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Accounting for Managers > All Cards > Flashcards

All Cards Flashcards

1
Q

What is Managerial Accounting?

A

Provides info for managers of firms who direct/control its operations

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2
Q

What is the Management Cycle?

A

Formulating long/short term plans –> implementing plans –> measuring performance –> comparing actual to planned performance

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3
Q

What are the roles of a Management Accountant?

A
  • Developing Plans, analysing alternatives
  • Communicating plans to key personnel
  • Evaluating performance
  • Reporting results of activities
  • Accumulating, maintaining, processing a firm’s financial/non-financial info
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4
Q

What 6 things must useful information be?

ARTUCC

A
  • Accurate
  • Relevant
  • Timely
  • Understandable
  • Comparable
  • Complete
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5
Q

What are the drivers of management accounting change?

A
  • Increasing complexity/size of firms
  • Increased emphasis on quality
  • Rapid development and implementation of technology
  • World-wide competition
  • Sustainable development
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6
Q

What did Management Accounting use to focus on and what does it focus on now?

A

Used to:

  • Cost efficiency
  • Effective cost management

Now:

  • Manage Value
  • Manage environmental sustainability
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7
Q

What are CIMA and ACCA?

A

Organisations that have written codes of ethics which serve as guides for employees

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8
Q

What is the CIMA code of ethics?

integrity and objectivity

A

Integrity:

  • Truthfulness
  • Straightforward
  • Honest
  • Fair dealing

Objectivity:

  • Communicate unfavourable + favourable information
  • Refuse gifts/bribes/favours that might influence behaviour
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9
Q

What is a Cost?

A

A measure of resources used or given up to achieve a stated purpose

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10
Q

What is a Cost Objective?

A

Any activity for which a separate measurement of costs is required

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11
Q

What is a cost object?

A

Anything for which cost data are desired

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12
Q

What is cost classification?

A

Grouping together costs which show the same attributes, relative to a standard cost objective

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13
Q

What is a direct cost?

A

A cost that varies directly in relation to a change in activity

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14
Q

What is manufacturing overhead?

A

Costs that cannot be traced directly to specific units produced

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15
Q

What is a prime cost?

equation

A

= Direct materials + Direct labour

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16
Q

What are full production costs and full costs?

equations

A

FPC = prime cost + production overhead

FC = FPC + selling cost + general/administrative costs

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17
Q

What are Product costs?

A

Costs incurred in purchasing/making the product inc. direct materials/labour and manufacturing overhead

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18
Q

What are period costs?

A

All other costs, not inc. product costs

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19
Q

What is activity base?

A

A measure of the event causing the incurrence of a variable cost and and what drives this cost to rise/fall

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20
Q

What is a committed fixed cost?

A

Long term fixed costs that can’t be reduced in the short term

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21
Q

What is a discretionary fixed cost?

A

Can be altered in the short-term by correct decisions

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22
Q

What is an opportunity cost?

A

Potential benefit given up when 1 alternative is selected over another

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23
Q

What is a sunk cost?

A

Cost that cannot be changed by any decision, not differential costs and should be ignored when making decisions

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24
Q

What are the 2 cost Centres?

A
  • Production cost centre
  • Service cost centre

Overheads are assigned to departments or cost centres

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25
Q

What is a pre-determined overhead rate?

A

Set rate which absorbs or ‘picks up’ all overheads attributable to make the cost centre

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26
Q

How is the pre-determined overhead rate calculated?

equation, estimated

A

= Estimated OH consumption for period / estimated production capacity for period

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27
Q

What factors are used for calculating absorption rates?

A
  • Machine hours
  • Direct labour hours
  • Direct wages
  • Direct materials
  • Prime cost
  • Number of units
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28
Q

How would direct labour hour rate be calculated?

hint: estimated

A

= estimated OH for year / estimated direct labour hours for year

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29
Q

What is a material requisition form?

A

Authorises use of materials on a job

Records: description, quantity, unit cost, total cost etc.

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30
Q

What are time tickets?

A

Record time spent on each job and cost of labour for each employee

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31
Q

How is Manufacturing Overhead calculated?

A

= direct labour hours x (predetermined) rate

32
Q

Why is predetermined rate needed?

A

Makes it possible to estimate total job costs sooner, however, the actual overhead isn’t know until end of period

33
Q

What could be the variable and absorption costs of doing 100 miles?

A
  • Variable = Fuel

- Absorption = Fuel + portion of car payment/insurance/road tax

34
Q

How is the unit product cost calculated?

acodr / f mfg o

A

= absorption cost of direct costs / fixed manufacturing overhead

35
Q

How would income statements of absorption and variable costing compare?

A 
Absorption
Sales
- Less cost of goods sold
= Gross Margin
- Less selling + administrative costs 
= Net profit
Variable
Sales
- Less variable expenses 
= contribution margin
- Less fixed expenses
= Net profit
36
Q

How do profit differences between absorption and variable costing change?
(relationship between production and sales)

A
  • If Prod > Sales
    • Stock increases
    • Absorption profits > Variable profits
  • If Prod < Sales
    • Stock decreases
    • Absorption profits < Variable profits
  • If Prod = Sales
    • No change in stock
    • Absorption profits = Variable Profits
37
Q

Pros and Cons of Variable Costing

A

Pros

  • Easy for management to understand
  • Easier to estimate profitability
  • Impact of fixed cost is emphasised
  • Net profit is closer to net cash flow

Cons

  • Fixed production costs are increased
  • If fixed manufacturing rate are high proportion of costs
    • Product pricing can be hard
    • Changing only variable costs
  • Makes it difficult to assess of a product is profitable or not
38
Q

How should each costing type be used in regard to internal/external costing and why?
(absorption and variable)

A

External - absorption, as it is more consistent and also better for pricing and stock valuation

Internal - variable, easier for planning/decision making

39
Q

How can fixed/variable costs per unit change with activity?

one changes, one doesn’t

A

VCPV - remains constant when activity changes

FCPV - changes as activity changes

40
Q

What is a mixed cost and example?

A
  • Has both fixed + variable components e.g. Utility Bills

i. e., Y = a + bx

41
Q

What 5 factors does CVP focus on?

mainly costs

A
  • Prices of producers
  • Volume/level of activity
  • Per unit variable costs
  • Total fixed costs
  • Mix of products sold
42
Q

What is the contribution margin?

A

Amount remaining from sales revenue after variable expenses have been deducted

43
Q

What is the CM ratio?

A

= CM / Sales

44
Q

What are the Break-even point equations?

A
  • = Fixed expenses / unit CM

- = Fixed expenses / CM ratio

45
Q

How can ‘target units sold’ be calculated?

target units sold also means target profit

A

= (Fixed expenses + target profit) / Unit CM

46
Q

Where is the margin of safety and equation?

A

Excess of budgeted sales over break-even point, volume of sales amount by which sales can drop before losses begin to be incurred

= total sales - break-even sales

47
Q

What is operating leverage?

high leverage vs low leverage

A

Measure of how sensitive net profit is to % changes in sales

i.e. high leverage = small % change in sales = larger % change in net profit

48
Q

How is the degree of operating leverage calculated?

A

= CM / net profit

49
Q

What are the advantages of budgeting?

A
  • Can control activities
  • Motivates mangers
  • Communicates plans
  • Co-ordinates activities
  • Evaluates manager performance
  • Plan for future
50
Q

What are participative and top-down budget systems?

A

Participative - budget data flows from bottom of hierarchy to top

Top-down - opposite to participative

51
Q

What are the stages of the budgeting process?

A
  • Communicate objectives
  • Determine factor that is restricting output
  • Prepare initial set of budgets
  • Negotiate budgets with line managers
  • Coordinate and review budgets
  • Accept final set of budgets
  • Review budgets on on-going basis
52
Q

What does the sales budget depict?

A

Detailed schedule showing expected sales for coming periods, expressed in units and pounds

53
Q

What are practical and ideal standards?

A

Practical - the usual, attainable level achieved with reasonable/efficient effort in a normal, average period

Ideal - standards based on perfection, usually unattainable and can discourage employees

54
Q

What is Standard cost Variance?

A

Amount by which an actual unit cost differs from standard unit cost

55
Q

What is the variance analysis cycle?

A
  • Prepare standard cost performance report
  • Analyse the variances
  • Identify questions
  • Receive answers/explanations
  • Take corrective actions
  • Conduct next period operations
56
Q

How can price/quantity variance be written as equations?

A

Price variance = AQ(AP - SP)

Quantity variance = SP(AQ - SQ)

57
Q

What can cause efficiency variance?

A
  • Poorly trained workers
  • Poor supervision of workers
  • Poor quality materials
  • Poorly maintained equipment
58
Q

What is the formula for efficiency variance?

rate and hours

A

= standard rate (actual hours - standard hours)

59
Q

What can cause Price and Quantity variances?

A

Price

  • Purchase of lower grade material at a discount
  • Change in market price of materials
  • Sharp bargaining by purchasing department

Quantity
- Poorly trained/supervised workers

60
Q

What can cause labour rate variance?

A
  • Increase in wages, not reflected in standards

- Movement toward higher paid workers

61
Q

What is capital budgeting?

A

How managers plan significant outlays on projects that have long-term implications, such as new equipment

62
Q

What are typical Capital budgeting decisions?

A
  • Plant expansion
  • Equipment selection
  • Cost reduction
63
Q

What is the net present value method of accounting?

A
  • Calculate PV of cash inflows
  • Calculate PV of cash outflows
  • Calculate PV of outflows from PV of inflows

NPV = PV inflows - PV outflows

64
Q

How is PV of cash flows calculated?

A

amount of cash flow x x% factor (discount rate) = PV of cash flows

65
Q

What is cost of capital?

A

Average rate of return the company must pay to its long-term creditors and shareholders for use of their funds

66
Q

PV factor for IRR

A

= investment required / net annual cash flows

67
Q

Accounting rate of return equation

A

= (incremental returns - incremental expenses (inc depreciation)) / initial investment

68
Q

What is the strategic planning framework?

A
  • Establish mission, vision, objectives
  • Undertake a position analysis
  • Identify and assess strategic options
  • Select strategic options and formulate plans
  • Perform review and control
69
Q

What is a Balanced Scorecard?

A

A strategic planning and management system used to align business activities to the vision and strategy of the organisation by monitoring performance against strategic goals

70
Q

Why use a balanced scorecard?

A
  • Improve organisational performance by measuring what matters
  • Improve communication of firms vision/strategy
  • Increase focus on strategy and results
71
Q

What are the different methods of performance measured on the balance scorecard?

A
  • Financial
  • Customers
  • Internal business process
  • Learning and growth
72
Q

How is the manufacturing cycle efficiency calculated?

A

= value-added time / manufacturing cycle time

73
Q

Benefits of the balanced scorecard

A
  • Translating the vision
  • Feedback and learning
  • Business Planning
  • Communicating and linking
74
Q

Limitations of the Balanced Scorecard

A
  • Assumes cause and effect but unproven
  • Relevant importance at different perspectives is unclear
  • Non-financial measures are not evaluated in monetary terms
75
Q

Pros/cons of variance costing for internal purposes

A

Pros

  • Profits not influenced by building of inventory
  • Easy to understand

Cons
- Subjective judgement needed to separate fixed and variable costs

76
Q

What type of cost are direct material and direct labour?

A

Prime

77
Q

Is depreciation a product of period cost?

A

Product

Accounting for Managers (2 decks)

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