AAT MATS cheat sheet

Management accounting supplies financial and non-financial information to internal managers for planning, control, performance evaluation and decision making; it has no statutory format or external publication requirement.

Financial accounting reports historical results to external stakeholders under statutory requirements and accounting standards; management accounting is mainly forward-looking, internal and tailored to management needs.

A cost object is any item for which costs are separately measured, such as a product, job, department, customer or project.

Direct costs can be traced economically to a cost object; indirect costs (overheads) cannot be traced and must be allocated, apportioned or absorbed.

Cost behaviour: fixed costs are constant in total over a relevant range; variable costs vary with activity; semi-variable costs contain both fixed and variable elements.

The control cycle is plan, implement, measure actual performance, compare with plan, analyse variances and take corrective action.

Responsibility centres: cost centre (controls costs), revenue centre (controls revenue), profit centre (controls costs and revenue), investment centre (also controls capital invested).

Managers should be held accountable for controllable costs only; uncontrollable costs such as apportioned central overheads should be reported separately.

Useful management information balances relevance, accuracy, timeliness, comparability, understandability and cost of preparation; cost-benefit governs report design.

IAS 2 inventory valuation: inventories are measured at the lower of cost and net realisable value (NRV); NRV = estimated selling price less costs to complete and sell.

Inventory cost includes purchase price, import duties, transport, conversion costs and other costs to bring inventory to its present location and condition; abnormal waste and non-production admin costs are excluded.

FIFO assumes the earliest units are sold or used first, so closing inventory is valued at the most recent prices; AVCO uses a weighted average cost per unit; LIFO is not permitted under IAS 2.

Absorption costing assigns direct costs plus a share of production overhead to products; marginal costing assigns only variable production costs to products and treats fixed production overhead as a period cost.

Predetermined overhead absorption rate = budgeted production overhead ÷ budgeted activity base (labour hours, machine hours or units).

Over/under absorption = actual overhead incurred − overhead absorbed; a positive result is under-absorption (debit) and a negative result is over-absorption (credit).

Absorption profit − marginal profit = change in inventory units × fixed production overhead per unit; absorption profit is higher when inventory increases and lower when inventory falls.

High-low method: variable cost per unit = (highest total cost − lowest total cost) ÷ (highest activity − lowest activity); fixed cost = total cost − variable cost per unit × activity.

Process costing uses equivalent units to spread costs over completed output and work in progress; normal loss is expected and has no cost attached unless it has scrap value; abnormal loss/gain is valued at full production cost per unit.

Budget purposes: planning, coordination, communication, motivation, authorisation and control through comparison of actual with budget.

The principal budget factor (limiting factor) is the factor that restricts the organisation's activities and must be budgeted first, often sales demand or a scarce resource.

Production budget in units = sales budget units + required closing inventory units − opening inventory units.

Material purchases budget = material usage budget + required closing inventory − opening inventory; usage is based on the production budget and material per unit.

Cash budget records expected cash receipts and payments by period; it excludes non-cash items such as depreciation and includes the timing of receipts and payments.

A fixed budget is set for one activity level; a flexible budget is recast for the actual activity level so like-for-like variances can be calculated.

Zero-based budgeting requires each activity and cost to be justified from a zero base; incremental budgeting starts from last period's budget and adjusts for changes.

Budgetary control compares actual results with budget, calculates variances, identifies causes and responsibility, and takes corrective action; favourable variances increase profit and adverse variances reduce it.

A budget manual sets out budgeting procedures, timetables, responsibilities and forms; the budget committee coordinates and approves the budget.

A standard cost is a predetermined unit cost for materials, labour and overhead; standard costing supports control, inventory valuation, pricing and performance measurement.

Material price variance = (standard price − actual price) × actual quantity purchased; material usage variance = (standard quantity for actual output − actual quantity used) × standard price.

Labour rate variance = (standard rate − actual rate) × actual hours paid; labour efficiency variance = (standard hours for actual output − actual hours worked) × standard rate.

Variable overhead expenditure variance = (standard variable overhead rate − actual rate) × actual hours; variable overhead efficiency variance = (standard hours for actual output − actual hours) × standard rate.

Fixed overhead expenditure variance = budgeted fixed overhead − actual fixed overhead; fixed overhead volume variance = (actual output − budgeted output) × standard fixed overhead per unit.

Sales price variance = (actual selling price − standard selling price) × actual units sold; sales volume contribution variance = (actual units − budgeted units) × standard contribution per unit.

Standard hours for actual output = actual output units × standard hours per unit; idle time variance = idle hours × standard labour rate and is adverse.

Variance analysis identifies causes such as price changes, material waste, inefficient labour, machine breakdown or inaccurate standards; responsibility depends on whether the variance is controllable by the manager.

Relevant costs are future, incremental cash costs that differ between alternatives; sunk costs, committed costs, non-cash depreciation and apportioned fixed costs are generally irrelevant.

Opportunity cost is the contribution forgone from the next best alternative use of a scarce resource and is included in relevant cost analysis.

Special order decision: accept if incremental revenue exceeds incremental costs and spare capacity exists; consider the impact on normal sales, capacity and long-term pricing.

Make-or-buy: compare relevant internal variable costs plus opportunity costs of using capacity against the external purchase price and any non-financial factors.

Limiting factor decision: rank products by contribution per unit of the scarce resource, then allocate the scarce resource to the highest-ranked product first.

Breakeven units = fixed costs ÷ contribution per unit; breakeven revenue = fixed costs ÷ contribution-to-sales ratio; target profit units = (fixed costs + target profit) ÷ contribution per unit.

Margin of safety = (budgeted or actual sales − breakeven sales) ÷ budgeted or actual sales × 100%; it measures how much sales can fall before a loss arises.

Shut-down decision: continue in the short term if contribution is positive and no better alternative use of resources exists; fixed costs continue whether or not operations stop.

Management reports should use exception reporting, clear variance analysis, KPIs and non-financial indicators; information should be relevant, timely and tailored to the decision.