y-axis. However, it can also present those variables along the horizontal X-axis. Example: Variables would be shown at X axis and scales for measurement of variables would be shown at Y-axis. Let sales revenue be the variable. Bar charts can be used to present sales revenue bar at each quarter during the year on X axis and currency unit ($) at Y-axis. Bar charts can accommodate more detailed analysis of variables than other graphs and charts such as pie chart. Example: Sales revenue generated by each product at each quarter during the year. Similarly, bar charts can use more than one variable. Each variable can be assigned different colour. Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

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Exam Topic 4: PRESENTING INFORMATION

Example: Bar charts can accommodate bars for sales revenue and cost of sales at each quarter during the year. 2.4.2 Limitations Bar charts are not suitable for presenting trends. Bar charts only show position of variable (sales) at particular interval such as Quarters. Bar charts do not present trend. Bar charts are time consuming to draw manually. However, spreadsheet software can quickly do it. Bar charts cannot be used for forecasting purpose. Graphs require statistical knowledge to read. 2.5 Pie Charts Diagram:

2.5.1 Benefits Pie charts are used to present data and information visually. Pie charts gives information in fraction. Fractions are understandable by non-financial managers easily.

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Exam Topic 4: PRESENTING INFORMATION

Example: Let sales volume be the variable. Pie chart can be used to present sales volume generated by each product. 2.5.2 Limitations Pie charts have only one dimension. Therefore, it cannot accommodate more than one variable. Pie charts do not provide 100% accurate information. It is because it provides visuals rather than numbers.

3 Interpreting Tables, Charts and Graphs Learning Objective: Interpret information (including the above tables, charts and graphs) presented in management reports. See the benefits and limitations of presenting tables, charts and graphs. If you know how to present them then you can interpret them too.

4 Practice Questions & Solutions

4.1 Question (P/P, Q32) A company’s sales in the last year in its three different markets were as follows $ Market 1 100,000 Market 2 150,000 Market 3 50,000 Total 300,000 In a pie chart, representing the proportion of sales made by each region what would be the angle of the section representing Market 3? A. 17 degrees B. 50 degrees C. 60 degrees D. 120 degrees Solution: Correct answer is C.

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Explanation: Pie chart is round in shape therefore it represent 360o degrees angle for total sales.

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Exam Topic 5:

ACCOUNTING FOR MATERIALS Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Types of Inventory 2 Inventory Cost Composition. 3 Ordering, Receiving & Issuing Materials 4 Inventory Control 5 Accounting for Material Inventory Account 6 Ordering & Holding Inventory 7 Optimal or Economic Order Quantity (EOQ) 8 Optimal Re-Order Quantity (Bulk Purchase Discounts) 9 Optimal or Economic Batch Quantity (EBQ) 10 Inventory Level Management 11 Inventory Valuation 12 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

Pg.no 102 102 102 102 103 104 104 104 104 104 104 104

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1 Types of Inventory 1.1 1.2 1.3 1.4

Raw Materials Work in Progress (WIP) Finished Goods Administration Related Inventory

2 Inventory Cost Composition. 2.1 2.2 2.3 2.4

Direct Raw Material Direct Labour Direct Expenses Production Overheads (indirect material + indirect Labour + indirect expenses)

3 Ordering, Receiving & Issuing Materials

3.1 Documents & Procedure for Ordering Materials 3.1.1 Material Requisition Note (MRN) 3.1.1.1 Contents of Material Requisition Notes 3.1.2 Purchase Requisition Note (PRN) 3.1.2.1 Contents of Purchase Requisition Note 3.1.3 Purchase Order (PO) 3.1.3.1 Contents of Purchase Order 3.1.4 Tender Document 3.1.4.1 Contents of Tender Document 3.2 Documents & Procedure for Receiving Materials 3.2.1 Delivery Note (DN) 3.2.1.1 Contents of Delivery Note 3.2.2 Goods Received Note (GRN) 3.2.2.1 Contents of Goods Received Note 3.2.3 Purchase Return Notes or Debit Note 3.2.3.1 Contents of Purchase Return Note 3.2.4 Purchase Invoice (PI) or Supplier Invoice 3.2.4.1 Contents of Purchase Invoice 3.3 Document & Procedure for Issuing Materials 3.3.1 Dispatch Note 3.3.2 Delivery Note (DN) 3.3.2.1 Contents of Delivery Note 3.3.3 Sales Invoice 3.3.3.1 Contents of Sales Invoice 3.3.4 Sales Return Notes or Credit Note. 3.3.4.1 Contents of Sales Return Note

4 Inventory Control 4.1 Store Ledger Card 4.2 Free Inventory

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4.3 Physical Stock Taking 4.3.1 Continuous & Periodic Stock Taking

5 Accounting for Material Inventory Account 5.1 Journal Entries

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5.2 Ledger Entries

6 Ordering & Holding Inventory

6.1 Ordering Cost 6.1.1 Calculating Inventory Ordering Cost 6.2 Holding Cost 6.2.1 Calculating Inventory Holding Cost 6.3 Stock Out Costs 6.4 Buffer Stock 6.4.1 Calculating Holding Cost Including Buffer Inventory

7 Optimal or Economic Order Quantity (EOQ) 7.1 Calculating Economic Order Quantity 7.2 Limitations of EOQ

8 Optimal Re-Order Quantity (Bulk Purchase Discounts) 8.1 Calculate Re-Order Quantity

9 Optimal or Economic Batch Quantity (EBQ) 9.1 Calculating Economic Batch Quantity

10 Inventory Level Management.

10.1 Reorder Level 10.1.1 Calculating Reorder Level 10.2 Re-Order Quantity 10.3 Maximum Inventory Level 10.3.1 Calculating Maximum Inventory Level 10.4 Minimum Inventory Level 10.4.1 Calculating Minimum Inventory Level 10.5 Average Inventory Level 10.5.1 Calculating Average Inventory Level

11 Inventory Valuation

11.1 FIFO (first in first out) 11.1.1 Inventory Valuation Using FIFO 11.2 LIFO (last in first out) 11.2.1 Inventory Valuation Using LIFO 11.3 Weighted Average Method 11.3.1 Inventory Valuation Using Weighted Average 11.4 FIFO Vs LIFO Vs Weighted average 11.5 Calculating Cost of Sales, Purchase, Opening &Closing Inventory 11.6 Periodic Inventory System 11.6.1 Margin 11.6.2 Mark up

12 Practice Questions & Solutions 12.1 Question (12/06, Q4: P/P, Q43): 12.2 Question (12/06, Q23: P/P, Q20):

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12.3 Question (12/06, Q21: P/P, Q47):

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Exam Topic 6:

ACCOUNTING FOR LABOUR Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Direct & Indirect Labour Costs 2 Methods for Relating Labour Cost to Work Done 3 Accounting for Labour 4 Remuneration Schemes 5 Labour Turnover 6 Efficiency, Capacity & Production Volume Ratios 7 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

Pg.no 107 107 107 107 107 108 108

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1 Direct & Indirect Labour Costs 1.1 Direct Labour Costs 1.2 See calculations later.

2 Methods for Relating Labour Cost to Work Done 2.1 Documents Used to Record Labour Costs 2.1.1 Attendance Sheet 2.1.2 Time Sheet 2.1.3 Job Sheet 2.2 Steps involved in Relating Labour Cost to Products

3 Accounting for Labour

3.1 Journal Entries for Labours 3.2 Ledger Entries

4 Remuneration Schemes

4.1 Time Based Schemes 4.1.1 Characteristics of Time Based Schemes 4.1.2 Hourly Rate Basis 4.1.2.1 Calculating Direct & Indirect Labour Costs 4.1.2.2 Calculating Direct & Indirect Labour Costs per Unit 4.1.3 Wage Rate Basis (Daily or Weekly) 4.1.3.1 Calculating Direct & Indirect Labour Costs 4.1.3.2 Calculating Direct & Indirect Labour Cost per Unit 4.1.4 Salary (Monthly) 4.1.4.1 Calculating Direct Labour Cost per Unit 4.1.5 Overtime Premiums 4.1.6 Idle Time Costs 4.1.6.1 Avoidable Idle Time Cost 4.1.6.2 Unavoidable Idle Time Cost 4.1.6.3 Calculating Overtime 4.1.7 Stipends 4.2 Piece Work Systems 4.2.1 Incremental Piece Work System 4.2.2 Minimum Guaranteed Pay 4.3 Calculating Labour Cost on Piece Work Basis 4.4 Individual Bonus Schemes 4.4.1 Direct & Indirect Labour Bonus 4.4.2 Conditional & Unconditional Bonus 4.5 Group Bonus Schemes

5 Labour Turnover

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6 Efficiency, Capacity & Production Volume Ratios 6.1 Efficiency Ratio 6.1.1 Limitation of Efficiency Ratio 6.2 Capacity Ratio 6.3 Production Volume Ratio 6.4 Calculate Efficiency, Capacity & Production Volume Ratios

7 Practice Questions & Solutions 7.1 Question (P/P, Q39) 7.2 Question (12/06, Q44: P/P, Q29) 7.3 Question (P/P, Q49):

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Exam Topic 7:

ABSORPTION COSTING SYSTEM Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Treatment of Direct & Indirect Expenses 2 Absorption Costing 3 Calculating Products Cost Using Absorption Costing 4 Allocation (step1) & Apportionment (step2) of Production Overheads 5 Re-Apportion of Service Costs to Production Cost Centres (Step3) 6 Pre-determined Overhead Absorption Rate (step4) 7 Accounting for Overheads 8 Under or Over absorption of Overheads 9 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

Pg.no 110 110 110 110 110 110 110 110 110

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1 2 3 4

Treatment of Direct & Indirect Expenses Absorption Costing Calculating Products Cost Using Absorption Costing Allocation (step1) & Apportionment (step2) of Production Overheads

4.1 4.2 Allocation of Overheads to Production Cost Centres 4.2.1 Allocating Overheads to Cost Centers 4.3 Apportion Overheads to Cost Centres 4.3.1 Apportioning Overheads to Cost Centers

5 Re-Apportion of Service Costs to Production Cost Centres (Step3) 5.1.1 Reciprocal Method (Repeated Distribution Method) 5.1.1.1 Steps for Reciprocal Method 5.1.2 Reapportioning Overheads Using Reciprocal Method 5.1.3 Other Methods 5.1.3.1 Direct Method 5.1.3.2 Step Down Method

6 Pre-determined Overhead Absorption Rate (step4) 6.1 Blanket Rate or Single Factory Wide Rate 6.1.1 Calculating Blanket Rate 6.2 Departmental Overhead Absorption Rate 6.2.1 Calculating Departmental Overhead Absorption Rates 6.2.2 Selection of Basis for Overhead Absorption Rates

7

Accounting for Overheads

8

Under or Over absorption of Overheads

7.1 Journal Entries 7.2 Ledger Entries

8.1 Under & Over Absorption of Overheads 8.1.1 Calculating Over & Under Absorption of Overheads 8.1.2 Reason For Over & Under Absorption of Overheads

9 Practice Questions & Solutions

9.1 Question (12/06, Q46: P/P, Q44) 9.2 Question (12/06, Q5: P/P, Q30)

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Exam Topic 8:

ABSORPTION & MARGINAL COSTING Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Marginal Costing 2 Contribution 3 Absorption Costing & Marginal Costing 4 Calculate Profit or Loss under Absorption & Marginal Costing 5 Reconciliation of Profit & Loss under Absorption & Marginal Costing 6 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

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1 Marginal Costing 2 Contribution

2.1 Calculating Contribution & Profit in Marginal Costing 2.2 Uses of Contribution 2.3 Contribution Vs Profit

3 Absorption Costing & Marginal Costing 3.1 3.2 3.3 3.4

Relationship between Profit, Cost Of Sales & Closing Inventory Effects of Absorption & Marginal Costing on Inventory & Net Profit Summary Behavioural Aspects of Absorption Costing

4 Calculate Profit or Loss under Absorption & Marginal Costing 5 Reconciliation of Profit & Loss under Absorption & Marginal Costing 6 Practice Questions & Solutions 6.1 Question (12/06, Q8: P/P, Q37) 6.2 Question (12/06, Q25: P/P, Q4)

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Exam Topic 9:

JOB & BATCH COSTING Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Job Costing & Batch Costing 2 Uses of Job & Batch Costing 3 Benefits of Internal Job Costing 4 Accounting for Jobs & Batches 5 Calculating Job & Batch Costs 6 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

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1 Job Costing & Batch Costing 1.1 Job Costing 1.2 Batch Costing

2 Uses of Job & Batch Costing 3 Benefits of Internal Job Costing 4 Accounting for Jobs & Batches 4.1 Journal Entries 4.2 Ledger Entries

5 Calculating Job & Batch Costs 6 Practice Questions & Solutions 6.1 Question (12/06, Q31)

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Exam Topic 10:

PROCESS COSTING SYSTEM Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Prime Cost & Conversion Cost 2 Process Costing 3 Normal & Abnormal Losses or Gains 4 Steps Involved in Process Costing 5 Preparing Process Accounts 6 Process Costing Involving Work in Process (WIP) 7 By Products & Joint Products 8 Allocating Costs to Joint Products 9 Accounting for Joint Products 10 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

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1 Prime Cost & Conversion Cost 1.1 Prime Cost 1.2 Conversion Cost

2 Process Costing 3 Normal & Abnormal Losses or Gains 4 Steps Involved in Process Costing 4.1 Calculate Cost per Unit of Process Output 4.2 Allocating Cost between Actual Output & Abnormal Loss

5 Preparing Process Accounts 5.1 Equivalent Cost Units

6 Process Costing Involving Work in Process (WIP) 6.1 Calculating Work in Process Using Weighted Average Method 6.1.1 Calculating Equivalent Cost Units for Closing WIP 6.1.2 Calculating Equivalent Cost Units with Opening WIP 6.2 Calculating Work in Progress under FIFO Method 6.2.1 Calculating Equivalent Cost Units for Closing WIP 6.2.2 Calculating Equivalent Cost Units with Opening WIP 6.3 Calculating Cost per Unit of Output under Weighted Average Method 6.4 Calculating Cost per Unit of Output under FIFO Method 6.5 Allocating Costs to Finished Goods & Closing WIP 6.5.1 Under Weighted Average Method 6.5.2 Under FIFO Method 6.6 Preparing Process Costing Accounts 6.6.1 Under Weighted Average Method 6.6.2 Under FIFO Method

7 By Products & Joint Products 8 Allocating Costs to Joint Products 8.1 Physical Measurement Method 8.2 Sales Value Method

9 Accounting for Joint Products 10 Practice Questions & Solutions 10.1 Question (12/06, Q10: P/P, Q2) 10.2 Question (12/06, Q29: P/P, Q42) 10.3 Question (12/06, Q50: P/P, Q21): 10.4 Question (12/06, Q39: P/P, Q35):

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Exam Topic 11:

SERVICE COSTING SYSTEM Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Applications of Service Costing System 2 Unit Costs for Services Industry 3 Analyze Service Costs 4 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

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1 2 3 4

Applications of Service Costing System Unit Costs for Services Industry Analyze Service Costs Practice Questions & Solutions

4.1 Question (12/06, Q24)

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Exam Topic 12:

ALTERNATIVE COST ACCOUNTING Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Activity Based Costing (ABC) 2 Life Cycle Costing 3 Target Costing 4 Total Quality Management (TQM) 5 Traditional Vs Modern Costing Techniques 6 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

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1 Activity Based Costing (ABC) 2 Life Cycle Costing 2.1.1 2.1.2 2.1.3 2.1.4 2.1.5

Design or Development Introduction Growth Maturity Decline

3 Target Costing 4 Total Quality Management (TQM) 5 Traditional Vs Modern Costing Techniques 5.1 Traditional Costing Techniques 5.2 Modern Costing Techniques

6 Practice Questions & Solutions 6.1 Question (P/P, Q2)

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Exam Topic 13:

NATURE & PURPOSE OF BUDGETING Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Budgeting 2 Uses of Budgeting 3 Planning & Control Cycle 4 Administrative Procedures of Budgeting 5 Stages in the Budgeting Process 6 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

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1 2 3 4 4.1 4.2 4.3 4.4

Budgeting Uses of Budgeting Planning & Control Cycle Administrative Procedures of Budgeting Budget Period Budget Policy Manual Delegation of Responsibilities Establishment of Budget Committee

5 Stages in the Budgeting Process 6 Practice Questions & Solutions 6.1 Question (P/P, Q9): 6.2 Question (12/06, Q15)

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Exam Topic 14:

STATISTICAL TECHNIQUES Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Forecasting 2 Forecasting Techniques 3 Forecasting Using High Low Method 4 Scatter Graph Diagrams & Line of Best Fit 5 Coefficient of Correlation 6 Regression Analysis 7 Calculating Regression Line Analysis 8 Adjustment for Inflation or Deflation 9 Advantages & Disadvantages of Regression Line Analysis 10 Product Life Cycle & Forecasting 11 Time Series Analysis 12 Moving Averages 13 Seasonal Variations 14 Advantages & Disadvantages of Time Series Analysis 15 Index Numbers 16 Calculating Index Numbers 17 Spread Sheet 18 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

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1 Forecasting 1.1 Interpolation 1.2 Extrapolation

2 Forecasting Techniques 2.1 Reliability of Forecast

3 Forecasting Using High Low Method 3.1 Advantages & Disadvantages of High-Low Method

4 Scatter Graph Diagrams & Line of Best Fit 5 Coefficient of Correlation 5.1 Calculating co-efficient of correlation 5.2 Coefficient of Determination 5.3 Calculating Coefficient of Determination

6 Regression Analysis 7 Calculating Regression Line Analysis

7.1 Assumptions of Regression Line Analysis

8 Adjustment for Inflation or Deflation

8.1 Consumer Price Index (CPI) or Retail Price Index (RPI) 8.2 Industry Specific Price Index

9 Advantages & Disadvantages of Regression Line Analysis 10 Product Life Cycle & Forecasting 10.1 Design Phase 10.2 Introduction 10.3 Growth 10.4 Maturity 10.5 Decline

11 Time Series Analysis

11.1 Components of Time Series 11.1.1 Trend 11.1.2 Seasonal Variations 11.1.3 Cyclical Variations 11.1.4 Random Variations

12 Moving Averages 13 Seasonal Variations 13.1 Additive Model 13.1.1 Assumption 13.2 Multiplicative Model 13.2.1 Assumption 13.3 Deseasonalisation

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16 Calculating Index Numbers 16.1 Simple Aggregate Index Numbers 16.2 Fixed & Chain Based Index Number

17 Spread Sheet

17.1 Features of Spread Sheet 17.2 Roles of Spread Sheet

18 Practice Questions & Solutions 18.1 Question (P/P, Q17) 18.2 Question (12/06, Q7: P/P, Q13) 18.3 Question (12/06, Q14) 18.4 Question (P/P, Q15) 18.5 Question (12/06, Q3) 18.6 Question (P/P, Q26) 18.7 Question (12/06, Q22: P/P, Q7)

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Exam Topic 15:

BUDGET PREPARATION Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Importance of Principle Budget Factor 2 Sales Budget 3 Functional Budgets 4 Cash Budgets 5 Master Budgets 6 What if Analysis & Scenario Planning 7 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

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1 Importance of Principle Budget Factor 2 Sales Budget 3 Functional Budgets 3.1 Production Budget 3.1.1 Raw Materials Budget 3.1.2 Direct Labour Budget 3.1.3 Variable & Fixed Production Overhead Budget

4 Cash Budgets 5 Master Budgets 6 What if Analysis & Scenario Planning 6.1 Scenario Planning 6.2 What If Analysis

7 Practice Questions & Solutions 7.1 Question (12/06, Q36: P/P, Q19) 7.2 Question (12/06, Q18): 7.3 Question (12/06, Q19)

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Exam Topic 16:

FLEXIBLE BUDGETS Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Importance of Flexed Budgets 2 Disadvantages of Fixed budget 3 Uses of Fixed & Flexible Budgets 4 Prepare Flexible Budget 5 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

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1 2 3 4 5

Importance of Flexed Budgets Disadvantages of Fixed budget Uses of Fixed & Flexible Budgets Prepare Flexible Budget Practice Questions & Solutions

5.1 Question (P/P, Q36): 5.2 Question (12/06, Q9: P/P, Q33):

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Exam Topic 17:

CAPITAL BUDGETING & DISCOUNTED CASH FLOWS Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Importance of Capital Investment in Planning & Control 2 Capital Vs Revenue Expenditure 3 Capital Expenditure Budget 4 Types of Interest & Interest Rates 5 Compounding & Discounting 6 Profit Vs Cash Flow 7 Relevant Cash Flows for Investment Decision 8 Irrelevant Cash Flows for Investment Decision 9 Discounted Cash Flow Techniques 10 Annuity & Perpetuity 11 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

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1 Importance of Capital Investment in Planning & Control 2 Capital Vs Revenue Expenditure 3 Capital Expenditure Budget 3.1 Issues Involved in Capital Expenditure Budgeting 3.1.1 Inflation/Deflation 3.1.2 Liquidity 3.1.3 Cost of Capital 3.1.4 Opportunity Cost 3.1.5 Technological Change 3.1.6 Disposal Proceeds 3.1.7 Other Issues to Consider in Capital Expenditure Budgeting 3.2 Steps Involved in Preparing Capital Expenditure Budget

4 Types of Interest & Interest Rates 4.1 Simple Vs Compound Interest 4.1.1 Simple Interest 4.1.2 Compound Interest 4.2 Nominal Vs Real Interest Rate 4.3 Fisher Formula 4.4 Effective Interest Rate

5 Compounding & Discounting 5.1 Compounding 5.1.1 Calculating Compound Factor 5.2 Discounting 5.2.1 Calculating Discount Factor

6 Profit Vs Cash Flow 7 Relevant Cash Flows for Investment Decision 7.1 7.2 7.3 7.4 7.5 7.6 7.7

Nominal Vs Real Cash Flows Future Cash Flows Variable Cash Flows Directly Attributable Fixed Cost Opportunity Cost Controllable Cash Flows Avoidable Cash Flows

8 Irrelevant Cash Flows for Investment Decision 8.1 8.2 8.3 8.4 8.5

Sunk Cost or Past Cost Committed Cost Fixed Costs Non Controllable Cash Flows Unavoidable Cash Flows

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9.1.1 Calculate Net Present Value (NPV) 9.2 Internal Rate of Return (IRR) 9.2.1 Calculate Internal Rate of Return (IRR) 9.3 Payback Period 9.3.1 Calculating Payback Period

10 Annuity & Perpetuity

10.1 Calculating Annuity Factor 10.2 Perpetuity

11 Practice Questions & Solutions 11.1 Question (12/02, Q3) 11.2 Question (12/06, Q40) 11.3 Question (12/06, Q42) 11.4 Question (12/06, Q43) 11.5 Question (P/P, Q27) 11.6 Question (P/P, Q24): 11.7 Question (P/P, Q18): 11.8 Question (P/P, Q48):

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Exam Topic 18:

BUDGETARY CONTROL & REPORTING Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Variance b/w Fixed, Flexed Budget & Actual 2 Relative Significance of Variances 3 Potential Actions 4 Responsibility Accounting & Control 5 Controllable Vs Non Controllable Costs 6 Prepare Control Reports Exam Topic Awareness Analysis Details Composition Importance

Pg.no 134 134 134 134 134 134

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1 2 3 4 5 6

Variance b/w Fixed, Flexed Budget & Actual Relative Significance of Variances Potential Actions Responsibility Accounting & Control Controllable Vs Non Controllable Costs Prepare Control Reports

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Exam Topic 19:

BEHAVIOURAL ASPECTS OF BUDGETING Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Importance of Motivation in Performance Management 2 Budgetary Planning & Control System 3 Impact of Targets on Motivation 4 Managerial Incentive Schemes 5 Approaches to Budget Setting Process 6 Advantages & Disadvantages of Participative Style of Budgeting 7 Top down Vs Bottom up Approach to Budgeting 8 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

Pg.no 136 136 136 136 136 136 136 136

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1 2 3 4 4.1 4.2 4.3 4.4 4.5 4.6

Importance of Motivation in Performance Management Budgetary Planning & Control System Impact of Targets on Motivation Managerial Incentive Schemes Salary Bonus Shares Share Options Pension Benefits

5 Approaches to Budget Setting Process 6 Advantages & Disadvantages of Participative Style of Budgeting 7 Top down Vs Bottom up Approach to Budgeting 8 Practice Questions & Solutions 8.1 Question (P/P, Q50) 8.2 Question (P/P, Q10)

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Exam Topic 20:

STANDARD COSTING SYSTEMS Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Standard Costing 2 Standard Vs Marginal Vs Absorption Costing 3 Implementing Standard Costing Exam Topic Awareness Analysis Details Composition Importance

Pg.no 138 138 138

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1 Standard Costing 1.1 Definition of Standard Cost & Budgeted Cost 1.2 Purpose of Standard Costing 1.3 Principles of Standard Costing

2 Standard Vs Marginal Vs Absorption Costing 2.1 Standard Cost Card 2.2 Actual Data

3 Implementing Standard Costing

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Exam Topic 21:

VARIANCE ANALYSIS Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Total Sales Variance 2 Total Material Cost Variance 3 Total Labour Cost Variance 4 Total Variable Production Overhead Variance 5 Total Fixed Production Overhead Variance 6 Interpreting Variances 7 Investigating Variances 8 Interrelationship between Variances 9 Calculating Standard or Actual Cost 10 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

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1 Total Sales Variance 1.1 Sales Price Variance 1.2 Sales Volume Profit or Contribution Variance

2 Total Material Cost Variance 2.1 Material Price Variance 2.2 Material Usage Variance

3 Total Labour Cost Variance 3.1 Labour Rate Variance 3.2 Labour Efficiency Variance 3.3 Idle Time Variance

4 Total Variable Production Overhead Variance

4.1 Variable Production Overhead Expenditure Variance 4.2 Variable Production Overhead Efficiency Variance

5 Total Fixed Production Overhead Variance

5.1 Fixed Production Overhead Expenditure Variance 5.2 Fixed Production Overhead Volume Variance 5.2.1 Fixed Production Overhead Efficiency Variance 5.2.2 Fixed Production Overhead Capacity Variance

6 Interpreting Variances 7 Investigating Variances 7.1 Reasons for Variances

8 Interrelationship between Variances 9 Calculating Standard or Actual Cost 10 Practice Questions & Solutions 10.1 Question (P/P, Q16) 10.2 Question (P/P, Q12) 10.3 Question (P/P, Q6) 10.4 Question (12/06, Q32) 10.5 Question (12/06, Q33) 10.6 Question (12/06, Q34, P/P, Q34) 10.7 Question (P/P, Q22) 10.8 Question (12/06, Q20) 10.9 Question (P/P, Q25) 10.10 Question (P/P, Q45) 10.11 Question (12/06, Q41)

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Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Training, Ebook Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning ACCA F2 Management Accounting Study Text Ebook for Dec 2013 Exam | Page 141 of 153 Exam Topic 22: RECONCILIATION OF BUDGETED & ACTUAL PROFIT

Exam Topic 22:

RECONCILIATION OF BUDGETED & ACTUAL PROFIT Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Under Absorption Costing 2 Under Marginal Costing 3 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

Pg.no 142 142 142

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1 Under Absorption Costing 2 Under Marginal Costing 3 Practice Questions & Solutions 3.1 Question (P/P, Q40)

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Exam Topic 23:

PERFORMANCE MEASUREMENT OVERVIEW Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Mission Statement 2 Objectives 3 Macro Economics & Performance Measurement 4 Government Regulation & Performance Measurement 5 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

Pg.no 144 144 144 144 144

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1 Mission Statement 1.1 Purpose of Mission Statement 1.2 Role of Mission Statement in Performance Measurement

2 Objectives

2.1 Purpose of Objectives 2.1.1 Strategic Objectives 2.1.2 Tactical Objectives 2.1.3 Operational Objectives 2.2 Role of Objectives in Performance Measurement 2.2.1 Strategic Objectives 2.2.2 Tactical Objectives 2.2.3 Operational Objectives

3 Macro Economics & Performance Measurement 4 Government Regulation & Performance Measurement 5 Practice Questions & Solutions 5.1 Question (P/P, Q28)

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Exam Topic 24:

PERFORMANCE MEASUREMENT APPLICATION Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Ratios for Financial Performance Measurement 2 Non Financial Performance Measures 3 Balance Score Card 4 Benefits & Limitations of Balance Score Card 5 Critical Success Factors & Key Performance Indicators 6 Value for Money 7 Divisional Performance Measures 8 Advantages & Disadvantages of Both ROCE & RI 9 Characteristics of Services 10 Performance Measures for Service Industries 11 Interpretation of Performance Measures 12 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

Pg.no 146 146 146 146 146 147 147 147 147 147 147 147

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1 Ratios for Financial Performance Measurement 1.1 Profitability ratios 1.1.1 Gross Profit Margin 1.1.2 Net/Operating Profit Margin 1.1.3 Cost of Sales Percentage 1.1.4 Operating Cost Percentage 1.1.5 Sales Growth or Decline Percentage 1.2 Working Capital or Liquidity Ratios 1.2.1 Trade Receivable Turnover 1.2.2 Inventory Turnover 1.2.3 Trade Payable Turnover 1.2.4 Current Asset Ratio 1.2.5 Quick Ratio or Acid Test Ratio 1.3 Gearing Ratios 1.3.1 Financial Gearing Ratios 1.3.1.1 Debt to Debt plus Equity Ratio 1.3.2 Operational Gearing Ratio 1.3.2.1 Contribution to Profit before Interest & Tax (PBIT) 1.3.3 Interest Cover (Times) 1.4 Investor Ratios 1.4.1 Earnings per Share (EPS) 1.4.2 Price Earnings (P/E) Ratio 1.4.3 Earnings Yield 1.4.4 Dividends Yield 1.4.5 Dividend Cover 1.4.6 Payout Ratio 1.5 Evaluating Performance using Ratios

2 Non Financial Performance Measures 3 Balance Score Card 3.1 3.2 3.3 3.4

Financial perspective Customer satisfaction perspective Internal business perspective Innovation and learning perspective

4 Benefits & Limitations of Balance Score Card 5 Critical Success Factors & Key Performance Indicators 5.1 Critical Success Factors (CSF) 5.2 Key Performance Indicators (KPI) 5.3 Relationships between Mission, Objectives, CSF & KPI 5.3.1 Mission 5.3.2 Objectives 5.3.3 Strategy Buy Full ACCA F2/FMA Study Text Book (480±) at ACCASUPPORT.COM | FB GROUP | COMMENT | FORUMS | JOBS ACCA F5, F9, P1, P3 Study Materials Free Download & ACCA Distance Learning Course & Classes in Karachi in Training, t +1 f Ebook Ecommerce/Ebusiness/Make Money Online Tutorial, Implementation Guide, Free Download & Buy. Ecommerce/Ebusiness/Make Money Online Implementation Guide Ebook is cheap & best tutorial & training to buy. ACCA study materials, Class, Lectures, Course, Notes for distance learning

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5.3.4 CSF 5.3.5 KPI 5.4 Organization Specific CSF & KPI

6 Value for Money

6.1 Economy 6.2 Efficiency 6.3 Effectiveness 6.4 Performance Indicators 6.4.1 Economy 6.4.2 Efficiency 6.4.3 Effectiveness 6.5 Efficiency, Capacity & Activity Ratios 6.5.1 Efficiency Ratio 6.5.1.1 Limitation of Efficiency Ratio 6.5.2 Capacity Ratio 6.5.3 Activity Ratio 6.5.4 Calculate Efficiency, Capacity & Production Volume Ratios

7 Divisional Performance Measures 7.1 7.2 7.3 7.4 7.5 7.6

Return on Capital Employed (ROCE) or Return on Investment (ROI) Calculating ROCE or ROI Return on Equity (ROE) Calculating ROE Residual Income (RI) Calculating RI

9.1 9.2 9.3 9.4 9.5

Perishability Heterogeneity Intangibility Simultaneity No Transfer of Ownership

8 Advantages & Disadvantages of Both ROCE & RI 9 Characteristics of Services

10 Performance Measures for Service Industries 11 Interpretation of Performance Measures 12 Practice Questions & Solutions 12.1 Question (P/P, Q14) 12.2 Question (P/P, Q41) 12.3 Question (P/P, Q11) 12.4 Question (P/P, Q38)

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Exam Topic 25:

COST REDUCTIONS & VALUE ENHANCEMENT Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Cost Reduction & Value Enhancement 2 Cost Reduction Methods 3 Value Analysis 4 Practice Question & Solutions Exam Topic Awareness Analysis Details Composition Importance

Pg.no 149 149 149 149

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1 Cost Reduction & Value Enhancement 1.1 Cost Control Vs Cost Reduction

2 Cost Reduction Methods

2.1 Methods of Cost Reduction 2.1.1 Spending 2.1.2 Efficiency 2.2 Ways of Cost Reduction 2.2.1 Variable Costs 2.2.2 Fixed Costs 2.2.3 Discretionary Costs 2.2.4 JIT 2.2.5 TQM 2.2.6 Target Costing 2.2.7 Value Analysis 2.2.8 Market Research 2.2.9 Outsourcing 2.2.10 Automation 2.2.11 Training 2.2.12 Communication 2.2.13 Work Study 2.2.14 Sources of Finance 2.2.15 Tax Planning 2.2.16 Working Capital Management 2.2.17 Information Technology

3 Value Analysis 3.1 3.2 3.3 3.4

Cost Value Use Value Exchange Value Esteem Value

4 Practice Question & Solutions 4.1 Question (P/P, Q23):

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Exam Topic 26:

MONITORING PERFORMANCE & REPORTING Sub Exam Topics S.no Headings (click the cross-ref below for easy navigation) 1 Non Financial Performance Measures 2 Short & Long Term Performance 3 Performance Measurement in Service Industries 4 Performance Measurement in Non Profit & Public Organizations 5 Benchmarking 6 Types of Benchmarking 7 Performance Measurement Reports 8 Practice Questions & Solutions Exam Topic Awareness Analysis Details Composition Importance

Pg.no 151 151 151 151 151 151 151 151

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1 Non Financial Performance Measures 2 Short & Long Term Performance 3 Performance Measurement in Service Industries 3.1 Standards 3.1.1 Equity 3.1.2 Ownership 3.1.3 Achievable 3.2 Rewards 3.2.1 Motivation 3.2.2 Clear 3.2.3 Controllability 3.3 Dimensions 3.3.1 Determinants 3.3.1.1 Quality of Service 3.3.1.2 Flexibility 3.3.1.3 Innovation 3.3.1.4 Resource Utilization 3.3.2 Results 3.3.2.1 Financial Performance 3.3.2.2 Competitive Performance

4 Performance Measurement in Non Profit & Public Organizations 5 Benchmarking 5.1 Explanation of Benchmarking 5.2 Role of Benchmarking in Performance Measurement

6 Types of Benchmarking 6.1 6.2 6.3 6.4

Internal Benchmarking Competitive Benchmarking Functional Benchmarking Strategic Benchmarking

7 Performance Measurement Reports 8 Practice Questions & Solutions 8.1 Question (P/P, Q1)

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