Chapter 1 - Techniques Flashcards
What is management accounting and who uses it?
Providing information to internal users of the company. This is based on present figures which is gathered when needed (weekly or monthly).
Management accounting exists to help managers plan, monitor, control and make decisions about the organisation.
What is financial accounting and who uses it?
Financial accounting reports the organisations performance to external users. This is based on historical figures which is gathered annually.
Shareholders, prospective investors and suppliers use this information
What is absorption costing?
A systems that attempts to determine a full cost for each unit of output. It includes indirect and direct costs, and then uses allocation, apportionment and absorption to incorporate all indirect costs.
What is marginal costing?
A system that categorises costs into their cost behaviour and then divides them into fixed or variable costs.
Why is activity based costing?
Similar to absorption costing but deals mainly with the indirect costs.
Involves examining the costs to determine what causes them and using this info to charge the costs to the units of output.
What type of costing will record a higher profit when inventory levels increase and why??
Absorption costing.
This is because the cost incurred is pushed to the next period.
What type of costing will record a lower profit when inventory decreases and why??
Absorption costing.
This is because more costs from the previous period are set against income.
What type of costing can be used for minimum price-setting?
Marginal costing.
This can be used to set the absolute minimum that can be charged as long as fixed costs are covered.
What type of costing can be used for break even analysis
Marginal costing.
This enables the calculation of the number of items that will result in zero profit.
What type of costing can be used for margin of safety?
Marginal costing.
This shows how far away the planned volume is from break even point. (Usually shown as a percentage)
High-Low method and stepped cost calculation
(High cost - low cost) - cost step
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High units - low units
What’s the definition of non-linear behaviour?
Costs that do not behave quite as variable costs. For example: unit costs not in a straight line with volume.
What is a cost centre?
Responsibility centre where costs are charged and can monitored and controlled. A cost centre incurs costs but doesn’t have any direct income and therefore a manager is only accountable for costs incurred.
What is a profit centre?
A responsibility centre where costs are incurred and income is generated. The managed responsible would be accountable for the amount of profit based on income and expenditure.
What is an investment centre?
Responsibility centre where costs are incurred, income and expenditure is generated and the level of investment in monitored. For example: non current assets, receivables and inventory.
