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Management Accounting > CVP/TAC/MC > Flashcards

CVP/TAC/MC Flashcards

1
Q

what does cvp stand for

A

cost volume profit

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2
Q

what does tac stand for

A

total absorption costing

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3
Q

what does mc stand for

A

marginal cost

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4
Q 
if P=price per unit,
S=units sold,
V=variable cost per unit,
F=fixed costs,
what is profit and breakeven point (write out) ***
A

profit = SP-SV-F or S(P-V)-F,

P-V=contribution so the breakeven point is,
0+S(P-V)-F
F/P-V = S

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5
Q

equation for contribution *

A 
contribution = price per unit - variable cost per unit,
contribution = P-V
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6
Q

what are possible behavioural reasons why you may or may not want to subcontract out

A

redundancy concerns,
quality of sub-contracted product,
transport costs,
reliability of company to deliver on time,
other uses for the capacity created by sub-contracting

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7
Q

whats the difference between total costing and marginal costing *

A

total costing allocate fixed costs,

marginal costing not allocate fixed overheads

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8
Q

what is the equation for fixed overhead absorption rate (FOAR)

A

FOAR = budgeted fixed overhead / budgeted labour hours

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9
Q

what does FOAR stand for

A

fixed overhead absorption rate

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10
Q

what happens if actual fixed overheads or the actual labour hours are different from the budgeted figures

A

you will get under/over absorption of the fixed overheads and an adjustment will have to be made to your profit figure at the end of the period

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11
Q

are differences between TAC and MC because of under/over absorption

A

no, they are due to different valuations put on the stock

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12
Q

what are differences between TAC and MC due to *

A

differences between TAC and MC are due to the different valuations put on stock (MC values at marginal cost, TAC values at MC including fixed overheads per unit)

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13
Q

what does sales - cost of sales equal *

A

sales - cost of sales = contribution

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14
Q

what does cost of sales equal *

A

cost of sales = variable costs - closing stock

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15
Q

how do you value stock for TAC

A

stock valued at cost including FC

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16
Q

what are the different types of costs

A

indirect and direct

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17
Q

direct costs d

A

those directly traceable to the product eg material costs, direct wages

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18
Q

indirect costs d

A

those that cannot be traced and therefore will be allocated in full costing eg overheads

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19
Q

what is relevant costing

A

a relevant cost is defined as a future incremental cash flow

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20
Q

advantages of relevant costing

A

enables visibility of net cash impact of decisions,
considers exactly what will change within company as a result of the decision,
considers indirect consequences of the decision,
more realistic than marginal cost

21
Q

disadvantages of relevant costing

A

not easy for managers to calculate,

cannot always see the indirect consequences of a decision

22
Q

advantages of marginal costing

A

variable costs are easily identified so no need for estimates,
allocating fixed costs to period they incurred reflects what actually happens,
easiest approach to understand,
helps decisions on make or buy

23
Q

what does tac do differently (total absorption costing)

A

TAC brings fixed overheads into it

24
Q

advantages of TAC

A

ensures fixed costs are covered in pricing decisions,
profit assessments,
financial statements,
internal management and control of costs

25
Q

disadvantages of TAC

A

complex and time consuming,
shift towards service industries increased proportion of overheads of total costs,
modern manufacturing is not labour or machine hours driven but process and technology driven

26
Q

what is the traditional method of absorbing overhead

A

total absorption costing (TAC)

27
Q

what does CBA stand for

A

cost benefit analysis

28
Q

are overhead costs small or large with direct labour and material accounting for a large majority of cost

A

small

29
Q

when was TAC more appropriate and why

A

historically more overheads were by volume which was often linked to labour hours (eg machine operators) so TAC was more appropriate

30
Q

what are overheads related to

A

many overheads related to volume,
many related to non-volume support activities,
more support services

31
Q

what does ABC stand for

A

activity based costing

32
Q

what are the main ideas of ABC (activity based costing)

A

activities cause costs,
producing products creates demand for such activities,
costs are allocated to products based on their usage of such activities

33
Q

definition of ABC (activities based costing)

A

ABC involves the identification of the factors (cost drivers) which cause the costs of an organisation’s major activities

34
Q

what are the two types of overhead for ABC (activities based costing)

A

overhead that vary with production level in the short term (cost driver related to volume),
overheads that vary with some other activity should be allocated to products using cost drivers such as production runs, number of orders received etc

35
Q

what are the steps for ABC (activities based costing)

A

identify an organisation’s major activities,
identify factors which determine the cost of an activity (cost drivers),
collect the costs associated with each cost driver into a cost pool,
allocate costs to products based on their usage of an activity as measured by number of cost drivers it generates

36
Q

whats another phrase for the identification of the factors which cause the costs of an organisation’s major activities

A

cost drivers

37
Q

advantages of ABC (activities based costing)

A

ABC recognises complexity of modern manufacturing,
companies must be able to assess product profitability realistically,
helps give a good understanding of what drives overhead costs

38
Q

disadvantages of ABC (activities based costing)

A

some degree of arbitrary cost apportionment still required,
can a single cost driver explain the cost behaviour of all items in its pool,
cost drivers need to be measurable to be usable (what drives cost of an annual external audit),
sometimes just introduced because it is fashionable

39
Q

what goes in a marginal costing profit statement *

A 
sales
open stk
var costs
clos stk
COS
contribution
fixed costs (include non manufacturing as well as manufacturing)

profit
(in this order)

40
Q

what goes in a total absorption costing profit statement *

A 
sales
open stk
production costs
closing stk
COS
over / under absorption
gross profit

non manufacturing overheads

profit
(in this order)

41
Q

what does marginal costing value stock at

A

variable cost

42
Q

what does total absorption costing value stock at

A

variable cost plus fixed overhead

43
Q

equation for COS within profit statement *

A

var costs - closing stock (try remember what profit statement looks like go back in notes)

44
Q

equation for contribution within profit statement *

A

sales - COS (try remember what profit statement looks like go back in notes)

45
Q

which one will have higher profit for multiple choice questions out of absorption costing or marginal costing (think about it) *

A

when stock levels decrease from one period to next then marginal costing has higher profit

46
Q

what is the first part of working out cost per unit for ABC ***

A

cost, driver, total oh, no of drivers, cost/driver,
those are all headings for the columns and then you have the different things going down the side such as number of set-ups, inspections, machinery etc (TQ1)

47
Q

what is the second part of working out cost per unit for ABC ***

A

overhead, activity, cost, activity, cost, activity, cost
those are all the headings for the columns with activity and cost relating to each of the products and then you have all the things going down the side like set-ups, inspections etc and then total cost, total units and cost / unit (TQ1)

48
Q

what is the third part of working out cost per unit for ABC ***

A

product d, product c, product p

those are headings for columns and then materials, labour, o/h (worked out in previous steps), total (TQ1)

Management Accounting (13 decks)

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