In class test Flashcards
Differences between MA and FA
legal requirements, focus on diff parts, GAAP, Time, report frequency
legal requirements
FA have to be audited and submit accounts
Focus
MA can focus on diff segments, FA focuses on everything
Time dimension
FA looks at past, MA forward looking, predictiona
Report frequency
FA annual basis, MA quarterly or monthly
GAAP
FA IFRS ISA, MA doesnt
Functions of MA
inventory valuation for int and ext profit measurement. Provide info to help managers make better decisions. Provide info for planning, control and performance measurement.
traceability
direct and indirect
function
manufacturing, marketing, sales and admin
behaviour
fixed, variable, semi fixed
relevance
relevant, irrelevant, sunk, opportunity
high low method
difference in £/ difference in activity = VC per unit
CVP analysis
examines relationship between changes in activity and changes in total sales rev, cost and net profit
breakeven
total fixed costs/ contribution per unit
contribution per unit
selling price - variable costs
target profit
fixed costs + target profit / contribution per unit
contribution margin/ PV ratio
PV ratio = contribution per unit / sales price per unit
margin of safety
% = expected sales - BE sales/ expected sales
BREAKEVEN HAS
4 STEPS
BE step 1
calculate contribution per unit
BE step 2
weight contribution, multiply % by sales mix to give weighted contribution per unit
BE step 3
use weighted contribution per unit in breakeven formula to give total number of uits
BE step 4
split out units into products using sales mix
uses of ABC
product pricing, product emphasis, cost control
criticisms of ABC
ABC unit costs vary, reported costs may significantly differ
ABC system came about because
traditional systems arent always appropriate and errors from relying on misleading costs
ABC systems can
identify the major activities taking place, assign costs, determine cost drivers and assign the cost to products
2 types of costing systems
marginal/ variable (uses direct costs)
absorption (uses both direct and indirect
traditional costing advantages
easy to implement and useful for industries with large quantities
traditional costing disadvantages
assumes indirect costs are directly related to a volume of measure, and companies can make wrong decisions if inaccurate
advantages of ABC
detailed info, more accurate and can be used for all overheads, not just production
disadvantages of ABC
timely and costly to implement, may be difficult to allocate overheads
why do we use budgeted figures?
use this over a longer period of time as normal costs fluctuate monthly
expected value
Multiply all probabilities by outcome to get weighted amount and add all of them together to get EV.
Range
difference between largest and smallest value
probability of independent events
work out probabilities and multiply together
Coefficient of variation
SD/EV relative measure of dispersion
risk seeker
seek riskier options even if it causes a loss
risk averter
choose options with positive outcomes
decision trees
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
minimise the value that is lost as a result of not having chosen the best option, if the best possible outcome does not occur
standard deviation
expected value - (expected profit) * x probability
ABC steps 1
identify the total overhead costs
ABC step 2
allocate costs into cost pool and give each an activity driver
ABC step 3
calculate overhead rate for each activity
total cost/ no. of times activity occurs
ABC step 4
allocate overheads to products
