Exam Flashcards
Expected Value
Multiply possibilities by outcome to get weighted amount.
Add to get EV.
Range
Difference between largest and smallest value.
Probability of independent combined events
probability of 2 events that don’t relate but occur at same time.
Multiply them together.
standard deviation
(expected profit - expected value) squared * by probability.
Add all weighted amount.
Square root total answer.
Coefficient of variation
CV = SD / EV
decision tree
used to clarify alternative course of actions
maximin
the worst possible outcome will occur so select the largest payoff under this assumption
maximax
the best possible outcome will occur so select the largest payoff under this assumption
regret criteria applied where:
it’s not possible to assign meaningful probabilities.
standard cost is
target costs for each operation built up to produce standard cost
budget
cost for total activity
standard
relates to cost per unit
purpose of standard costing system
prediction of future costs for decision making
assist in setting budgets
challenging target
trace costs
sales margin price
(AP-SP) x Actual sales volume
sales margin volume
(AV-BV) x standard unit contribution
Direct Materials Price
(SP-AP) x AQ
Direct Materials usage
(SQ-AQ) x SP
Variable overhead rate
(SP-AP) x AH
Variable overhead efficiency
(SH-AH) x SP
fixed overheads
budget overheads - actual fixed overheads
interest rate
multiply by NBV
statement layout
Rev - costs = NCF
NCF - dep = Profit
Profit - Int rate = RI
profit statement
DM+DL+vo/hd Contribution = selling price - above answer * sales answer - fixed o/hd profit
Variances needed for Budgeted profit
SMP, SMV DMP, DMU LBR, LBE Vo/hd rate, V o/hd efficiency fixed o/hd
Return on income
net operating income /
average operating assets
(profit/NBV)
Residual income
controllable profit - cost of capital charge on investment controllable by manager
Economic Value added
divisional profit +/- accounting adj - cost of capital charge on divisional assets
NPV
FV/ 1 + interest rate
measuring managerial performance
only controllable assets to be included in investment base
measuring economic performance
all assets and an allocation of corporate assets should be included
advantages of divisionalisation
improved quality of decisions
speedier decisions
increase managerial motivation
disadvantages of divisionalisation
costly structure
loss of control by top management
functional organisational structure
organisation = investment centre
activities placed under departmental head
divisionalised structure
organisation divided into separate IC or PC
functional structure below this
differences between MA and FA
legal requirements individual focus Framework Time dimension Report frequency
High low method
difference in £ / difference in activity =
VC per unit
breakeven
total fixed costs / contribution per unit
contribution per unit
selling price - variable costs
target profit
fixed costs + TP / contribution per unit
contribution margin
PV ratio
contribution per unit /
sales price per unit
margin of safety
exp sales - breakeven sales
/ exp sales
traditional costing +
easy to use
useful for large quantities
traditional costing -
not accurate
assumes indirect costs related to volume of measure
ABC +
detailed info
more accurate
ABC -
timely
costly to implement
difficult
ABC step 1
Total o/hd cost
cost pool / price (%) / COST/ (divide) driver / RATE
ABC step 2
use the rate to allocate it to the product
ABC extra steps
if you need to reallocate do so using percentage but then get the rate by dividing again by the budgeted figure
Labour Rate variance
(SP - AP) x AQ
labour efficiency variance
(SH - AH) x SP
