All Cards Flashcards
1
Q
What is Managerial Accounting?
A
Provides info for managers of firms who direct/control its operations
2
Q
What is the Management Cycle?
A
Formulating long/short term plans –> implementing plans –> measuring performance –> comparing actual to planned performance
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
4
Q
What 6 things must useful information be?
ARTUCC
A
- Accurate
- Relevant
- Timely
- Understandable
- Comparable
- Complete
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
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
7
Q
What are CIMA and ACCA?
A
Organisations that have written codes of ethics which serve as guides for employees
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
9
Q
What is a Cost?
A
A measure of resources used or given up to achieve a stated purpose
10
Q
What is a Cost Objective?
A
Any activity for which a separate measurement of costs is required
11
Q
What is a cost object?
A
Anything for which cost data are desired
12
Q
What is cost classification?
A
Grouping together costs which show the same attributes, relative to a standard cost objective
13
Q
What is a direct cost?
A
A cost that varies directly in relation to a change in activity
14
Q
What is manufacturing overhead?
A
Costs that cannot be traced directly to specific units produced
15
Q
What is a prime cost?
equation
A
= Direct materials + Direct labour
16
Q
What are full production costs and full costs?
equations
A
FPC = prime cost + production overhead
FC = FPC + selling cost + general/administrative costs
17
Q
What are Product costs?
A
Costs incurred in purchasing/making the product inc. direct materials/labour and manufacturing overhead
18
Q
What are period costs?
A
All other costs, not inc. product costs
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
20
Q
What is a committed fixed cost?
A
Long term fixed costs that can’t be reduced in the short term
21
Q
What is a discretionary fixed cost?
A
Can be altered in the short-term by correct decisions
22
Q
What is an opportunity cost?
A
Potential benefit given up when 1 alternative is selected over another
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
24
Q
What are the 2 cost Centres?
A
- Production cost centre
- Service cost centre
Overheads are assigned to departments or cost centres
25
What is a pre-determined overhead rate?
Set rate which absorbs or 'picks up' all overheads attributable to make the cost centre
26
How is the pre-determined overhead rate calculated?
| equation, estimated
= Estimated OH consumption for period / estimated production capacity for period
27
What factors are used for calculating absorption rates?
- Machine hours
- Direct labour hours
- Direct wages
- Direct materials
- Prime cost
- Number of units
28
How would direct labour hour rate be calculated?
| hint: estimated
= estimated OH for year / estimated direct labour hours for year
29
What is a material requisition form?
Authorises use of materials on a job
Records: description, quantity, unit cost, total cost etc.
30
What are time tickets?
Record time spent on each job and cost of labour for each employee
31
How is Manufacturing Overhead calculated?
= direct labour hours x (predetermined) rate
32
Why is predetermined rate needed?
Makes it possible to estimate total job costs sooner, however, the actual overhead isn't know until end of period
33
What could be the variable and absorption costs of doing 100 miles?
- Variable = Fuel
| - Absorption = Fuel + portion of car payment/insurance/road tax
34
How is the unit product cost calculated?
| acodr / f mfg o
= absorption cost of direct costs / fixed manufacturing overhead
35
How would income statements of absorption and variable costing compare?
```
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
How do profit differences between absorption and variable costing change?
(relationship between production and sales)
- 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
Pros and Cons of Variable Costing
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
How should each costing type be used in regard to internal/external costing and why?
(absorption and variable)
External - absorption, as it is more consistent and also better for pricing and stock valuation
Internal - variable, easier for planning/decision making
39
How can fixed/variable costs per unit change with activity?
| one changes, one doesn't
VCPV - remains constant when activity changes
FCPV - changes as activity changes
40
What is a mixed cost and example?
- Has both fixed + variable components e.g. Utility Bills
| i. e., Y = a + bx
41
What 5 factors does CVP focus on?
| mainly costs
- Prices of producers
- Volume/level of activity
- Per unit variable costs
- Total fixed costs
- Mix of products sold
42
What is the contribution margin?
Amount remaining from sales revenue after variable expenses have been deducted
43
What is the CM ratio?
= CM / Sales
44
What are the Break-even point equations?
- = Fixed expenses / unit CM
| - = Fixed expenses / CM ratio
45
How can 'target units sold' be calculated?
| target units sold also means target profit
= (Fixed expenses + target profit) / Unit CM
46
Where is the margin of safety and equation?
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
What is operating leverage?
| high leverage vs low leverage
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
How is the degree of operating leverage calculated?
= CM / net profit
49
What are the advantages of budgeting?
- Can control activities
- Motivates mangers
- Communicates plans
- Co-ordinates activities
- Evaluates manager performance
- Plan for future
50
What are participative and top-down budget systems?
Participative - budget data flows from bottom of hierarchy to top
Top-down - opposite to participative
51
What are the stages of the budgeting process?
- 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
What does the sales budget depict?
Detailed schedule showing expected sales for coming periods, expressed in units and pounds
53
What are practical and ideal standards?
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
What is Standard cost Variance?
Amount by which an actual unit cost differs from standard unit cost
55
What is the variance analysis cycle?
- Prepare standard cost performance report
- Analyse the variances
- Identify questions
- Receive answers/explanations
- Take corrective actions
- Conduct next period operations
56
How can price/quantity variance be written as equations?
Price variance = AQ(AP - SP)
Quantity variance = SP(AQ - SQ)
57
What can cause efficiency variance?
- Poorly trained workers
- Poor supervision of workers
- Poor quality materials
- Poorly maintained equipment
58
What is the formula for efficiency variance?
| rate and hours
= standard rate (actual hours - standard hours)
59
What can cause Price and Quantity variances?
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
What can cause labour rate variance?
- Increase in wages, not reflected in standards
| - Movement toward higher paid workers
61
What is capital budgeting?
How managers plan significant outlays on projects that have long-term implications, such as new equipment
62
What are typical Capital budgeting decisions?
- Plant expansion
- Equipment selection
- Cost reduction
63
What is the net present value method of accounting?
- Calculate PV of cash inflows
- Calculate PV of cash outflows
- Calculate PV of outflows from PV of inflows
NPV = PV inflows - PV outflows
64
How is PV of cash flows calculated?
amount of cash flow x x% factor (discount rate) = PV of cash flows
65
What is cost of capital?
Average rate of return the company must pay to its long-term creditors and shareholders for use of their funds
66
PV factor for IRR
= investment required / net annual cash flows
67
Accounting rate of return equation
= (incremental returns - incremental expenses (inc depreciation)) / initial investment
68
What is the strategic planning framework?
- Establish mission, vision, objectives
- Undertake a position analysis
- Identify and assess strategic options
- Select strategic options and formulate plans
- Perform review and control
69
What is a Balanced Scorecard?
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
Why use a balanced scorecard?
- Improve organisational performance by measuring what matters
- Improve communication of firms vision/strategy
- Increase focus on strategy and results
71
What are the different methods of performance measured on the balance scorecard?
- Financial
- Customers
- Internal business process
- Learning and growth
72
How is the manufacturing cycle efficiency calculated?
= value-added time / manufacturing cycle time
73
Benefits of the balanced scorecard
- Translating the vision
- Feedback and learning
- Business Planning
- Communicating and linking
74
Limitations of the Balanced Scorecard
- Assumes cause and effect but unproven
- Relevant importance at different perspectives is unclear
- Non-financial measures are not evaluated in monetary terms
75
Pros/cons of variance costing for internal purposes
Pros
- Profits not influenced by building of inventory
- Easy to understand
Cons
- Subjective judgement needed to separate fixed and variable costs
76
What type of cost are direct material and direct labour?
Prime
77
Is depreciation a product of period cost?
Product
