Applied Management Accounting

Question 1

How to find good production and rejected units

Answer 1

Good production =
Sales - Opening inventory + closing inventory
Total number = Good production x 100 / % of good (e.g. if 4% rejected divide by 96)
The difference will give rejected amount.

Question 2

How to do High low method for semi-variable

Answer 2

Take the lowest units and amount from the highest units
Divide the cost difference by the units difference.
This gives the semi variable amount
Multiply the semi variable amount by the lowest units. The difference will give the fixed amount

Question 3

How to work out closing inventory of finished goods in operating budget

Answer 3

total cost of production / units produced (from initial table) x closing inventory (from initial table)

Question 4

How to work out cost of goods sold on operating budget

Answer 4

opening inventory + cost of production - closing inventory

Question 5

work out variable cost planned for 2% increase but only increased 1%
first scenario: 80,000 units
variable overhead 36000
update changes: 86400 units

Answer 5

original number / original % increase x new % increase
divide answer by original units x new units

36000 / 1.02 x 1.01 = 35647.058
35647.058 / 80000 x 86400 = 38498.82

Question 6

Work out a stepped cost:
Cost: £21000 for 80000 units
Forecast: 86400 units
Stepped cost increases every 6000 units

Answer 6

ALWAYS ROUND UP

1. original units / stepped cost
   80,000 / 6000 = 14 steps
2. original cost / number of steps
   £21000 / 14 steps = £1500
3. forecast units / stepped cost
   86400 / 6000 = 15 steps
4. original step cost answer x forecast steps answer
   £1500 x 15 units.

= £22500

Question 7

Work out direct material price variance without units

Answer 7

The standard cost of actual quantity material used MINUS actual cost of the actual quantity of material used.

Question 8

Work out direct material usage variance without units

Answer 8

standard quantity used MINUS actual quantity used x standard cost

Question 9

How to Fixed Overhead Variance

Answer 9

1. Work out OAR =
   budgeted fixed overhead / budgeted units
2. Fixed overhead volume variance =
   Budgeted Units - Actual Units
   Difference x OAR
3. Fixed overhead expenditure variance
   Budgeted fixed overhead - Actual fixed overhead
4. Overall variance =
   Budgeted overheads absorbed (actual units x OAR) - Actual overheads absorbed

Question 10

What are the 5 stages of product life cycle?

Answer 10

Development - high costs of research & development and high capital expenditure to set up production facilities

Launch / Introduction - large expenditure on marketing & promotion. Possible product development costs as product is refined

Growth - increasing costs as production volumes rise. May still be significant marketing costs, also possible further capital expenditure to expand production facilities

Maturity - maximum production scale, so production costs should be low. May automate production for further efficiences & stop out as many costs as possible

Decline - Likely to reduce selling price to sell stock quickly. Costs should be minimised to try to recover some profit on the product.

Question 11

ROCE

Answer 11

Operating profit / capital employed x 100

Question 12

Operating Profit

Answer 12

Revenue less operating expenses, day to day expenses, cost of goods sold

Question 13

asset turnover (net assets)

Answer 13

revenue / (total assets - current liablilites)

Question 14

asset turnover (non-current assets)

Answer 14

revenue / non-current assets

Question 15

Choosing between products with a limiting factor

Answer 15

Aim - maximise contribution

1. Work out contribution of each product
2. Work out contribution of limiting factor
   (contribution per unit / limiting factor needed per unit)
3. Choose the product with the highest limiting factor contribution
4. Amount to be made x original contribution per unit
5. Deduct any fixed overheads

Question 16

4 key perspectives of balanced scorecard

Answer 16

Innovation & Learning - How to improve and create value e.g. training costs or no. hits on website

Internal Processes - What must we be excellent on? e.g. machine capacity utilisation or defect rates

Customer Perspective - How do customers see us? e.g. no. of repeat orders, no. of complaints

Financial Perspective - e.g. ROCE or gross/net profit margin, cash flow

Question 17

How to work out ROI and purpose

Answer 17

ROI needs to be higher than cost capital to increase shareholder wealth

profit before non-controllable costs / assets x 100

Question 18

What is absorption costing

Answer 18

Absorbs fixed overheads

Question 19

How to work out residual income

Answer 19

Profit before non-controllable costs less (assets x cost of capital %)

Question 20

Negatives of ABC

Answer 20

• costs more to do it
• need more information
• takes longer

Question 21

Benefits of ABC

Answer 21

• More accurate cost per unit
• shows how activites drive costs, often not a simple link to production and sales volume
• allows managers to have greater understanding of how costs are generated, giving them greater control over costs
• enables sales prices / margins to be set based on actual costs of a product

Question 22

How to absorb overheads using labour hour absorption method

Answer 22

• Work out labour hours needed for each product and add together to give total labour hours
• Add together total overheads
• Divide total overheads by total hours to give OAR
• Multiply OAR by product hours per unit

Question 23

How to ABC per cost driver using e.g of number of inspections

Answer 23

• Add together number of inspections for each product to give a total
• Divide the total cost of inspections by the total number to give cost per inspection
• Multiply the individual number of inspections for each product by the cost of inspection to give total cost of inspection for each product
• Take the total cost of inspection for one product and divide by the number of units for that product

Question 24

How to work out how many units from limiting factor

Answer 24

total amount available / total amount needed x product amount needed

Question 25

Cost of sales

Answer 25

Opening inventory + Production - Closing Inventory

Question 26

inventory holding period (days)

Answer 26

inventories / cost of sales x 365

Question 27

Work out ARR

Answer 27

Average annual profit (including depreciation) / initial investment x 100

Question 28

How to work out payback period

Answer 28

1. Use the last year of negative cumalative cash flow and year after in net cash flow
2. Divide the positve net cash flow by 12 (or 52 if asking in weeks)
3. Divide the negative cumalative cash flow by the previous answer to give the amount of months
4. Use the year the negative cumalative falls in and the months you’ve just worked out

Question 29

What is the index number formula

Answer 29

Current period figure / base period figure x 100

Question 30

What is the RPI formula

Answer 30

Actual revenue x (RPI in current year / RPI in year of sales)