ACCA F2 Management Accounting: F2 (Acca Key Study Text)

463 Pages·2008·2.69 MB·English

by  Emile Woolf International

PPuubblliisshhiinngg
F2 Study Text
Management Accounting
ACCA
PPuubblliisshhiinngg
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ACCA
Paper
A

C
F2
C

A

Management Accounting

Welcome to Emile Woolf‘s study text for

Paper F2 Management Accounting which is:

(cid:132) Written by tutors
(cid:132) Comprehensive but concise

(cid:132) In simple English

(cid:132) Used around the world by Emile Woolf Colleges including
China, Russia and the UK

PPuubblliisshhiinngg
Second edition published by  
Emile Woolf Publishing Limited 
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© Emile Woolf Publishing Limited, September 2010 

All rights reserved. No part of this publication may be reproduced, stored in a retrieval 
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Acknowledgements 
The syllabus and study guide are reproduced by kind permission of the Association of 
Chartered Certified Accountants. 

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Paper F2

Management Accounting
C

Contents

Page
Syllabus and study guide 1
Formulae 9
Chapter 1: The nature and purpose of cost and management accounting 11
Chapter 2: Cost classification 25
Chapter 3: Cost behaviour and cost estimation 41
Chapter 4: Business mathematics and computer spreadsheets 61
Chapter 5: Accounting for materials and labour 87
Chapter 6: Accounting for overheads 125
Chapter 7: Accounting for costs: ledger entries 161
Chapter 8: Marginal costing and absorption costing 177
Chapter 9: Job costing, batch costing and service costing 193
Chapter 10: Process costing 203
Chapter 11: Budgeting 239
Chapter 12: Standard costing and variance analysis 257
Chapter 13: Cost-volume-profit (CVP) analysis 305
Chapter 14: Relevant costs 321
Chapter 15: Limiting factors and linear programming 339
Appendix: Spreadsheets 361
Answers to exercises and practice multiple choice questions 371
Practice questions 401
Answers to practice questions 423
Index 451
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Note about the F2 examination paper and practice questions in this study
text

The F2 examination paper consists of 50 multiple choice questions (or ‘objective
testing’ questions). It is therefore important that you should test your ability in
answering multiple choice questions (MCQs) when you study this subject.

Some MCQs are included at the end of each chapter in this text as practice questions. If
you want more practice, there are many more MCQs in the Examination Kit produced
by Emile Woolf Publishing Limited (EWP) for the F2 examination and also in EWP’s
distance learning materials for F2.

We take the view, however, that MCQs on their own are insufficient for practising and
testing your ability. In order to understand management accounting properly, it is
important to have an appreciation of the ‘bigger picture’ and to see ‘techniques’ or
‘methods’ of management accounting in their entirety. We have therefore included a
number of longer practice questions at the end of this study text that deal with syllabus
topics in a unified way. These questions deal with each topic at a suitable level for the
F2 examination, even though they are too long for the examination itself.

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Paper F2

Management accounting
S

Syllabus and study guide

Aim
To develop knowledge and understanding of how to prepare and process basic cost
and quantitative information to support management in planning and decision-
making in a variety of business contexts.
Main capabilities
On successful completion of this paper, you should be able to:

A Explain the nature and purpose of cost and management accounting
B Describe costs by classification, behaviour and purpose
C Apply essential business mathematics and use computer spreadsheets
D Explain and apply cost accounting techniques
E Prepare and coordinate budgets and standard costing for planning, feedback
and control
F Using management accounting techniques to make and support decision-
making

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Paper F2: Management accounting
Rationale
The syllabus for Paper F2, Management Accounting, introduces candidates to costing 
principles and techniques, and elements of management accounting which are used 
to make and support decision‐making.  

The  syllabus  starts  by  introducing  the  nature  and  purpose  of  cost  accounting, 
distinguishing  it  clearly  from  financial  accounting.  The  next  section  is  cost 
classification  and  behaviour.  This  is  followed  immediately  by  applied  business 
mathematics  and  the  use  of  computer  spreadsheets,  which  are  essential  for 
candidates to understand the measurement and behaviour of business costs and to be 
able to classify them accordingly.  

The next area of the syllabus represents a central part of this paper and it introduces 
candidates to a variety of costing techniques used in business. It is followed by the 
preparation and use of budgeting and standard costing as essential tools for planning 
and controlling business costs. The syllabus finishes with an introduction to the use 
of management accounting in supporting decision‐making.  
Syllabus content
A The nature and purpose of cost and management accounting
1 Accounting for management
2 Cost and management accounting versus financial accounting

B Cost classification, behaviour and purpose
1 Production and non-production costs
2 Direct and indirect costs
3 Fixed and variable costs

C Business mathematics and computer spreadsheets
1 Dealing with uncertainty
2 Statistics for business
3 Use of computer spreadsheets

D Cost accounting techniques
1 Accounting for materials
2 Accounting for labour
3 Accounting for overheads
4 Marginal and absorption costing
5 Job and batch costing
6 Process costing
7 Service/operation costing

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Syllabus and study guide
E Budgeting and standard costing
1 Nature and purpose of budgeting
2 Functional budgets
3 Flexible budgets and standard costing
4 Basic variance analysis under absorption and marginal costing
5 Reconciliation of budgeted profit to actual profit

F Short-term decision-making techniques
1 Cost-volume-profit analysis
2 Relevant costing
3 Limiting factors
Approach to examining the syllabus
The syllabus is assessed by a two hour paper-based or computer-based examination.
Questions will assess all parts of the syllabus and will include both computational
and non computational elements. The examination will consist of 40 two-mark
questions, and 10 one-mark questions.

© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 3
Paper F2: Management accounting
Study guide
This study guide provides more detailed guidance on the syllabus. You should use 
this as the basis of your studies. 
A The nature and purpose of cost and management accounting
1 Accounting for management
(a) Distinguish between data and information.
(b) Identify and explain the attributes of good information.
(c) Outline the managerial processes of planning, decision making
and control.
(d) Explain the difference between strategic, tactical and operational
planning.
(e) Distinguish between cost, profit, investment and revenue centres.
(f) Describe the differing needs for information of cost, profit,
investment and revenue centre managers.

2 Cost and management accounting versus financial accounting
(a) Describe the purpose and role of cost and management accounting
within an organisation’s management information system.
(b) Compare and contrast financial accounting with cost and
management accounting.
B Cost classification, behaviour and purpose
1 Production and non-production costs
(a) Explain and illustrate production and non-production costs.
(b) Describe the different elements of production cost - materials,
labour and overheads.
(c) Describe the different elements of non-production cost –
administrative, selling, distribution and finance.
(d) Explain the importance of the distinction between production and
non-production costs when valuing output and inventories.

2 Direct and indirect costs
(a) Distinguish between direct and indirect costs in manufacturing
and non-manufacturing organisations.
(b) Identify examples of direct and indirect costs in manufacturing
and non-manufacturing organisations.
(c) Explain and illustrate the concepts of cost objects, cost units and
cost centres.

3 Fixed and variable costs
(a) Describe and illustrate, graphically, different types of cost
behaviour.
(b) Explain and provide examples of costs that fall into the categories
of fixed, stepped fixed and variable costs.
(c) Use high/low analysis to separate the fixed and variable elements
of total costs including situations involving stepped fixed costs
and changes in the variable cost per unit.
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