Management Information study guide 2017 PDF

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Download Management Information study guide 2017 PDF

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The Institute of Chartered Accountants in England and Wales

MANAGEMENT INFORMATION

For exams in 2017

Study Guide

www.icaew.com

Contents

1

Introduction

1

2

Management Information

2

3

Study guide

3

4

Syllabus and learning outcomes

25

5

Technical knowledge

28

6

Glossary

35

1 Introduction ACA qualification The ICAEW chartered accountancy qualification, the ACA, is a world-leading professional qualification in accountancy, finance and business. The ACA has integrated components that will give you an in-depth understanding across accountancy, finance and business. Combined, they help build the technical knowledge, professional skills and practical experience needed to become an ICAEW Chartered Accountant. Each component is designed to complement each other, which means that you can put theory into practice and you can understand and apply what you learn to your day-to-day work. Progression through all the elements of the ACA simultaneously will enable you to be more successful in the workplace and exams. The components are:    

Professional development Ethics and professional scepticism Three to five years practical work experience 15 accountancy, finance and business modules

To find out more on the components of the ACA and what is involved in training, visit your dashboard at icaew.com/dashboard

ICAEW Certificate in Finance, Accounting and Business The ICAEW Certificate in Finance, Accounting and Business (ICAEW CFAB) teaches essential skills and knowledge in the three key areas of finance, accounting and business. ICAEW CFAB consists of the same six modules as the first level of our world-leading qualification, the ACA. This means, it can serve as a stand-alone qualification or as a stepping stone on your journey towards chartered accountancy. You can find out more about the ICAEW CFAB exams and syllabus at icaew.com/cfabstudents.

Key resources Whether you're studying the ACA qualification or ICAEW CFAB, we provide a wide range of fantastic resources and services to help you in your studies. They can be found on our website. Depending on the qualification you are studying, be sure to visit the specific area for you. For dedicated exam resources, guidance and information for the ACA qualification, log in to your dashboard at icaew.com/dashboard. For everything you need while studying the ICAEW CFAB qualification go to icaew.com/cfabstudents. If you have a question, our student support team is on hand to help and advise you throughout your studies, don't hesitate to get in touch. Email [email protected] or call +44 (0)1908 248 250 to speak to an adviser.

Study Guide

1

2 Management Information The full syllabus and technical knowledge grids can be found within the module study guide. ACA students, please visit icaew.com/dashboard for this and more resources. ICAEW CFAB students please visit icaew.com/cfabstudents

2.1

Module aim To enable students to prepare essential financial information for the management of a business. On completion of this module, students will be able to:

2.2



establish the costs associated with the production of products and provision of services and use them to determine prices;



select appropriate budgeting approaches and methods and prepare budgets;



identify key features of effective performance management systems, select appropriate performance measures and calculate differences between actual performance and standards or budgets; and



identify and calculate relevant data for use in management decision making.

Method of assessment The Management Information module is assessed by a 1.5 hour computer-based exam. 20% of the marks are allocated in one scenario-based question. This will be drawn from syllabus areas 1 (costing and pricing) or 3 (performance management). The specific topics that may be examined from syllabus area 1 are: allocation, apportionment and absorption of overheads; activity based costing; absorption v marginal costing profits/losses; reconciling absorption and marginal costing profits/losses; mark-up and margin (learning outcomes 1b, c and e). The specific topic that may be examined from syllabus area 3 is: calculation of variances (learning outcome 3e). The remaining 80% of the marks are from 32 multiple choice, multi-part multiple choice or multiple response questions. The 33 questions cover the areas of the syllabus in accordance with the weightings set out in the specification grid.

2.3

Specification grid This grid shows the relative weightings of subjects within this module and should guide the relative study time spent on each. Over time the marks available in the assessment will equate to the weightings below, while slight variations may occur in individual assessments to enable suitably rigorous questions to be set. 1 2 3 4

2

Costing and pricing; 5 Ethics Budgeting and forecasting Performance management Management decision making

Management Information

Weighting (%) 25 25 25 25 100

3 Study guide 3.1 Help yourself study for your ACA exams The right approach 1

2

Develop the right attitude Believe in yourself

Yes, there is a lot to learn. But thousands have succeeded before and you can too.

Remember why you're doing it

You are studying for a good reason: to advance your career.

Focus on the exam Read through the Syllabus in this guide

3

This tells you what you are expected to know.

The right method See the whole picture

Use your own words

Keeping in mind how all the detail you need to know fits into the whole picture will help you understand it better. 

The Practical significance and Working context to each chapter in the study guide put the material into context.



The Learning objectives and Section overviews in the study manual show you what you need to grasp.

To absorb the information (and to practise your written communication skills), you need to put it into your own words.    

Give yourself cues to jog your memory

4

Take notes. Answer the questions in each chapter. Draw mindmaps. Try 'teaching' a subject to a colleague or friend.

The Study Manual uses bold to highlight key points.  

Try colour coding with a highlighter pen. Write key points on cards.

The right recap Review, review, review

Regularly reviewing a topic in summary form can fix it in your memory. The Study Manual helps you review in many ways. 

Each Chapter Summary will help you to recall that study session.



The Self-test actively tests your grasp of the essentials.



Go through the Examples in each chapter a second or third time.

Study Guide

3

3.2 Study cycle The best way to approach the Study Manual is to tackle the chapters in order. We will look in detail at how to approach each chapter below but as a general guide, taking into account your individual learning style, you could follow this sequence for each chapter. Key study steps Step 1 Topic list Step 2 Introduction

Activity This topic list is shown in the contents for each chapter and helps you navigate each part of the book; each numbered topic is a numbered section in the chapter. The practical significance and working context sections for each chapter, set out in this study guide, give you the big picture in terms of the context of the chapter. The Examination context guidance shows what the examiners are looking for and tells you why the topics covered in the chapter need to be studied.

Step 3 Section overviews

Section overviews give you a quick summary of the content of each of the main chapter sections. They can also be used at the end of each chapter to help you review each chapter quickly.

Step 4 Explanations

Proceed methodically through each chapter, particularly focusing on areas highlighted as significant in the chapter introduction or study guide.

Step 5 Note taking

Take brief notes, if you wish. Don't copy out too much. Remember that being able to record something yourself is a sign of being able to understand it. Your notes can be in whatever format you find most helpful; lists, diagrams, mindmaps.

Step 6 Examples

Work through the examples very carefully as they illustrate key knowledge and techniques.

Step 7 Answers

Check yours against the suggested solutions, and make sure you understand any discrepancies.

Step 8 Chapter summary

Review it carefully, to make sure you have grasped the significance of all the important points in the chapter.

Step 9 Self-test Step 10 Learning objectives

Use the Self-test to check how much you have remembered of the topics covered. Ensure you have ticked off the Learning objectives.

Moving on... When you are ready to start revising, you should still refer back to the Study Manual. 

As a source of reference (you should find the index particularly helpful for this).



As a way to review (the Section overviews, Examination context, Chapter summaries and Self-test questions help you here).

Remember to keep careful hold of the Study Manual – you will find it invaluable in your work.

3.3 Detailed study guide Use this schedule and your exam timetable to plan the dates on which you will complete each study period that follows.

Revision Phase – your revision should be centred around using the questions in the ICAEW Question Bank.

4

Management Information

Study period

1

Practical significance

All businesses, including sole traders, partnerships and companies incur costs every day. Accounting systems can be set up to record the amount of expenditure incurred on different types of cost, such as rent, power (gas and electricity) and salaries. 

Such systems can include methods for business managers to obtain the information they need to manage the business on a day-to-day basis. For example, providing detailed answers to questions such as the following.



What did it cost to provide a particular service to a particular client?



What price should be tendered for a contract? What is the cost of operating different departments each period?

  

How much sales revenue is generated by a particular product? Are the actual costs incurred on a particular activity higher or lower than the planned costs?

The aim of the cost accounting system within an overall accounting system is to provide the information that helps to answer these and similar questions. The cost accounts form the basis of the internal management accounting information that managers will use for planning, control and decision-making.

Working context

You will come across cost classifications in a variety of contexts in your working life. For example, when inventories are being valued it is important to be able to identify which costs are direct costs of the inventory items and which are indirect costs and cannot be attributed to the inventory items. Correct cost classification is fundamental to the determination of the cost of any cost object.

Approach

Read quickly through section 1 of Chapter 1 to set cost accounting in context. Spend more time making sure that you understand the basic concepts in section 2. Learn the two definitions in section 3. Once you have read through section 4 practice drawing all of the cost behaviour patterns you have learned about. Skim through section 5 and learn the definitions. You will meet all of these concepts again in Chapter 8. Work through the ethical principles in section 6 and make sure you could identify them if faced with an ethical dilemma in a scenario. Finally work through the self-test questions carefully to ensure that you have grasped the main points in the chapter.

Syllabus references and exam context

Due date

Many of the fundamental aspects of costing covered in this chapter do not lend themselves easily to numerical objective test questions. Therefore, you are more likely to see the majority of these subjects in narrative questions. For example, you might be required to pick out correct definitions or statements from a number of statements supplied in a question, or you might have to identify an appropriate cost unit from a number of suggestions for a particular organisation to use as the basis of its accounting system. In the examination, students may be required to:  

Understand the purpose of a cost unit. Classify costs as fixed, variable and semi-variable (or semi-fixed).

Understand what is meant by the elements of cost.  Understand the difference between a direct cost and an indirect cost, between a controllable cost and an uncontrollable cost and between a product cost and a period cost.  Identify ethical issues. Knowing the various definitions is fundamental to answering questions in this area. For example it is essential to determine the 'cost object' in a question (ie the thing being costed), in order to determine whether costs are direct or indirect as regards that cost object.



Study Guide

5

Study period

Practical significance

This information must be reported fairly, honestly and in accordance with professional standards. The ICAEW provides ethical guidance to help ensure that this happens.

Stop and think Why do you think that management accounting is an internal service for a business's managers? Why are management accounts not usually distributed to interested parties outside the business?

6

Management Information

Working context

Approach

Syllabus references and exam context

The specific syllabus references for this chapter are: 1a, b, 5a.

Due date

Study period

2

Practical significance

Working context

You may come across inventory valuations in the context of audit engagements. Typical procedures might involve checking that costs have But how are the individual elements of been calculated and costs to be determined for each cost recorded correctly and that unit? For example there must be the inventory valuation mechanisms for recording the hours method has been applied worked by employees and the tasks they consistently. accomplish in this time. An important task to be fulfilled by the management information system is to provide unit costs as the basis for a variety of management planning and control activities.

As regards material, if several different batches of material are purchased, all at different prices, which price should be reported within unit costs for managers to use as the basis of their day-to-day operational and planning decisions? Information providers need mechanisms to systematically record the prices paid for material and the quantities purchased and issued to production or sales.

Stop and think In times of rapid inflation, why is it important to use up to date prices when reporting costs to the manager who is responsible for determining the selling price of the company's main products or services?

Approach

Syllabus references and exam context

Due date

The context of much of this chapter provides scope for a range of numerical questions. However, you should also be prepared to deal with narrative questions that examine your understanding of the implications of the techniques you are using. Section 2 of this chapter is very important Narrative questions on the pricing of and requires you to be actively involved. Do materials issues and on the classification of not just skim over all the workings. Get a costs have been popular in past calculator and check that you understand examinations. where each figure in the tabulations comes In the examination, students may be from. Find a method of laying out the required to: calculations that works for you. Although you  Classify costs as direct or indirect. won't receive marks for workings in the Read quickly through section 1 of Chapter 2 to reinforce your understanding of direct and indirect costs. Spend a little more time thinking about each item in interactive question 1 and use this to test whether you really understand the concepts.

actual exam, you will need to use a clear layout to achieve the necessary 100 per cent accuracy. Finally work through the self-test questions at the end of the chapter.

 

Calculate the prime cost of a cost unit. Calculate the price of materials and the value of inventory using ('first in, first out') FIFO, ('last in, first out') LIFO and average pricing methods.

It is important to realise that in this chapter and the next, ideas from Chapter 1 are being applied in determining the cost of a unit of output. The cost object is, therefore, the unit of output and all terms such as direct and indirect are used in that context. It is also essential to appreciate that direct and variable costs and indirect and fixed costs are NOT the same thing. The narrative is as important as the calculations for FIFO, LIFO and weighted average inventory valuations. The specific syllabus references for this chapter are: 1b, c.

Study Guide

7

Study period

3

Practical significance

We have seen that it is possible to attribute direct costs to individual cost units. However, for certain management decisions, for example, when determining selling prices or valuing finished goods inventory, management might need to know the full cost of the item, including a share of the indirect costs or overheads. Accordingly a method has to be devised for sharing the indirect costs between all the units that benefit from them. The costing method used to determine an organisation's unit costs will ultimately depend on the nature of the organisation's operations.

Stop and think Why will the costing method used by a company that builds motorway bridges be different from the costing method used by a company that manufactures canned soup? What aspects of their operations mean that a different costing method will be required?

Working context

Once again you are likely to come across the subject matter of this chapter in the context of auditing inventory valuations. Typical procedures might involve checking that the indirect cost attributed to inventory items is determined using a realistic and systematic basis.

Approach

Chapter 3 contains a lot of very important material. Read quickly through sections 1.1 and 1.2. In section 1.3 skim through interactive question 1 and then give the worked example extra attention. Check that you understand the derivation of all of the figures in the final table. Think about the apportionment of service cost centre costs: why it is necessary and how it is done. Work carefully through the interactive questions and examples.

Syllabus references and exam context

Numerical questions on the calculation of overhead abso...