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CIMA > CIMA - Chapter 2.6 - Introduction to costing - Performance Measurement > Flashcards

CIMA - Chapter 2.6 - Introduction to costing - Performance Measurement Flashcards

1
Q

what is a Performance Measurement

Performance Measurements

A

Performance measurements aims to establish how well something or somebody is doing in relation to a planned activity.

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2
Q

What is Productivity

Performance measures for cost centres

A
  1. Productivity refers to the efficiency with which resources are used to produce outputs.
  2. It measures the relationship between the inputs consumed (e.g., labor, materials, capital) and the outputs produced (goods or services)
  3. High productivity indicates that an organization is effectively utilizing its resources to generate more output with minimal input.
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3
Q

What are the Key Components of Productivity

Performance measures for cost centres

A
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4
Q

what are the types of Productivity

Performance measures for cost centres

A
  1. Labor Productivity
  2. Material Productivity
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5
Q

What is Labor Productivity

Performance measures for cost centres

A
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6
Q

what is Material Productivity

Performance measures for cost centres

A
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7
Q

what is the Importance of Productivity

Performance measures for cost centres

A
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8
Q

How to Improve Productivity

Performance measures for cost centres

A
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9
Q

Limitations of Productivity

Performance measures for cost centres

A
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10
Q

What is the Cost Per Unit

Performance measures for cost centres

A

It is the total costs of production divided by the number of units produced in the period

Cost per unit = Total Costs / Number Of Units Produced

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11
Q

What is Gross Profit

Profit Centres

A
  1. Gross profit is the difference between revenue and the cost of goods sold (COGS) for a specific period.

GrossProfit = Revenue − CostofGoodsSold(Direct Costs)

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12
Q

What are the key components of Gross Profit

Performance measures for profit centres

A
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13
Q

What is the Importance of Gross Profit

Performance measures for profit centres

A
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14
Q

What is Net Profit

Performance measures for profit centres

A
  1. Net profit is the total profit earned by a business after deducting all expenses from its total revenue.
  2. These expenses include the cost of goods sold (COGS), operating expenses (e.g., administrative, selling, and distribution costs), and other financial costs such as interest and taxes.
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15
Q

what are the key components of Net Profit

Performance measures for profit centres

A
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16
Q

what is the Net Profit Formula

Performance measures for profit centres

A

NetProfit= Revenue − (DirectCosts+IndirectCosts+FinancialCosts+Taxes)

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17
Q

what is the Importance of Net Profit

Performance measures for profit centres

A
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18
Q

What is the Difference Between Gross Profit and Net Profit

Performance measures for profit centres

A
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19
Q

what is Gross Profit Margin

Performance measures for profit centres

A
  1. Gross Profit Margin is a profitability ratio that measures the percentage of revenue remaining after deducting the cost of goods sold (dirct costs) .
  2. It reflects the efficiency of core operations, excluding other expenses such as administrative, selling, or financial costs.
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20
Q

What are the Key Components of Gross Profit Margin

Performance measures for profit centres

21
Q

What is Gross Profit Margin Formula

Performance measures for profit centres

22
Q

How to Interpret of Gross Profit Margin

Performance measures for profit centres

23
Q

what is the Importance of Gross Profit Margin

Performance measures for profit centres

24
Q

What is the Limitations of Gross Profit Margin

Performance measures for profit centres

25
Q

How to Improve Gross Profit Margin

Performance measures for profit centres

26
Q

What is Net Profit Margin

Performance measures for profit centres

A
  1. Net Profit Margin is a profitability ratio that measures the percentage of revenue remaining after deducting all expenses, including the cost of goods sold (COGS), operating expenses, financial costs (e.g., interest), and taxes.
  2. It reflects the overall profitability of a business and its ability to generate profit from total revenue.
27
Q

What are the Key Components of Net Profit Margin

Performance measures for profit centres

28
Q

Net Profit Margin Formula

Performance measures for profit centres

29
Q

how to Interpretation of Net Profit Margin

Performance measures for profit centres

30
Q

What is the Importance of Net Profit Margin

Performance measures for profit centres

31
Q

Net Profit Margin vs. Gross Profit Margin

Performance measures for profit centres

32
Q

What are the Limitations of Net Profit Margin

Performance measures for profit centres

33
Q

How to Improve Net Profit Margin

Performance measures for profit centres

34
Q

What are Cost/sales ratios

Performance measures for profit centres

A
  1. The Cost/Sales Ratio is a financial metric that measures the proportion of total costs to sales revenue.
  2. It indicates how much of each dollar of sales is consumed by costs, helping to assess cost efficiency and profitability.
  3. When target profits are not met, further ratios may be used to shed some light on the problem
35
Q

What are Cost/sales ratios types

Performance measures for profit centres

A
  1. Production cost of sales / sales
  2. Distribution and marketing costs / sales
  3. Administrative costs / sales
36
Q

What are Subsidiary ratios

Performance measures for profit centres

A

Subsidiary ratios can be used to examine problem areas in greater depth and extend Cost/sales

37
Q

Provide an examples of production Subsidiary ratios

Performance measures for profit centres

A
  1. Material costs / sales
  2. Production overheads / sales
  3. Works labour costs / sales
38
Q

What is Value Added

Performance measures for profit centres

A
  1. Value added refers to the additional worth created by an organization through its business activities, over and above the cost of inputs
  2. It reflects the difference between the sales revenue generated and the cost of goods and services purchased from external suppliers.
39
Q

What are the Key Components of Value Added

Performance measures for profit centres

40
Q

Formula for Value Added

Performance measures for profit centres

41
Q

Importance of Value Added

Performance measures for profit centres

42
Q

Value Added vs. Profit

Performance measures for profit centres

43
Q

what is Value Added Per Employee

Performance measures for profit centres

A

An important extension of value added is Value Added Per Employee, which measures the contribution of each employee to the overall value creation

44
Q

what is the Added Per Employee Formula

Performance measures for profit centres

45
Q

what are the Strategies to Increase Value Added

Performance measures for profit centres

46
Q

What are the Limitations of Value Added

Performance measures for profit centres

47
Q

What Is ROCE

A
  1. ROCE is a measure of the profitability of a business in relation to the capital employed.
  2. ROCE is generally used for measuring the performance of investment centres; profits alone do not show whether the return is sufficient when different values of assets are used
48
Q

What is Return on capital employed (ROCE)

A

(Net Profit / Capital Employed(Share holder Investments)) * 100

CIMA (6 decks)

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