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Managerial Accounting > Chapter 1 > Flashcards

Chapter 1 Flashcards

1
Q

Cost accounting

A

Bank data for managerial accounting

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2
Q

Cost accounting is concerned with …

A

Preparing statements
Cost data collection
Applying costs to inventory, products, services

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3
Q

Six differences between managerial and financial accounting

A

Users
Purpose
Format
Nature
Legality
Time period

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4
Q

Main functions of management accounting

A

Costing
Planning
Control
Decision making
Performance measurement

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5
Q

Explain Strategic, Tactical and Operational Planning

A

Strategic: long term
Tactical: medium term
Operational: daily decisions

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6
Q

Define Data

A

Raw material for information processing

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7
Q

Information

A

Processed data

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8
Q

Quantitative data

A

Data that can be measured

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9
Q

Qualitative data

A

Data that cannot be measured; descriptive

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10
Q

Types of Information

A

Financial, non financial, combination of both

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11
Q

Attributes of Good information

A

A
C
C
U
R
A
T
E

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12
Q

Main sources of Data

A

Transactional
Human
Machine/sensor

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13
Q

Primary Data

A

Data collected for a specific purpose

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14
Q

Secondary Data

A

Data already collected elsewhere but can be used for our purposes

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15
Q

Discrete data

A

Data that is finite

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16
Q

Continuous data

A

Data that can take on any value within a range

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17
Q

Non production costs

A

Administrative costs
Finance costs
Selling and distribution

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18
Q

Coding System

A

A way of expressing the classification of each cost in a shortened symbolised form

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19
Q

Advantages of a coding system

A

Reduces ambiguity
More suitable than a description in a computerized system

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20
Q

Structure of a report

A

Title
Introduction
Analysis
Recommendations
Appendix

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21
Q

Characteristics of Job costing

A

Each order has a short duration
Work is undertaken to customers special requirements
It is usual for each job to differ in one or more respects from another job
Identify the costs associated with completing the order

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22
Q

Batch costing

A

Similar to job costing in that each batch of similar articles is separately identifiable

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23
Q

Cost per unit In batch

A

Total production cost of batch/number of units in batch

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24
Q

Cost plus pricing

A

A desired profit margin is added to total costs to arrive at the selling price

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25
Q

Mark up

A

Calculated as a percentage of the total costs of the job

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26
Q

Process costing

A

A costing method used where it is not possible to identify separate units of production because of its continuous nature

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27
Q

Average cost per unit

A

Costs of production/expected or normal output

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28
Q

Formula for normal loss

A

Average cost per unit =
total costs of inputs - scrap value of normal loss units / units input - normal loss units

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29
Q

Cost Object

A

Anything to which cost data is desired

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30
Q

Cost unit

A

A product or service to which costs are ascertained

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31
Q

Cost center

A

A holding place for costs

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32
Q

Revenue center

A

Accountable for revenues only

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33
Q

Profit center

A

Accountable for revenue and costs

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34
Q

Investment center

A

Accountable for profits and investment responsibilities . Performance will be measured by roce, ri and roi

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35
Q

Random sampling

A

Each item has an equal chance of being selected

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36
Q

Systematic sampling

A

Considers every nth of an item

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37
Q

Stratified sampling

A

Population is divided into subgroups based on characteristics they share, then a random sample is picked from each strata

Number in each sample is proportional to the size of that group in the population and is known as sampling with probability proportional to size

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38
Q

Cluster sampling

A

Researchers divide the population into multiple groups for research; choosing smaller geographic areas until you get a small enough area

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39
Q

Disadvantages of systematic sampling

A

Sampling method is not completely random
Sample chosen might be biased

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40
Q

Quota sampling

A

Investigators are told to interview all the people they meet up to a certain quota

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41
Q

Another name for systematic sampling

A

Quasi random

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42
Q

Which sampling method should not be used if the population follows a repetitive pattern ?

A

Systematic sampling

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43
Q

The only non probability sampling method

A

Quota sampling

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44
Q

Multistage sampling

A

Draw a sample from the population using smaller and smaller groups at each stage

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45
Q

Advantages of high low method

A

Easy to use
Easy to understand

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46
Q

Disadvantages of high low method

A

Requires two extreme points so won’t show average costs in normal periods

Relies on historical data

Assumes activity level is the only factor affecting costs

Bulk discounts may be available at large quantities

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47
Q

Trend line/line of best fit

A

Straight line which passes through many points on the graph as possible

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48
Q

Extrapolating the trend

A

Extending the trend line into the future

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49
Q

Disadvantages of using scatter graphs as a forecasting technique

A

Uses past information to predict future
Assumes relationship is linear
Not accurate

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50
Q

Correlation

A

Measures the strength between two variables

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51
Q

Formula for correlation

A

Uses r

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52
Q

Correlation coefficient

A

Measures the strength of a linear relationship between two variables. It can only take on values between -1 and +1

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53
Q

Coefficient of determination

A

Measures how much of the variation in the dependent variable is explained by the variation of the independent variable .. denoted by r^2

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54
Q

Advantages of linear regression

A

Reliable approach to forecasting using Mathematical principles
Can use many data sets so therefore more accurate

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55
Q

Disadvantages of linear regression

A

Complicated
Only valid when relationships are linear
Uses past data

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56
Q

What does the slope of the regression line tell us

A

How much change in y variable is caused by a unit change in x variable

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57
Q

Does linear regression assume linear cost behavior

A

No it just assumes linear relationships

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58
Q

Retail price index

A

Government produced index to measure general rate of price change in the economy

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59
Q

Time series

A

A series of values recorded over time

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60
Q

Histogram

A

Graph of time series

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61
Q

Trend

A

Underlying movement over time in data values recorded

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62
Q

Seasonal variations

A

Short term fluctuations in recorded values

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63
Q

Cyclical variations

A

Medium term fluctuations in data values recorded over time

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64
Q

Residual variations

A

Random variations; unpredictable, non repetitive

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65
Q

Time series formula

A

Y = T + S + C + R

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66
Q

Moving average

A

Average of the results of a fixed number of periods

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67
Q

Two step process in carrying out time series analysis and forecasting

A

Establishing long term trend
Establishing regular seasonal variation

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68
Q

Advantages of time series analysis

A

Simple approach
Useful when forecasting data which has a regular seasonal pattern

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69
Q

Disadvantages of time series

A

Assumes that past trend will continue and extrapolating data based on historic information will give valid conclusions

Sales of products may be influenced by the actions of competitors

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70
Q

Product life cycle

A

Concept suggesting all products pass through a number of stages from development to decline

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71
Q

Importance of product life cycle in forecasting

A

When they know what stage a rosy t is in you can market the product more effectively and forecast sales from knowledge on the products current position

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72
Q

Limitations of product life cycle

A

Difficult to determine precise position of a life cycle
Oversymplistic to assume the curve follows the standard model

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73
Q

Big data

A

Collection and analysis of large amount s of data

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74
Q

5 v of data

A

Volume
Variety
Veracity
Velocity
Value

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75
Q

Purchase requisition

A

Sent from stores to purchase department requesting the materials they want

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76
Q

Purchase order

A

Sent from company to supplier telling them what they would like to order

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77
Q

Perpetual inventory

A

Recording inventory as they occur

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78
Q

Periodic stocktaking

A

Checking the balance of every item in inventory at the end if a period

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79
Q

Continuous stocktaking

A

Valuing selected items on a rotating basis

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80
Q

Holding costs formula

A

(Q/2 + buffer inventory) * cost to hold one unit for year

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81
Q

Ordering cost formula

A

(D/Q) * cost to place one order per year

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82
Q

Stock out costs

A

Occurs when the business runs out of inventory

Can cause loss of sales, customers, reputation reduced profits

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83
Q

Reorder level

A

Maximum usage * maximum lead time

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84
Q

Minimum level

A

Reorder level - (average lead time * average usage)

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85
Q

Maximum level

A

Reorder level + reorder quantity - (minimum usage * minimum lead time)

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86
Q

Average inventory

A

Minimum inventory + 1/2 reorder quantity

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87
Q

Periodic weighted average formula

A

Cost of opening inventory + total costs of receipts/ units of opening inventory + total United received

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88
Q

Direct Labour

A

Basic pay of direct workers

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89
Q

Indirect Labour costs

A

Basic pay of indirect workers
Bonus payments
Idle time
Sick pay
Time spent by direct workers doing indirect jobs

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90
Q

What is time and a quarter

A

1.25

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91
Q

Are overtime premiums tested as direct Labour costs ?

A

Only at the specific request of the customer

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92
Q

Is premium pay and indirect expense

A

Yes

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93
Q

Labour turnover ratio

A

Employees at the start - those who left + those replaced * 100

94
Q

Labour efficiency ratio

A

Standard hours/ actual hours * 100

95
Q

Labour capacity ratio

A

Actual hours/budgeted hours * 100

96
Q

Labour production volume ratio

A

Standard hours/budgeted hours * 100

97
Q

Overheard absorbed

A

Oar * actual level of activity

98
Q

Marginal costing

A

Only variable production units are charged to cost of sales

99
Q

Formula for contribution

A

Sales price - all variable costs

100
Q

Formula for total contribution

A

Contribution per unit * sales volume

101
Q

Profit with contribution

A

Profit = total contribution - fixed overheads

102
Q

When is marginal costing used for pricing decisions

A

Short term pricing decisions
More appropriate than absorption in one off pricing decisions

103
Q

When is absorption costing appropriate

A

Long term pricing decisions
When used for pricing decisions includes the total cost of the product

104
Q

Equivalent units

A

Notional whole units which represent incomplete work and are used to apportion costs between work in process and completed output

105
Q

Degree of completion equivalent units

A

Value of 1 closing wip unit/value of a finished unit

106
Q

Budget

A

Plan of what an organization is aiming to achieve

107
Q

Forecast

A

An estimate of what is likely to happen in the future

108
Q

Objective of a budgetary planning and control system

A

Ensure the achievement of organization objectives
Communicate ideas to manages
Evaluate the performance of management
Motivate employees to improve performance
Establish a system of controlling costs by comparing actual with budget
Coordinate activities so managers are working towards the same goal

109
Q

Stages in planning and control cycle

A

Set mission
Identify objectives
Search for possible courses of action
Gather data about alternatives
Select course of action
Implement short term plans
Monitor actual plans
Respond to divergences from plan

110
Q

Mission

A

Involves establishing the overall aims and goals of the organization

111
Q

Smart objectives

A

Specific
Measurable
Attainable
Relevant
Timely

112
Q

Budget center

A

Unit responsible for preparing budgets

113
Q

Functions of budget committee

A

Issue timetables for budget preparation
Provide info to assist budget preparations
Compare actual results with budget and investigate variances
Coordinate the predation of budget including issuing manual

114
Q

Budget officer

A

Ensures deadlines are met
Educates on budgetary control
Deal with budgetary problems
Liaise between budget committee and managers responsible for budget preparation

115
Q

Budget manual

A

Charts the organization
Details budget procedures
Timetables the process
Defines responsibility of persons
Contains account codes for revenue and expenditure

116
Q

Stages in budgetary process

A

Communicate policy guidelines to budget preparers
Determine limiting factor
Prepare budget using principal budgetary factor
Initial preparation of budgets
Coordination and review of budgets
Final acceptance of budgets
Budget review

117
Q

Budget principal factor

A

Factor that restricts output

118
Q

What items make up the master budget

A

Budget sofp
Budgeted sopl
Cash budget

119
Q

When all functional budgets have been prepared, they are summarized and consolidated into what

A

Master budget

120
Q

What if analysis

A

Form of sensitivity analysis which allows the effects of changing one or more data values to be quickly recalculated

121
Q

Flexible budget

A

Budget that adjusts or flexes for changes in the volume of activity

122
Q

When are flexed budgets prepared

A

At the planning stage, before production starts

123
Q

Fixed budget

A

Not changed in response to changes in activity level, costs or revenues

Produced for a single level of activity
Comparison of actual results with different levels of activity is not useful for budgetary control purposes

124
Q

Purpose of a fixed budget

A

Useful for controlling any fixed cost and non production fixed costs

125
Q

Capital investment

A

Expenditure on non current assets for use to provide a return by way of interest, dividends or capital appreciation

126
Q

What do capital investment decisions affect

A

Growth
Risk
Increased funding and company value
Complexity

127
Q

Steps involved in the prerogative a capital expenditure budget

A

Identify investment required
Evaluate capital expenditure
Authorize capital expenditure and disposal
Implement, monitor and review investments

128
Q

Simple interest

A

Calculated on the original principal only

129
Q

Compound interest

A

Internet on principal + interst

130
Q

Formula for future value

A

Fv = Pv (1+r)^n

131
Q

Standard deviation

A

Measures the spread of data around the mean

132
Q

Variance

A

Squared of deviation

133
Q

Coefficient of variation formula

A

Standard deviation/mean

134
Q

Coefficient of variation definition

A

Standard deviation as a proportion to the mean

135
Q

Expected values

A

What an outcome is likely to be in the future if the decision can be repeated many times over

136
Q

Expected values formula

A

Sum of px

Where p= probability of outcome occurring
Where x = outcome/results

137
Q

Limitations of using expected values

A

Inappropriate for one off decisions
Heavily dependent on probability distribution
Ignores risk where risk is the spread of outcomes

138
Q

Basic groups of remuneration method

A

Time work
Piece scheme
Bonus

139
Q

Standard hour of production

A

Number of units that can be produced by one worker, working in the standard way, at the standard rate for one hour

140
Q

Labour turnover rate

A

No of replacements/ average number of employees in a period * 100

141
Q

Free inventory

A

Materials in inventory + materials on order from suppliers - materials requisitioned but not yet issued

142
Q

Reorder level

A

Maximum * maximum

143
Q

Minimum level

A

Reorder level - (average * average)

144
Q

Maximum level

A

Reorder level + reorder quantity (minimum * minimum)

145
Q

Average inventory

A

Minimum level + 1/2 reorder quantity

146
Q

Coefficient of variation formula

A

Standard deviation/mean

147
Q

Formula for correlation coefficient

A

R

148
Q

Performance measurement

A

Ensuring the business runs as efficiently as possible

149
Q

Mission statement

A

Organizations purpose and they are trying to achieve

150
Q

Smart objectives

A

Specific
Measurable
Attainable
Relevant
Time bound

151
Q

Are secondary objectives strategic, tactical or operational

A

Strategic objectives

152
Q

Critical success factor

A

Performance requirement that is fundamental to competitive success

153
Q

Examples of critical success factors

A

Profitbailtity
Market share
Productivity
Employee attitudes
Public responsibility

154
Q

Key performance indicators

A

Measures that used to assess whether or not the CSF’s are being achieved

155
Q

Components of time series

A

Trend + seasonal + cyclical + random

156
Q

Goal congruence

A

When individuals make decisions that are in the self interest and in the interest of the organization

157
Q

Dysfunctional decision making

A

Occurs when goal congruence does not exist or is impaired

158
Q

Is motivating managers an important aspect of setting and achieving targets ?

A

Yes

159
Q

Top down budget

A

Set without allowing the budget holder to have the opportunity to participate in the budgeting process.

Are appropriate in newly opened business and small businesses, in times of economic hardship and when managers lack budgeting skills

160
Q

Bottom up budget

A

Budget holds are given the opposite to participate in the budget preparation process

161
Q

Advantages of bottom up budgeting

A

More achievable targets based on local knowledge
Increases morale
Reduces workload of top management

162
Q

Disadvantages of bottom up budgeting

A

Time consuming
Staff may lack knowledge required
Staff may set targets that are too easy

163
Q

Should employees receive feedback on performance

A

Yes

164
Q

Key features of feedback

A

Timely reports
Accurate information
Reports identify controllable costs and revenues

165
Q

Budgetary slack

A

The difference between the minimum necessary costs and the costs actually incurred

166
Q

Profit sharing scheme

A

A scheme where employees receive a certain proportion of their company’s year end profits

167
Q

Advantages of profit sharing scheme

A

Company will only pay what it can afford out of profits
Bonus can be paid to non production personnel

168
Q

Disadvantage of profit sharing scheme

A

Employees must wait till year end
Factors affecting profit may be outside employees control

169
Q

Share option scheme

A

Gives it member the right to buy share in the company

170
Q

Employee share

A

A scheme which acquired shares on behalf of a number of employees and must distribute it within a certain number of years of acquisition

171
Q

Let mechanisms in the control process

A

Review of corporate plan to reflect significant new information

Actual performance compared with planned performance

172
Q

Short term iam

A

Bias towards short term rather than long term performance due to managers performance being measured on short term results

173
Q

Benchmarking

A

Measuring business performance against targeted performance

174
Q

Internal benchmarking

A

Comparing one unit with another in the same organisation

175
Q

Competitive benchmarking

A

Information is gathered about other competitors

176
Q

Functional benchmarking

A

Internal functions are compared regardless of industry

177
Q

Strategic benchmarking

A

Competitive benchmarking aimed at strategic action and organizational change

178
Q

External conditions that can affect performance

A

Market conditions
General economic conditions
Government influences

179
Q

Interpolation

A

Using a long of best fit to predict a value within two extreme points of the observed data range

180
Q

Consumer price index

A

Measures the change in the average basket of goods and services

181
Q

Base weighted price index/Laspeyres index formula

A

PnQo/PoQo * 100

182
Q

Current weighted index (Passche index)

A

PnQn/PoQn x 100

183
Q

Job costing

A

Consists of a single order or contract

184
Q

Batch

A

Cost units that consists of a separate readily identifiable group of units

185
Q

Service costing

A

Concerned with establishing the costs of services rendered

186
Q

Formula for service costing

A

Total costs for period/number of service units in the period

187
Q

Characteristics of service organizations

A

Simultaneous - cannot be inspected for quality in advances
Heterogeneous - services rendered will vary each time
Intangible - actual benefit cannot be touched
Perishable - they cannot be stored

188
Q

Composite cost units

A

A cost derived by cost per kg per kk (useful when comparing costs for any weight traveling any journey)

189
Q

Service department costing

A

Used to establish a specific cost for an internal service that is a service provided by one department for another rather than one sold externally to customers

190
Q

Purpose of service department costing

A
  1. Control the costs and efficiency of the service departments
  2. Control the costs of the user departments and prevent the unnecessary use of services
191
Q

Joint products

A

Two or more products which are output from the same processing operation but indistinguishable from each other up to the point of separation

192
Q

By product

A

A secondary product whose value is small relative to that of the principal product

193
Q

Objectives of a budgetary planning and control system

A

P - plan
R - responsibility
I - integration and coordination
M - motivation
E - evaluation and control

194
Q

Responsibility center

A

A department or function in an organization that is headed by a manager who is responsible for its performance

195
Q

Responsibility accounting

A

Segregates revenues and costs into areas of personal responsibility to assess the performance of each part of an organization

196
Q

Master budget

A

Consists of Sopl Sofp and cash budget

197
Q

Functional budget

A

Various departments in an organization

198
Q

Cost control

A

Regulating the costs of operating a business and keeping costs within acceptable limits

199
Q

Cost reduction

A

A planned and positive approach to reducing expenditure

200
Q

Aproa

A
201
Q

Approaches to cost reduction

A

Crash programmed to cut spending levels
Planned pregames to reduce costs

202
Q

Value analysis

A

A planned approach to cost reduction which reviews the material composition of a product and so that improvements can be made which do not r it reduce the value of the product

203
Q

Value engineering

A

Application of value analysis to new product so products are Designed at minimum cost

204
Q

Aspects of value

A

Cost value: cost producing and selling an item
Exchange value: market value of the product or service
Use value: what the article does; the purpose or fulfills
Esteem value: prestige the customer attaches to the product

205
Q

Value added incentive scheme

A

An alternative to profit as a business performance measure and can be used as the basis of an incentive scheme

206
Q

External conditions that affect performance

A

Market conditions: entry of new competitions to the market is likely to impact on performance
Economic conditions: overall demand and supply will be affected by interest and inflation charges
Government influence: taxation, legislation

207
Q

Profitability ratios

A

How efficiently a business can make profit from the resources it has available

208
Q

Return on capital employed formula

A

PBIT/Capital employed

209
Q

ROCE Definition

A

Shows how much profit has been made in relation to the amount of resources invested

210
Q

Operating profit margin

A

PBIT/revenue

211
Q

Operating profit margin definition

A

Return on sales

212
Q

Gross profit margin

A

Gross profit/revenue

213
Q

Gross profit margin definition

A

Shows the gross profit generated as a percentage of sales

214
Q

Asset turnover

A

Revenue/capital employed

How the assets are being used to generate sales

215
Q

Return on equity

A

Profit after tax and preference dividend/equity shareholders funds

Shows how much profit each unit of shareholders equity generates

216
Q

Asset turnover

A

Measure of how well the assets are being used to generate sales

217
Q

Current ratio

A

Current assets/liabilities

218
Q

Quick ratio

A

Current assets - inventories/current liabilities

219
Q

Inventory holding period

A

Inventory/cost of sales * 365

220
Q

Inventory turnover

A

Cost of sales/inventories

221
Q

Receivables collection

A

Receivables/credit sales * 365

222
Q

Payables payment

A

Payables/credit purchases * 365

223
Q

Hearing

A

Debt/equity

224
Q

Interest cover

A

PBIT/interest charges

225
Q

Hearing

A

Amount of debt in a company’s long term capital structure

226
Q

Interest cover

A

Number of times a company can afford to cover its interest costs from the profit generated

227
Q

Return on investment

A

Controllable divisional profit/divisional capital employee * 100

228
Q

Two ways of measuring the performance an investment center

A

ROI and RI

229
Q

Residual income

A

Measure of the center profits after deductions a notional or imputed interwar charge based on the total invested in the division multiplied by the company’s cost of capital

230
Q

Residual income

A

Controllable profit - (controllable investment

231
Q

Opportunity Cost

A

Value of the benefit sacrificed when one course of action is chosen in preference to another

232
Q

Incremental costs

A

Extra costs which will be incurred in the future

Managerial Accounting (1 decks)

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