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ELCO - Level 2 AAT > ELCO - Level 2 AAT > Flashcards

ELCO - Level 2 AAT Flashcards

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1
Q

Chapter 1 - 1.4

What are the aims of management accounting ?

A
  • Planning - Preparation of annual budgets
  • Co-ordinating - Enables all departments to be coordinated and work together
  • Controlling - Comparison of actual results with the budget
  • Communicating - Distributing budgets to communicate the aims of the business
  • Motivating - Includes targets to motivate staff
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2
Q

Chapter 1 - 1.5

What is useful management information?

A
  • Relevant to their responsibilities
  • Relevant to particular decisions
  • Timely - info has to be up to date
  • Value - The benefits of having the information must out-weigh the cost of producing it
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3
Q

Chapter 1 - 1.6

What is cost accounting ?

A

Cost accounting is part of management accounting. It is to do with establishing costs. Usually established with manufacturing businesses where costs are difficult to isolate.

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4
Q

Chapter 1 - 1.6

What are the objectives of cost accounting?

A
  • Determine costs and profits during a control period
  • Valuing raw mats, wip, finished goods
  • Preparing budgets/forecasts
  • Creating a reporting system
  • Providing information for decision making (setting the selling price of a good
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5
Q

Chapter 1 - 2.1

What is meant by the term ‘cost unit’?

A
  • How much it costs to produce a a certain amount this varies for each business
  • Car manufacturer how much it costs to produce one car
  • how much it costs to produce 1L of paint
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6
Q

Chapter 1 - 2.2 What is meant by a ‘cost centre’ ?

A

A cost centre is a small part of a business for which costs are determined

  • A warehouse
  • The human resources function
  • A factory in a particular location
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7
Q

Chapter 1 - 2.3

What is a ‘cost centre’ ?

A

-Is when the manager of a centre is responsible for costs but not revenue or investment

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8
Q

Chapter 1 -2.3

What is a ‘profit centre’?

A

Is when the manager is responsible for costs and revenues, but not investment

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9
Q

Chapter 1 - 2.3

What is an ‘investment centre’?

A

Is when the manager is responsible for costs, revenues and the level of investment.
-For example opening up new factories

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10
Q

Chapter 1 - 3.2

What are cost of sales?

A

The production costs, this includes Labour, materials, supervisor salaries and factory rent

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11
Q

Chapter 1 - 3.2

What are distribution costs ?

A

This includes selling and distribution costs such as sales team commission

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12
Q

Chapter 1 - 3.2

What are administrative costs ?

A

This includes head office costs, IT support, HR

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13
Q

Chapter 1 - 3.2

What are finance costs ?

A

This refers to the money paid to providers of finance.

-For example bank charges and interest charged on loans

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14
Q

Chapter 1 - 3.3

What are the elements of cost clarification ?

A
  • Materials
  • Labour
  • Overheads
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15
Q

Chapter 1 - 3.4

What is a direct cost ?

A

A cost which is traceable directly to a cost unit.

-For example the cost of a bought in engine to a car manufacture

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16
Q

Chapter 1 - 3.4

What is an indirect cost?

A

Is a cost which cannot easily be identified with ant one finished unit
-For example overheads

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17
Q

Chapter 1 - 3.4

What is the total of all the direct costs known as ?

A

The ‘prime cost’ per unit

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18
Q

Chapter 1 - 3.5

What are variable costs?

A

Variable costs are those that change with changes in the level of activity

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19
Q

Chapter 1 - 3.5

What are fixed costs?

A

Fixed costs are not affected by changes in activity level

-For example rent on a factory

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20
Q

Chapter 1 - 3.5

What are semi-variable costs?

A

They have both a fixed element and a variable element.

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21
Q

Chapter 1 -3.5

What are stepped costs?

A

They are costs which remain fixed up to a particular point of activity and rise to a higher (fixed) level

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22
Q

Chapter 1 -3.5

What are the two formulas for total costs ?

A

Total costs = Fixed costs + Variable costs

Total costs = Fixed costs + (Variable cost per unit x number of units)

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23
Q

Chapter 1 -3.7

What are the three ways to classify costs?

A
  • Classifying costs by element or nature
  • Classifying costs by Behaviour
  • Classifying costs by function
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24
Q

Chapter 1 -3.7

Why would you classify costs by element or nature?

A

It is useful for management accountants to help the business calculate how much it costs to produce one unit.
Useful when deciding how much to sell a product for

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25
Q

Chapter 1 -3.7

Why would you classify costs by behaviour ?

A

It will be useful for management accountants, especially with budgeting what the businesses costs will be in the future

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26
Q

Chapter 1 - 3.7

Why would you classify costs by function?

A

It will be useful for financial accountants, they will be able to see the overall level of expenditure in each part of the organisation and therefore calculate total profits

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27
Q

Chapter 2 - 1.1

What is the definition of a ‘code’?

A

A code is a system of symbols designed to be applied to a classified set of items, to give a brief, accurate reference, which helps entry to the records, collection and analysis.

28
Q

Chapter 2 - 1.2

What kind of code is 100/360?

A

Numeric

29
Q

Chapter 2 - 1.2

What kind of code is AB/RT?

A

Alphabetic

30
Q

Chapter 2 - 1.2

What kind of code A230?

A

Alpha-numeric

31
Q

Chapter 2 - 1.4

What are the Purposes of cost codes? (5)

A
  • Assist precise information
  • Facilitate electronic date processing
  • Facilitate a logical and systematic arrangement of costing records
  • Simplify comparison of totals of similar expenses
  • Incorporate check codes
32
Q

Chapter 2 - 2.1

What do we mean by timing of coding ?

A

Coding of costs is most effective when done when a cost or expense is first received. This in most cases is when the invoice is received.

33
Q

Chapter 2 - 2.5
What are shared costs?

What would be an example of a shared cost ?

A

A shared cost is a cost that does not relate specifically to a particular cost centre

An example of a shared cost would be electricity bills, as they can not be allocated directly to a cost centre as they are indirect costs and can relate to a number of cost centres.

34
Q

Chapter 2 - 2.6

How are wages and salaries usually paid ?

A

They are usually paid directly into an employees bank account using a BACS system

35
Q

Chapter 2 - 3.2

What is mean by the term ‘apportionment’?

A

Apportionment is when more than one cost centre has incurred the cost, so the cost needs to be shared(apportioned) between all of the relevant cost centres.
- For example the heating bill of a building

36
Q

Chapter 3 - 1.2

What is the definition of direct materials?

A

Direct materials are the materials that are used directly as part of the production of the goods that the organisation makes. (Raw materials)

37
Q

Chapter 3 - 1.2

What is the definition of indirect materials?

A

Indirect materials are other materials used in the production process which are not used in the actual products themselves.

38
Q

Chapter 3 - 1.2

What is the definition of the total direct cost?

A

The total direct cost for a product is the direct materials and the direct labour costs of producing it, it is also known as the prime cost.

39
Q

Chapter 3 - 1.3

What do we mean by the term work in progress (wip)?

A

The term work in progress refers to units that have been started but are incomplete at the end of the accounting period.

40
Q

Chapter 3 - 2.1

What are the two aspects to valuing raw materials?

A
  • Firstly determine the cost of the materials issued to the cost centres
  • We need to value the inventory of raw materials left in stores
41
Q

Chapter 3 - 2.2

What are the methods of pricing issues of materials ?

A
  • FIFO
  • LIFO
  • AVCO (Weighted average)
42
Q

Chapter 3 - 2.2

What does FIFO assume?

A

FIFO assumes that issues will be made from the oldest inventory available, leaving the latest purchases in inventory

43
Q

Chapter 3 - 2.2

When is FIFO useful?

A

FIFO is useful when products are perishable. For example food products

44
Q

Chapter 3 - 2.2

What does LIFO assume?

A

LIFO assumes that issues will be made from the newest inventory available leaving the earliest purchases in the inventory.

45
Q

Chapter 3 - 2.2

When is LIFO useful?

A

LIFO could be used when goods are not perishable such as stationary?

46
Q

Chapter 3 - 2.2

What does AVCO assume?

A

AVCO assumes that the issues into production will be made at an average price

47
Q

Chapter 3 - 2.2

When is AVCO useful?

A

AVCO could be used when individual units of material are not separately definable For Example Sand

48
Q

Chapter 3 - 3.1

How would you identify direct materials and labour?

A
  • Direct materials can be identified using job cards and information on stores requisitions
  • Direct labour can be identified using job cards and time sheets
49
Q

Chapter 3 - 3.1

What is ‘unit basis’?

A

Unit basis is when each unit gets the same level of overhead

50
Q

Chapter 3 - 3.1

What is ‘Labour rate basis’?

A

Labour rate basis is where overheads are absorbed as a rate per direct labour hour

51
Q

Chapter 3 - 3.1

What is ‘Machine hour basis’?

A

Machine hour basis is where overheads are absorbed as a rate per direct machine hour

52
Q

Chapter 3 - 3.5

What is the equation for cost of sales?

A

Cost of sales = Opening inventory + Purchases - Closing inventory

53
Q

Chapter 3 - 4.2

How is control maintained over purchasing ?

A
  • Only necessary items are purchased
  • Orders are placed with most appropriate supplier and after considering price and delivery details
  • The goods received are the goods that were ordered
  • The price paid for the goods is correct
54
Q

Chapter 3 - 4.6

What is the definition of a ‘bin card’?

A

A bin card is a simple record of receipts, issues and balances of inventory in hand kept by storekeepers, recorded in quantities of materials inventory

55
Q

Chapter 3 - 4.7

What is the definition of a ‘stores ledger account’?

A

A stores ledger account records the quantity and value of receipts and issues the current balance of each item of inventory.

56
Q

Chapter 4 - 1.3

What are the two ways for calculating gross pay?

A
  • Pay employees for the time spent at work (time related pay)
  • Pay employees for the work actually produced (output related pay
57
Q

Chapter 4 - 2.1

What are the two types of time related pay?

A
  • Salaried employees

- Hourly rate employees

58
Q

Chapter 4 - 2.2

What is the definition of a ‘salaried employee’?

A

A salaried employee is one whose gross pay is agreed at a fixed amount for a period of time whatever the hours that employee works in that period.

59
Q

Chapter 4 - 2.3

What is the definition of an ‘hourly rate employee’?

A

An hourly rate employee is one who is paid a set hourly rate for each hour that he works.

60
Q

Chapter 4 - 2.4

What is the definition of ‘overtime’?

A

Overtime is the number of hours worked by an employee which is greater than the number of hours set by the organisation as the working week

61
Q

Chapter 4 - 2.5

What is the definition of ‘overtime premium’?

A

Overtime premium is the amount over and above the normal hourly rate the employees are paid for overtime hours.

62
Q

Chapter 4 - 3.1

What is the definition of ‘payment by results or piecework’?

A

Payment by results or piecework is where a fixed amount is paid per unit of output achieved irrespectice of time spent

63
Q

Chapter 4 - 3.2

What are the problems with payment by results ?

A
  • Can be hard the accurately record the output

- Maintaining the quality of the work

64
Q

Chapter 4 - 4.1

What is the basic principle of a bonus payment?

A

The principle of a bonus payment is rewarding and employee for any additional income or savings in cost to the organisation

65
Q

Chapter 5 - 1.2

What is budgeting?

A

Budgeting is setting out the costs and revenues that are expected to be incurred

66
Q

Chapter 5 - 1.2

What budgets may a business prepare?

A
  • Department budgets
  • Function budgets(sales, production etc)
  • Statements of profit and loss/income statements
  • Cash budgets

ELCO - Level 2 AAT (1 decks)

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