ACCN4 - Revision Guide

ACCN4 - Revision Guide

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ACCN4 - Further Aspects of Management Accounting
ACCN4 - Further Aspects of Management Accounting
Chapter 1 ­ Manufacturing Accounts
What is a manufacturing account?
A retailer buys and sells completed products, whereas a manufacturer has to produce the products to sell.
A manufacturing account is therefore prepared to show all the costs associated with the making of these products within the factory.
A simple manufacturing account is split into two sections.
The prime cost section, which calculates the total of the direct manufacturing cost of the products, and the direct costs, which include raw
materials, direct labour and royalties.
The manufacturing overheads section which identifies the other costs associated with the production of the products, for example factory rent,
machine maintenance and machine depreciation.
When the sections are combined the production cost of manufactured goods can be found.
Manufacturing account
£ £
Inventory (stock) of raw materials at 1 January (opening inventory) X
Purchases of raw materials X
Carriage inwards X
Returns outwards (X)
Net Purchases X
X
Stock of raw materials at 31 December (closing inventory) (X)
Cost of raw materials consumed X
Manufacturing wages X
Manufacturing royalties X
Prime cost X
Depreciation of manufacturing machinery X
Factory rent X
Other factory overheads X
X
Inventory (stock of work in progress) at 1st January (opening inventory) X
Inventory (stock) of work in progress at 31st of December (closing stock) (X)
Production cost of manufactured goods X
Factory Profit @ certain % X
Transfer Price X
What is work in progress?
Manufacturing is a continuous process and so not all goods are complete at the end of the end of financial period.
The partially finished goods are referred to as inventory of work in progress.
The total production cost of manufactured goods in manufacturing account is therefore made up of prime cost + factory overheads - closing
work in progress.
Preparing manufacturers income statement
At the end of the production process the total production cost of manufactured goods is transferred to the income statement. This figure
replaces the purchases of goods for resale within the calculation of cost of sales.
The completed goods are often referred to as finished goods. These are place in the income statement within the calculation of cost of sales.
£ £
Revenue (sales) X
Returns inwards (X)
Net revenue (sales) X
Opening inventory (stock) of finished goods X
Production cost of manufactured goods X
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ACCN4 - Further Aspects of Management Accounting
X
Closing inventory (stock) of finished goods (X)
Cost of sales (cost of goods sold) (X)
Gross Profit X
How is inventory recorded in the balance sheet of the manufacturer compared to the retailer?
There are three types of inventory within the manufacturing business:
1. Inventory of raw materials.
2. Inventory of work in progress.
3. Inventory of finished goods.…read more

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ACCN4 - Further Aspects of Management Accounting
Chapter 2 - Marginal Costing
Marginal costing is costing method which only considers marginal costs, which are those costs that are incurred when one extra unit is
produced, for example direct costs.
Direct Costs ­ are those costs which can be identified with the actual production unit: namely the cost of direct material, cost of direct labour
and any variable cost which increases as production increases.
Variable Costs ­ these costs will vary with the level of production.…read more

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ACCN4 - Further Aspects of Management Accounting
Margin of Safety
The margin of safety I the amount of units between the amounts of revenue (sales) made and the amount need to break-even where the
amount of revenue (sales) exceeds the break-even point.
MARGIN OF SAFTEY ­ the difference between the number of sales units achieved (or maximum output) and the number of units at the
break-even point, where the amount of revenue (sales) achieved must exceed the breakeven point otherwise a loss is made.…read more

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ACCN4 - Further Aspects of Management Accounting
Businesses are often faced with a choice of satisfying customer demand with inventory made bought in as it is unable to produce the
goods required by itself.
On a purely financial basis the decision whether to make or buy in should be based on whether to make or buy in should be based on
whether a positive contribution should be made.…read more

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ACCN4 - Further Aspects of Management Accounting
Use of overhead absorption rate
Once the OAR has been calculated it is possible to calculate the full cost of the unit.
Chapter 4 ­ Activity based costing
Activity based costing?
This type of costing was developed as an alternative to absorption costing. The organizations activities are analysed into groups of costs, one
group for each major activity. These costs are called cost pools. Factors are then identified which cause the costs to change.…read more

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ACCN4 - Further Aspects of Management Accounting
Chapter 4 ­ Standard costing and variance analysis
What is standard costing?
Standard costing is the preparation and use of costs which should be achieved with efficient working conditions and manufacturing
performance. These costs ought to be achieved and are called standard costs. Standard costing involves the comparison of these
predetermined standard cost with actual costs. Any difference between the standard and the actual cost is called a variance, which should
be investigated.…read more

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ACCN4 - Further Aspects of Management Accounting
A manager will usually will look into the possible causes of an adverse variance as this decrease profit. A favourable variance will increase
profit, but if there is a large favourable variance it may still need to be investigated as it could be result in poor budget setting. Remember that
if budgets are easily achieved they lose validity as targets.…read more

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ACCN4 - Further Aspects of Management Accounting
No overtime or bonuses.
Lower-skilled workforce.
Lower quality of materials.
Unfavourable working
conditions.
Lack of training.
Labour Efficiency ADVERSE More hours used for production. Lack of supervision.
Works to rule/strikes (if paid).
Machine breakdowns.
Lack of materials/orders.
Too many unproductive hours,
e.g. coffee breaks.
More-Skilled workforce.
Better-quality material.
Fewer non-productive hours.
FAVORABLE Less hours used for production. More training/supervision.
Advances in machinery
technology.…read more

Comments

Lilian

Hi,

Does this revision guide cover the AQA specification?

Alexis_Sanchez17

Yeah fam it also covers me

Lily_Annm

Has anybody got something similar to this but for UNIT 3 please?!? 

Lornam

hey...this is really useful thanks....

ja1uli_10

ygm

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