Notes on Management Accounting Essay

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Unit 7:

Management Accounting

Unit code:

J/502/5419

QCF Level 3:

BTEC National

Credit value:

10

Guided learning hours: 60
Aim and purpose
The aim of this unit is to enable learners to understand how important management accounting is to all businesses. It looks at costing and budgeting, and how to use current or historical financial data to plan for the effective finances and costs of the business for the future.

Unit introduction
Whether an organisation is successful and long established or a business start-up, one of the most important aspects of its management is effective financial planning and control. This is known as management accounting and it builds on historical accounting information provided by financial accounts. A sound understanding of costs and cost accounting is an essential part of managing finances.
Learners need to understand the nature of costs and the impact on those costs of expanding the organisation or increasing business activity. Appropriate pricing of an organisation’s products or services will play a large part in its future profitability. This unit aims to help learners to understand how management accounting begins with planning the activity levels and establishing the costs, incomes and profits for future periods. Break-even analysis allows managers to assess optimum activity levels whilst historical data can be used to look for trends that can forecast more accurately the figures that are used in budgets.
Simply preparing financial forecasts is not sufficient to keep control of a business organisation will then want to compare actual activity levels, costs and incomes with those that were planned. The management accountant will calculate and consider the differences between budgeted and actual figures. This will form the basis of management decisions which are used to steer the business back towards its planned targets.
On completion of this unit, learners will have a good appreciation of the skills and understanding necessary to manage the finances of an organisation. They will be able to assess the problems highlighted by variance analysis and make realistic decisions on the likely courses of action.

Learning outcomes
On completion of this unit a learner should:

1

Understand how production costs are determined and used to calculate prices

2

Be able to use break-even analysis

3

Be able to use appropriate statistical information to review and predict business performance

4

Be able to use budgetary techniques.

Edexcel BTEC Level 3 Nationals specification in Business
– Issue 2 – June 2010 © Edexcel Limited 2010

1

Unit content
1 Understand how production costs are determined and used to calculate prices
Costs: direct costs (raw materials, unfinished goods, direct labour costs, direct expenses); variable costs; depreciation; semi-variable costs; stepped costs; indirect costs; fixed costs; cost centres; profit centres; non-production (service) department overheads; overhead allocation; apportionment; overhead absorption rate; absorption costing; activity-based costing; marginal costing; standard costing
Prices: cost plus; discounting; impact of pricing policies on production and costs; income

2 Be able to use break-even analysis
Break-even analysis: contribution; break-even formula; break-even graph; break-even point; area of profit; area of loss; margin of safety; budgeted activity and sales levels; numerical calculation; changing overheads; direct costs; selling prices and budgeted activity levels; target profit levels of activity; use of computerised spreadsheet (tabulation, charts, goal-seeking); limitations and assumptions (sales levels being identical to production levels, consistency of selling price, contribution and overhead behaviour); external factors
(inflation, interest rates)

3 Be able to use appropriate statistical information to review and predict business
performance
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