Last Min Notes Flashcards
What is Economic Order Quantity (EOQ)?
An inventory management technique that minimises inventory levels, by calculating ‘optimum’ order quantities for inventory items. (Exact order and quantity every time)
What is the benefit of EOQ?
It reduces cost of holding and ordering inventory while ensuring enough inventory is held to meet customer demand.
What makes an EOQ system effective/valid?
- Demand is constant and known
-Lead times are constant and known
-No buffer inventory is to be held
What does IAS 2 (inventory management) state?
States inventory must be carried at the lower of cost and net realisable value.
What are the Advantages of marginal costing?
- Tells us our minimum price to make a positive contribution
- More straightforward as it only looks at our variable costs
-do not require estimates of volumes to calculate cost per unit
What is Zero Based Budgeting (ZBB)?
-when budget is started from scratch, all its costs and activities.
How do you achieve a ZBB?
- establish activities and objectives
-Establish decision packages
-Perform cost/benefit analysis
-Allocate resources
Advantages and disadvantages of ZBB?
Ads:
-encourages innovation and growth
-eliminates any inefficiencies in budget
Dis:
- Costly and timely
-you may not have any inefficiencies to eliminate
What structure does Backoffice use?
Functional company structure
Advantages of Divisional Structure?
Advantages:
- Allows for responsibilty accounting (managers in charge of own department)
-Easy to establish objectives and performance appraisal dashboard
-Encourages accuracy as each manager focuses on their division
Disadvantages of Divisional structure?
-Managers will become too focused on personal objectives rather than those of company
-it will be difficult to split costs and activies in business (may need to switch to ABC)
-Less interaction from staff members so loss of technical expertise and competence
What are the 4 types of Sales variances?
-Sales price (price its being sold)
-Sales Volume (Rate at which its being sold)
-Sales Quantity (Amount of stock being sold)
-Sales mix profit (profit made based on change of product sold)
Whats the difference between the variance being adverse or favourable?
- Adverse means we are lower compared to the model
-Favourable means we are higher compared to the model
What is the CGMA’s cost transformation model?
Its a cost model that consists of 6 co-dependent areas, that help us to achieve and maintain long term cost competitiveness.
What are the 6 areas of the CGMA cost transformation model?
1- Cost conscious culture (everyone in business should be aware and motivated to reduce costs)
2-Connecting products with profitability (all products should ensure positive product contribution)
3-Generating Maximum Value (all products have to be profitable and appealing)
4) Incorporating sustainability to optimise profits (embrace environmental problems and operate sustainably)
5)Understanding Cost drivers and Cost accounting (understand cost drivers and how to manage them)
6) Managing risk with cost competitiveness (Manage all risks associated with cost reduction)
What are Payoff Tables?
Payoff tables show which option is financially beneficial to business given uncertainty
What are Maximax, Minimax and Maximin?
Maximax- chooses best outcome with greatest level of contribution
Maximin- selects best result if worst was to happen (risk averse)
Minimax- seek to minimise regret (Dont know) - risk neutral
What are 3 short term finance options?
- Bank Loan (contractual agreement for specific sum, period at fixed interest with fixed repayment schedule)
- Overdrafts (permissible drawing on company account eventhough company has insufficient funds deposited)
-Invoice Discounting (selected invoices used as security which Backoffice borrow funds, funds repayable to factoring company, when customers pay debt)
What are decisions to move facilities based on?
They are based on relevant Costing (where only future incremental cash flows should be considered)
For Relevant costing what things would be considered incremental costs?
- Profit from disposal of old building/site
-Labour costs (where change has/may happen)
-New equipment bought (not old ones)
How is Moving Facility shown on financial statements?
- Disposal (if sold old building is de recognised as PPE, its then recognised on P&L)
-Lease/Buy new equipment ( If we buy outright it’ll become our asset, shown on SFP) IAS 16 PPE
-If we LEASE we then recognise lease liability under IFRS 16 Leases (present value - any discounts)
What are limitations to relevant costing?
- Financial impact is difficult to quantify (hard to estimate for example redundancies)
-Other impacts may be missed or ignored (e.g worker stress)
