Applied Management Accounting Flashcards
How to find good production and rejected units
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.
How to do High low method for semi-variable
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
How to work out closing inventory of finished goods in operating budget
total cost of production / units produced (from initial table) x closing inventory (from initial table)
How to work out cost of goods sold on operating budget
opening inventory + cost of production - closing inventory
work out variable cost planned for 2% increase but only increased 1%
first scenario: 80,000 units
variable overhead 36000
update changes: 86400 units
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
Work out a stepped cost:
Cost: £21000 for 80000 units
Forecast: 86400 units
Stepped cost increases every 6000 units
ALWAYS ROUND UP
- original units / stepped cost
80,000 / 6000 = 14 steps - original cost / number of steps
£21000 / 14 steps = £1500 - forecast units / stepped cost
86400 / 6000 = 15 steps - original step cost answer x forecast steps answer
£1500 x 15 units.
= £22500
Work out direct material price variance without units
The standard cost of actual quantity material used MINUS actual cost of the actual quantity of material used.
Work out direct material usage variance without units
standard quantity used MINUS actual quantity used x standard cost
How to Fixed Overhead Variance
- Work out OAR =
budgeted fixed overhead / budgeted units - Fixed overhead volume variance =
Budgeted Units - Actual Units
Difference x OAR - Fixed overhead expenditure variance
Budgeted fixed overhead - Actual fixed overhead - Overall variance =
Budgeted overheads absorbed (actual units x OAR) - Actual overheads absorbed
What are the 5 stages of product life cycle?
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.
ROCE
Operating profit / capital employed x 100
Operating Profit
Revenue less operating expenses, day to day expenses, cost of goods sold
asset turnover (net assets)
revenue / (total assets - current liablilites)
asset turnover (non-current assets)
revenue / non-current assets
Choosing between products with a limiting factor
Aim - maximise contribution
- Work out contribution of each product
- Work out contribution of limiting factor
(contribution per unit / limiting factor needed per unit) - Choose the product with the highest limiting factor contribution
- Amount to be made x original contribution per unit
- Deduct any fixed overheads
4 key perspectives of balanced scorecard
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
How to work out ROI and purpose
ROI needs to be higher than cost capital to increase shareholder wealth
profit before non-controllable costs / assets x 100
What is absorption costing
Absorbs fixed overheads
How to work out residual income
Profit before non-controllable costs less (assets x cost of capital %)
Negatives of ABC
- costs more to do it
- need more information
- takes longer
Benefits of ABC
- 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
How to absorb overheads using labour hour absorption method
- 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
How to ABC per cost driver using e.g of number of inspections
- 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
How to work out how many units from limiting factor
total amount available / total amount needed x product amount needed
