Core Activity Area C Flashcards
What is a controllable cost?
A cost which can be influenced by its budget holder.
Assumbed to be variable costs, and directly attributable fixed costs
What happens in responsibility accounting?
A specific manager takes responsibility for a particular aspect of the budget
What are some ratios that can be used for profitability KPIs?
ROCE
Operating profit margin
Asset turnover
What are some ratios that can be used for liquidity KPIs?
Current ratio
Quick ratio
What is benchmarking?
Continuous process of measuring a firm’s products, services and activities against other best-performing organisations.
What are the different types of benchmarking?
Internal - other internal departments used as the benchmark
Competitive - most successful competitors used
Functional - comparisons made with a similar function
Strategic
Customer - compare corporate performance with the performance expected by customers
What is the balanced scorecard?
Financial - cash flow, gearing
Internal business process - percentage of sales from new products
Learning and growth - Employee satisfaction, Employee retention
Customer - customer retention, customer satisfaction
What is employee empowerment?
Employees are given autonomy and responsibility to undertake task without being directed at each step by management.
To promote empowerment, managers should:
Set clear boundaries and ensure employees know what is expected from them
Actively encourage employee development
Communicate openly
Offer regular feedback
What are the two types of rewards?
Intrinsic - arise from the performance of the job itself
Extrinsic - seperate from the job itself and dependent on decision of tohers
What are non-performance indicators?
Measures of performance based on non-financial information that may originate in, and be used by, operating departments to monitor and control their activities without any accounting input
Why must rewards systems be carefully designed?
Fair and consistent for all employees
Sufficient to attract and retain staff
maintain and improve levels of employee performance
Reward progression and promotion
What are some incentive schemes?
Performance related pay
Piecework - related to pace of work
Points system
Commission - paid on performance of an individual
Bonus schemes - usually a one off
Profit sharing
What is culture?
The way we do things around here
It represents a powerful force on an organisation’s strategies, structures and systems
What is power?
The capacity to exert influence
What are the five possible bases of a leader’s power?
Reward power - someone has power over another because they can give out rewards
Coercive power - enables a person to give punishments to others
Referent power - based upon the identification with the person who has charisma, or the desire to be like that person
Expert power - based upon doing what the expert says since they are the expert
Legitimate power - based on agreement and commonly-held values which allow one person to have power over another person
What is authority and what are the different types?
Right to exercise power
Charismatic authority - individual has some special quality of personality which sets them apart
Traditional authority - based upon custom and practice
Rational-legal authority - comes from the individuals position in the organisations chart
What is delegation?
Process whereby managers assign part of their authority to a subordinate to fulfil their duties
Why might there be reluctance to delegate?
Managers often believe subordinates are not able or experience enough
Managers fear losing control
Managers don’t know how or what to delegate
What are the two types of leadership skills?
Transactional - see the relationship with their followers in terms of a trade
Transformational - see their role as inspiring and motivating others to work at levels beyond mere compliance
What are the skills required by transformational leaders?
Anticipitory
Visioning
Value-congruence
Empowerment
Self-understanding
What are the five types of leaders?
Charismatic - springs from personality
Traditional - stems from accepted social order
Situational - right place at the right time
Appointed - influence arises directly from position/status
Functional - individual securing position by doing what they do wellW
What is an autocratic style of leadership?
Do this
What is a democratic style of leadership?
Lets work together to solve this
What is a free rein style of leadership?
You go and sort out the problem
What is a virtual team?
Team made of members with complementary skills working towards a common purpose, but which is seperated physically and must interact electronically.
What is business ethics?
Set of moral rules that govern how businesses operate, how business decisions are made and how people are treated
What are the six suggested changes for organisations in the CGMA cost transformation model?
Engendering a cost-conscious culture
Managing the risks inherent in driving cost-competitiveness
Connecting products with profitability
Generating maximum value through new products
Incorporating sustainability to optimise profits
Understanding cost drivers
What is activity based costing?
an approach to the costing and monitoring of activities which involves tracing resource consumption and costing final outputs. Resources are assigned to activities, and activities to cost objects based on consumption estimates. The latter utilise cost drivers to attach activity costs to output.
What are the four tiers of the ABC hierarchy?
Unit-level
Batch-related
Product-sustaining
Facility-sustaining
What is unit-level activities?
Performed each time a unit of product is product.
Consumed in direct proportion to the number of units produced.
Expenses in this category include direct labour and materials, energy costs, machine maintenance.
What are product-sustaining activities?
Performed to support different products in the product line
What is facility sustaining activities?
Some costs cannot be related to a product instead they are related to maintaining buildings and facilities. e.g. maintenance of the building, plant security, business rates
What is activity based management?
System of management which uses ABC information for a variety of purposes including cost reduction, cost modelling and customer profitability analysis
What does ABM classify each activity as?
Non-value added - unecessary and represent waste.
Value added
What are the five basic information outputs that organisations will find with using ABM?
Cost of activities and business processes
Cost of non-value added activities
Activity based performance measures
Accurate product/service cost
Cost drivers
What is the customer profitability analysis?
the analysis of revenue streams and service costs associated with specific customers or customer groups
What is a direct channel in the distribution channel profitability?
Sales teams
Telephone
Shops
Internet
What is a indirect channel in the distribution channel profitability?
Retailers
Wholesalers
Resellers
Agents
What is JIT production?
Driven by demand for finished products whereby each component on a production line is produced only when needed for the next stage
What is JIT purchasing?
A purchasing system in which material purchases are contracted so that the receipt and usage of material, to the maximum extent possible, coincide
What is total quality management?
general name given to programmes which seek to ensure that goods are produced and services supplied of the highest quality
What does JIT require?
Labour force must be versatile
Grouped by product line
Infallible information system
Get it right first time
Strong supplier relationships
What are the two basic principles with TQM?
Get it right, first time
Continuous improvement
What are the different types of quality costs?
Conformance costs - Prevention, Appraisal
Non-conformance costs - Internal failure, External failure
What is Kaizen costing?
improve processes via small, incremental amounts
What is process re-engineering?
Making far-reaching one-off changes to improve operations or processes.
What are the four stages in BPR?
Process identification
Process Rationalisation
Process re-design
Process re-assembly
What is target costing?
Calculated by deducting the target profit from a pre-determined selling price based on customers’ views
What is value analysis?
Helps to design products that meet customer needs at a lower cost
What are the four types of value?
Cost value - cost incurred by the firm producing the product
Exchange value - amount of money consumers are willing to exchange to obtain ownership of the product
Use Value - related entirrely to function
Esteem Value - relates to status or regard associated with ownership
What are the primary functions of Porter’s value chain?
Inbound logistics
Operations
Outbound logistics
Marketing and sales
Service
What are the support activities according to Porter’s value chain?
Firm infrastructure
HR management
Tech development
Procurement
What are the four stages in life cycle costing?
Introduction
Growth
Maturity
Decline
What is risk?
Quantifitiable
Possible outcomes have associated probabilities, thus allowing the use of mathematical techniques
What is uncertainty?
Unquantifiable
Outcomes cannot be mathematically modelled
How do we deal with risk and uncertainty in investment appraisal decisions?
Adding a risk premium
Payback period
Expected values
Sensitivity Analysis
Probability distributions
How do we calculate the sensitivity margin?
NPV/PV of flow under consideration
What are the strengths of sensititivity analysis?
Simple
Helps management make more informed decisions
Identifies critical estimates
What are the weaknesses of sensitivity analysis?
Assumes that changes can be made to variables independently
Does not look at how likely it is the variable will change
Does not give a definitive decision
What is expected value?
Summarises all the different possible outcomes by calculating a weighted average
What are the three main types of decision makers?
Risk neutral - considers all possible outcomes and will select strategy that maximises the EV or benefit
Risk seekers - likely to select strategy with the best possible outcome
Risk averse - avoids risk. select a lower but certain outcome.
What are the advantages and disadvantages of EV?
Advantages - Takes risk into account, easier decisions, simple
Disadvantages - Subjective, has little meaning for one-off projects, gives a risk neutral decision
What is a decision tree?
diagrammatic representation of a decision problem, where all possible courses of action are represented, and every possible outcome of each course of action is shown
What does a circle and square represent on a decision tree?
Square - represent a decision point. Decision maker has a choice of which course of action to take
Circle - Chance outcome point. Branches from here are always subject to probabilities.
What factors should be taken into account when considering decision tree-type problems?
Time value of money
Assumes risk neutrality
Sensitivity analysis
Oversimplification
What is stress testing?
A way of analysing a business to consider how well it could cope in difficult conditions.
What are the four key areas in stress testing?
Prioritisation
Measurement
Productivity
Flexibility
