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AAT - Management Accounting: costing > Break-even and limiting factors > Flashcards

Break-even and limiting factors Flashcards

1
Q

What does decision making involve? P156

A

Identification and estimation - variety of revenue and costs

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2
Q

What is the basis of all decision making ? P156

A
  • Benefits of doing something > costs of doing something
  • likely consequences - correct typpes of cost
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3
Q

What information is required for making decisions ? P156

A
  • Estimamated future costs and revenues
  • Differential costs and revenues - common costs to all alternative actions = irrelevant
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4
Q

What is the key to short term decision making ? P156

A
  • Maximise use of exiisting resources
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5
Q

What are the revenue costs that are likely to change as the result of decisions ? - P157

A
  • Selling prices
  • Varible costs
  • Contribution
  • Marginal costs
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6
Q

What is break-even analysis ? P158

A
  • Study - inter-relationships between costs , volume and profits
  • various levels of activity
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7
Q

What does break even analysis allow by providing info for management ? p158

A
  • Calculation of profit - budget production and sale levels = actual
  • break-even point activity level = neither profit/loss
  • Margin safety - actual sales falls below budge
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8
Q

What notion does break even use?

A
  • Contribution
  • identifies - no of units cover fixed costs
  • contirbution to break even = total fixed costs amount
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9
Q

How do you calculate the break even point? P158

A

Total fixed costs / contribution per unit

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10
Q

What information is needed for a break even analysis ? P158

A
  • Selling price per unit
  • variable costs per unit
  • total fixed costs
  • any production constraints - capacity / sales volume
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11
Q

If the break even point is required to be statedin terms of sales revenue , how is this obtained ? P158

A
  • Break - even number of units * selling price per unit
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12
Q

What are the three ways of expressing margins of safety ? P159

A
  • Units - budgeted sales volume and break even sales volume
  • Revenue - safety in units * selling price per unit
  • Percentage
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13
Q

Margin of safety - What if the organisation produced more than one type of prouct ? P160

A
  • Margin of safety - each type of product
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14
Q

What do break even charts plot? P161

A
  • Total costs and total revenue
  • different output levels
  • shows : activity levels which break even is achieved
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15
Q

What is targget profit ? P162

A
  • units of outputs need to be sold = speicifc level of profit
  • fixed coosts + target profit / unit contribution = units of output for target profit
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16
Q

What is profit- volume ratio? P163

A
  • Relationship between selling price and contribution
  • Contribution- sale ratio - c/s ratio
17
Q

What can the profit- volume ratio be calculated for ? P163

A
  • Single product or whole business
  • different product - not for total profit volume in units
  • similar productis - similar sales and similar contributions - total profit volume in units
  • Output = sales revenue not units
18
Q

How can the sales revenue needed to break even be calculated profit- volume ratio ?P163

A
  • Fixed costs / PV Ratio = Sales revenue to break even
19
Q

What are limiting factors - P164

A
  • maximise profit = highest contribution towards fixed costs = profit per unit of limiting factors is maximised
  • schedule production/ working hours - expected sales demands
  • constrained by factors - e.g. materials, labour , machine hours
20
Q

How can an organisation maimise profit when facing limiting factors ? P164

A
  • Product mix = most profitable use of scarce resources = optimum product mix
21
Q

What are the steps for limiting factors ? P165

A
  • Step 1 - calculate contribution per unit
  • Step 2 - identify limiting for one unit
  • Step 3 - Calculate contribution earned per unit of limiting factor = dividing step 1 / stepp 2
  • Step 4 - Rank products = highest contribution per unit to lowest contirbution
  • Step 5 - reschedule activities - allocating limited factors
22
Q

What should I remember with stepp 5 of limiting factors ? P167

A
  • Maximum quantity set not exceeding sakles demannd
  • unlikely too bbe sold
23
Q

What is the calculation for profit/ volume ratio ? P163

A

Contribution in £/ selling price in £

AAT - Management Accounting: costing (10 decks)

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