ACCA F2 Sample Study Note

8/12/2019 ACCA F2 Sample Study Note

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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 morechapters 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 25thOct 7:00a.m.-14:00 22ndNov 6:00a.m.-13:00

F7 Financial Reporting (INT) 2ndNov 6:00a.m.-13:00 29thNov 6:00a.m.-13:00

F8 Audit and Assurance (INT) 18thOct 7:00a.m.-14:00 19thOct 7:00a.m.-14:00

F9 Financial Management 4thOct 7:00a.m.-14:00 5thOct 7:00a.m.-14:00

P1 Governance, Risk and

Ethics1stNov 6:00a.m.-13:00 30thNov 6:00a.m.-13:00

P2 Corporate Reporting (INT) 26thOct 7:00a.m.-14:00 9thNov 6:00a.m.-13:00

P3 Business Analysis 11thOct 7:00a.m.-14:00 12thOct 7:00a.m.-14:00

P4 Advanced Financial

Management8thNov 6:00a.m.-13:00 23rdNov 6:00a.m.-13:00

P5 Advanced Performance

management15thNov 6:00a.m.-13:00 16thNov 6:00a.m.-13:00

P7 Advanced Audit and

Assurance (INT)27thSept 7:00a.m.-14:00 28thSept 7:00a.m.-14:00


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Last minute revision

Last minute revision Tutor

F5 Performance management 28thNov 12:00-14:00 Ian

F7 Financial Reporting (INT) 1st Dec 12:00-14:00 Steve

F8 Audit and Assurance (INT) 22ndNov 14:30-16:30 Alan

F9 Financial Management 22ndOct 12:00-14:00 Steve

P1 Governance, Risk and Ethics 30thNov 13:30-15:30 Alan

P2 Corporate Reporting (INT) 16thNov 14:00-18:00(4hrs) Kieran

P3 Business Analysis 18thOct 14:30-16:30 Alan

P4 Advanced Financial Management 19thNov 12:00-14:00 Steve

P5 Advanced Performance management 21st Nov 12:00-14:00 Ian Ja

P7 Advanced Audit and Assurance (INT) 23rdNov 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 yourcustomers. The estimated demand youre going to sell per year is 1,200 clothes.

You wontpurchase 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 costsThe 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 ifwe 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 tomanufacture 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 costfor inventory and the closing inventory valuefor 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 $600Receipts7/12/13 200 units $2.20 $440

Issues8/12/13 400 units

ACCA F2 Sample Study Note

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