ACCA F2 Management Accounting Essential text by Kaplan Publishing UK

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In addition the mathematics will produce an equation even if there is no clear ‘cause and effect’ relationship between the two sets of figures. The strength of this relationship is explored under ‘correlation’ below. Particular care must be taken when the number of readings is low. Expandable text Illustration 2 ­ Linear regression analysis Bronze recorded the following costs for the past six months. Month 1 2 3 4 5 6 46 Activity level Units 80 60 72 75 83 66 Total cost $ 6,500 6,200 6,400 6,500 6,700 5,400 KAPLAN PUBLISHING chapter 3 Required: (a) Estimate the fixed costs per month and variable cost per unit using linear regression analysis.

Cost equations have the same formula as linear functions: • • • 30 ‘a’ is the fixed cost per period (the intercept) ‘b’ is the variable cost per unit (the gradient) ‘x’ is the activity level (the independent variable) KAPLAN PUBLISHING chapter 2 • ‘y’ is the total cost = fixed cost + variable cost (dependent on the activity level) Suppose a cost has a cost equation of y = $5,000 + 10x, this can be shown graphically as follows: Graph of cost equation y = 5,000 + 10x Illustration 4 ­ Cost equations If y = 8,000 + 40x (a) Fixed cost = $ (b) Variable cost per unit = $ (c) Total cost for 200 units = $ Expandable text KAPLAN PUBLISHING 31 Types of cost and cost behaviour Test your understanding 8 Consider the linear function y = 1,488 + 20x and answer the following questions.

96 or 96%.  This would be interpreted as high correlation.  The other 8% of variations in total costs are assumed to be due to random fluctuations.  The correlation between sales of cigars and CD players would be high despite no causal relationship.  For example there may be stepped fixed cost such as an additional supervisor that is required at 11,800 units. 63 KAPLAN PUBLISHING 55 Business mathematics 56 KAPLAN PUBLISHING chapter 4 Ordering and accounting for inventory Chapter learning objectives Upon completion of this chapter you will be able to: • describe, for a manufacturing business, the different procedures and documents necessary for the ordering, receiving and issuing of materials from inventory • interpret the entries and balances in the material inventory account for a manufacturing business • describe the control procedures that can be used in a manufacturing business to monitor physical and ‘book’ inventory and to minimise discrepancies and losses.

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