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ACCA F2 Management Accounting(INT)

Sample Study Note

For exams in DEC2014








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Lesco Group Limited, April 2015
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording or otherwise, without the prior written
permission of Lesco Group Limited.
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Sample Note Content:



Product Summary .............................................. Error! Bookmark not defined.
Live online course timetable ................................ Error! Bookmark not defined.
Main study note content [Total Pages: 120] ...................................................... 4
Stock management ........................................................................................ 8









Please note:
This is just the sample study note extracted from the main study note in your tuition study
[This tuition study note is consistent in basic/super/gold package]. There would be more
chapters in the main study note covering the whole ACCA syllabus.
You can also take a look at the content within the main study note below:


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Product Summary














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Live online course timetable


Timetable: [Super+Gold package-additional revision would
be agreed between tutor and student]
Live Online Revision
Live revision1 Live revision2
F5 Performance management 25
th
Oct 7:00a.m.-14:00 22
nd
Nov 6:00a.m.-13:00
F7 Financial Reporting (INT) 2
nd
Nov 6:00a.m.-13:00 29
th
Nov 6:00a.m.-13:00
F8 Audit and Assurance (INT) 18
th
Oct 7:00a.m.-14:00 19
th
Oct 7:00a.m.-14:00
F9 Financial Management 4
th
Oct 7:00a.m.-14:00 5
th
Oct 7:00a.m.-14:00
P1 Governance, Risk and
Ethics
1
st
Nov 6:00a.m.-13:00 30
th
Nov 6:00a.m.-13:00
P2 Corporate Reporting (INT) 26
th
Oct 7:00a.m.-14:00 9
th
Nov 6:00a.m.-13:00
P3 Business Analysis 11
th
Oct 7:00a.m.-14:00 12
th
Oct 7:00a.m.-14:00
P4 Advanced Financial
Management
8
th
Nov 6:00a.m.-13:00 23
rd
Nov 6:00a.m.-13:00
P5 Advanced Performance
management
15
th
Nov 6:00a.m.-13:00 16
th
Nov 6:00a.m.-13:00
P7 Advanced Audit and
Assurance (INT)
27
th
Sept 7:00a.m.-14:00 28
th
Sept 7:00a.m.-14:00
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Last minute revision
Last minute revision Tutor
F5 Performance management 28
th
Nov 12:00-14:00 Ian
F7 Financial Reporting (INT) 1
st
Dec 12:00-14:00 Steve
F8 Audit and Assurance (INT) 22
nd
Nov 14:30-16:30 Alan
F9 Financial Management 22
nd
Oct 12:00-14:00 Steve
P1 Governance, Risk and Ethics 30
th
Nov 13:30-15:30 Alan
P2 Corporate Reporting (INT) 16
th
Nov 14:00-18:00(4hrs) Kieran
P3 Business Analysis 18
th
Oct 14:30-16:30 Alan
P4 Advanced Financial Management 19
th
Nov 12:00-14:00 Steve
P5 Advanced Performance management 21st Nov 12:00-14:00 Ian Janes
P7 Advanced Audit and Assurance (INT) 23
rd
Nov 13:30-15:30 Alan













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Main study note content [Total Pages: 120]








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Stock management






Stock ordering process
Stock management in detail
When to order? re-order level
How much to order?-minimize costs(EOQ)
How much to hold? max and min holding
Free stock










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Stock ordering process:

Purchase requisition Purchase requisition form
(warehouse)
Purchase order Purchase order note
(purchasing department)
Goods received Delivery note/goods received note
(enter stock details into a/c system)
Pay Invoice checked
(supplier)
Update the account Decrease payable
(finance department)



Goods received note: (we record stock details into the accounting system-
movement in inventory)

Book stock: stock per accounting records
Theoretically the same

Different? Reasons: 1, Theft
2, Human error(wrong information into a/c system)
3, Timing difference(order from supplier but takes time
to enter into accounting system)

Physical stock: actual stock in the stores department



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Stock management

1, when do we place an order with the supplier?
Answer: when stock comes down to re-order level

2, How much inventory do we place each time?
Answer: EOQ

3, how much stock do we expect to have in the warehouse?
Answer:
1, maximum amount of stock we expect to hold?
2, minimum/buffer stock

4, free(available) stock
Stock available to fulfill needs of users
=physical stock + stock on order stock committed to existing customer orders








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1, Re-order level:
Suppose you run a company and you plan to resell the high fashion clothes to your
customers. The estimated demand youre going to sell per year is 1,200 clothes.
You wont purchase clothes from other factory first of 1,200 because theres
uncertainty maybe customers would not buy from you. So you would like to order
clothes monthly.
So theres suggestion that when your stock within warehouse falls below 50clothes
then you should re-order from supplier, is this right?
Well to do this we need to calculate the
Lead time(period of order time and receive time)
Usage(the clothes youre to sell in this period)

For the re-order level we should calculate using :
MAX lead time X MAX usage

Because we are considering the worst case scenario:
Maybe there would be delay for the goods arrived
Maybe there would be high demand by customers during this period.

The lead time and usage would be an estimate by management in the real world
and this is according to their industry experience.

Example:
MAX lead time is 5days ;
MAX usage(sold) per day is 20clothes
So when clothes falls below 5X20=100clothes then we should re-order from
suppliers.
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2,How much stock should we order? (50 units? 100 units?)

Idea: minimize cost with ordering stock
Cost related:
Stock holding cost (warehouse, security, people hired)
Storage facility
Warehouse staff
Deterioration costs
The higher the stockholding costs then the higher annual holding costs

Annual holding cost = Q
2 X Ch
Average stock holding cost of holding one unit per year
Stay in warehouse

Stock ordering costs
Admin costs
Delivery costs
The more orders placed then the higher annual ordering costs

Annual ordering cost= D
Q X Co
D: Annual demand
Q: Oder quantity
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Co: cost of placing one order



EOQ: (Economic Order Quantity)
Oder quantity which minimizes:
Annual holding cost + annual ordering cost





Q: annual holding cost and annual ordering cost
Ch= $2
Co= $80
Demand =5,000 units

Calculate the annual holding costs and annual ordering costs:
1, 50 units per order
Annual holding costs
Annual ordering costs
EOQ
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2, 1,000 units per order



Q how much stock we order introduction

Ch=$1.5
Co=$10
Demand=10,000 units
















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Q EOQ

Quantity required is 32,000 items per annum.
Order costs are $15 per order.
Each unit of inventory is currently costs $40.
Inventory holding costs are estimated at 3% of inventory value per year.


Required:
Calculate the economic order quantity (EOQ).










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Q EOQ (bulk discount)

Price of each product =$1,000
Demand by customers per year=65,000units
Co=$2500 per order
Ch=$300 per year

If the order quantity exceeds 2,000units then 2%discount given:

New purchase price=1000X98%= 980


Required:
(i)Calculate the EOQ before the quantity discount.
(i)whether the company should take the discount.




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3, How much stock do we expect to have in the warehouse?

Buying stock is not cheap and we can put this money into bank to earn interest if
we think stock we bought cannot be sold. This is a concept of opportunity cost of
capital.

So buying stock requires funding and we should make sure
Stock we hold is not too much(max level)
Stock we hold meets the needs of customers (min level)

So how can we calculate maximum level of stock we hold in company
And minimum level of stock we hold in company as well?

Maximum level= old stock left + new stock in minimum usage during lead time
= re-order level +quantities order-minimum usage

Minimum Level= old stock left average usage during lead time
=re-order level average usage during lead time


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Q:Walgart Ltd

Walgart Ltd specializes in selling cola and it has to source sugar from suppliers to
manufacture Cola.

According to its specific industry experience, we are given the following data:

Lead time Usage
Minimum lead time 4 days Minimum usage 300kg per day
Maximum lead time 7 days Maximum usage 500kg per day
Average lead time 5 days


The order quantity from supplier is 5,400kg.

Required:Calculate :
(i)re-order level,
(ii)minimum stock level
(iii)maximum stock level
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Q: KKT ltd (Free stock)
Stock within warehouse is 500 units.
KKT ltd orders 2,500 units from suppliers each time.
The stock which is going to be sold to customers is 300 units.


Required:
calculate free stock.









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Stock(inventory) valuation

Cost
FIFO:
What comes in first then goes out first;
Used for perish goods such as meat

Weighted Average Cost: used when inventory movement is unknown and
price is not consistent. Think about petrol.
-periodic: cost of receipt + value of op inventory
Noof units received + units in op stock
Its to find the weighted average cost at the end of the
period

-continuous:Calculate a new average after each receipt.
Re-estimate the weighted average cost after the new receipt/new purchase
made.
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LIFO: what comes in last then goes out first. Think about technology
companies. In USA, this is allowed.







Example: (Jason)

Jason has given you the following data:



Required:
Calculate the issue cost for inventory and the closing inventory value for Jason
using the following methods:

(i)FIFO
(ii)LIFO
(iii)weighted average method
-continuous method;
-periodic method.
Quantity Unit Cost Total Cost

Opening Balance1/12/13 300 units $2.00 $600
Receipts7/12/13 200 units $2.20 $440
Issues8/12/13 400 units