Final Study

Question 1

Deprival Value

Answer 1

Lower of 
Replacement cost 
vs Higher Of
NRV
vs economic value in the business

Question 2

Who uses EV?

Answer 2

Risk neutral inventor - it removes risk my taking an average.

Question 3

Standard deviation

Answer 3

A statistical measure of volatility - how widely values from from the average value (EV)

Gives us a good indication of overall risk in decision making.

Question 4

Pay-off table

Answer 4

Illustrates all possible profits and losses.

Question 5

Common costs of joint process

Answer 5

Not allocated out in relevant costing as sunk cost. If not looking at relevant/short term they can be arbitrarily allocation out by

1. physical qualities
2. ultimate sales value minus further processing costs
3. sales value at the split off point.

Question 6

Target costing

Answer 6

Market price
(desired profit margin)
= Target cost

Question 7

Weaknesses of sensitivity analysis

Answer 7

1. assumes changes in variables can be made independently
2. only looks at how far a variable needs to be changed and not the probability of it happening
3. does not directly point to the correct decision

Question 8

Strengths of sensitivity analysis

Answer 8

1. no complicated theory
2. info in a form which facilitates managers to make a subjective judgement to decide on various outcomes
3. identifies ares which are crucial to the success of the project - can be lonely monitored.