Decision & Control Flashcards
What are the four differences between management and financial accounting?
Financial - external users, historic data, prepared annually, prescribed by law. Management - internal purposes, historic & forecast data, prepared ad hoc, no set format.
What are the five types of functional costs?
Production, selling, administrative, finance & specialist
What is a production cost?
Costs that are incurred during the production process e.g. raw materials, packaging
What is a selling cost?
Costs associated with creating a demand for a product and obtaining orders
What is an administration cost?
General costs for running an organisations e.g. rates, insurance
What is a finance cost?
Costs incurred in financing the business such as loan interest and finance leases.
What is a specialist cost?
Incurred as part of the organisations regular activities but depend upon the nature of the business, e.g R&D.
What is a direct cost?
A cost that can be directly attributable to a unit of production or service.
What is an indirect cost?
A cost is that is incurred during the production of a product which is not attributable to a unit of product or service, these are called “overheads”.
What is a production cost centre?
These are any cost centres or departments that are directly involved with the production of a cost unit.
What is a service cost centre?
These departments are not directly involved in the production of a cost unit but they do provide a service to production cost centres.
How is the overhead absorption rate calculated?
Total budgeted cost centre overheads/budgeted activity.
When does an under-absorption occur?
When the amount of overheads absorbed is less than the actual overheads. These are debited to the income statement as an expense.
When does an over-absorption occur?
When the amount of overheads absorbed is more than the actual overheads. These are credited to the income statement.
What is a prime cost?
Direct costs of production - direct materials, direct labour and direct expenses.
What is a marginal cost?
Direct costs plus variable production overheads.
What is a full production cost?
Direct costs plus variable production overheads, also includes fixed overheads using an overhead absorption rate.
What is a relevant cost?
A future cash flow arising of a direct consequence of a decision.
What is an avoidable cost?
Cost which would not be incurred if the activity to which they relate did not exist.
What is a differential cost?
The difference in costs between the alternatives.
What is an opportunity cost?
The benefit which could have been earned but which has been given up, by choosing one option instead of another.
What is a non-relevant cost?
Costs that are irrelevant for decision-making because they are not future cash flows, or they will be incurred anyway, regardless of decision made.
What is a sunk cost?
A cost that has already been incurred, and thus should not be taken into account when decision making.
What is a committed cost?
A future cash flow that will be incurred anyway, whatever decision is taken now.
What is a notional or imputed cost?
Hypothetical accounting costs to reflect the use of a benefit for which no actual expense is incurred.
What is a directly attributable fixed cost?
Costs which would increase if certain extra activities were undertaken, or decrease if a decision were taken to reduce or shut down operations - relevant to decision making.
What is a general fixed overhead?
Cost which will be unaffected by decisions to increase or decrease the scale of operations - these are irrelevant to any decision.
What is absorption costing?
This method of costing includes a proportion of overheads to calculate the cost of one unit.
What is marginal costing?
Seperates costs dependent on whether they are fixed or variable.
What is a unit contribution?
The difference between the selling price per unit and the variable costs per unit.
What is ABC (activity based costing)?
Absorbs costs according to their nature based on a cost driver.
How is the break-even point calculated?
Total fixed costs/contribution per unit.
What is the margin of safety?
The units between the budgeted sales volume and the break-even sales volume.
How is the margin of safety calculated as a %?
(Budgeted sales less breakeven sales)/budgeted sales x 100
What is standard costing?
Each unit of the same type should have the same costs, hence a standard cost.
How is the total material variance calculated?
(standard quantity x standard price) less (actual quantity x actual price)
How is the material price variance calculated?
(actual quantity x standard price) less (actual quantity x actual price)
How is the material usage variance calculated?
(standard quantity x standard price) less (actual quantity x standard price)
How is the total labour variance calculated?
(standard hours x standard rate) less (actual hours x actual rate)
How is the labour rate variance calculated?
(actual hours x standard rate) less (actual hours x actual rate)
How is the labour efficiency variance calculated?
(standard hours x standard rate) less (actual hours x standard rate)
How is the total variable overhead variance calculated?
(standard hours x standard overhead rate) less (actual hours x actual overhead rate)
How is the variable overhead expenditure variance calculated?
(actual hours x actual overhead rate) less (actual hours x standard overhead rate)
How is the variable overhead efficiency variance calculated?
(actual hours x standard overhead rate) less (standard hours x standard overhead rate)
How is the total fixed overhead variance calculated?
(standard hours x budgeted overhead absorption rate) less actual overheads
How is the fixed overhead expenditure variance calculated?
Budgeted overheads less actual overheads
How is the fixed overhead volume variance calculated?
(standard hours x budgeted overhead absorption rate) less budgeted overheads
How is the fixed overhead capacity variance calculated?
budgeted overheads less (actual hours x budgeted overhead absorption rate)
How is the fixed overhead efficiency variance calculated?
(standard hours x budgeted overhead absorption rate) less (actual hours x budgeted overhead absorption rate)
What is the definition of a variance?
The difference between an actual result and an expected result
What is the definition of variance analysis?
The process by which the total difference between standard and actual results is analysed
What is the definition of an adverse variance?
Occurs when actual results are worse than expected
What is the definition of a favourable variance?
Occurs when actual results are better than expected
What is the definition of a material total variance?
The difference between what the output actually cost and what it should have cost in terms of material
What is the definition of a material price variance?
The difference between what the material used did cost and what it should have cost
What is the definition of a material usage variance?
The difference between the standard cost of the material that should have been used and the standard cost of the material that was used
What is the definition of a total labour variance?
The difference between what the output should have cost in terms of labour and what it did cost
What is the definition of a labour rate variance?
The difference between what the actual labour should have cost and what it did cost
What is the definition of a labour efficiency variance?
The difference between the standard cost of hours that should have been worked and the standard cost of hours actually worked
What is the definition of a production overhead total variance?
The difference between what the output should have cost and what it did cost in terms of variable production overhead
What is the definition of a variable production overhead expenditure variance?
The difference between the amount of variable overhead that should have occurred as a result of the hours worked, and the actual variable production overhead incurred
What is the definition of a variable production overhead efficiency variance?
The difference between the standard cost of hours that should have been worked for the production level, and the standard cost of actual hours worked
What is the definition of a fixed production overhead variance?
The difference between fixed production overhead incurred and overhead absorbed, i.e. under/over absorbed overhead
What is the definition of a fixed production overhead expenditure variance?
The difference between budgeted and actual fixed production overhead expenditure
What is the definition of a fixed production overhead volume variance?
The difference between actual and budgeted production/volume, multiplied by the standard absorption rate
What is the definition of a fixed production overhead volume efficiency variance?
The difference between the number of hours actual production should have taken and actually taken, multiplied by the standard absorption rate
What is the definition of a fixed production overhead volume capacity variance?
The difference between budgeted hours of work and actual hours worked, multiplied by the standard absorption rate per hour.
When completing a reconciliation statement, how is the standard cost of actual production calculated?
Standard cost per unit x actual production volume
When completing a reconciliation statement, will adverse variances be deducted or added?
Added
When completing a reconciliation statement, will favourable variances be deducted or added?
Deducted
What does an operating statement under marginal costing begin with?
Budgeted variable cost for actual production.
What is the only fixed cost variance to be included in an operating statement under marginal costing?
Fixed overhead expenditure variance.
How are variances further sub-divided?
A part that could’ve been predicted by the organisation and a part that couldn’t have been e.g. idle time.
