Last Min Notes

Question 1

What is Economic Order Quantity (EOQ)?

Answer 1

An inventory management technique that minimises inventory levels, by calculating ‘optimum’ order quantities for inventory items. (Exact order and quantity every time)

Question 2

What is the benefit of EOQ?

Answer 2

It reduces cost of holding and ordering inventory while ensuring enough inventory is held to meet customer demand.

Question 3

What makes an EOQ system effective/valid?

Answer 3

• Demand is constant and known
  -Lead times are constant and known
  -No buffer inventory is to be held

Question 4

What does IAS 2 (inventory management) state?

Answer 4

States inventory must be carried at the lower of cost and net realisable value.

Question 5

What are the Advantages of marginal costing?

Answer 5

• 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

Question 6

What is Zero Based Budgeting (ZBB)?

Answer 6

-when budget is started from scratch, all its costs and activities.

Question 7

How do you achieve a ZBB?

Answer 7

• establish activities and objectives
  -Establish decision packages
  -Perform cost/benefit analysis
  -Allocate resources

Question 8

Advantages and disadvantages of ZBB?

Answer 8

Ads:

-encourages innovation and growth
-eliminates any inefficiencies in budget

Dis:
- Costly and timely
-you may not have any inefficiencies to eliminate

Question 9

What structure does Backoffice use?

Answer 9

Functional company structure

Question 10

Advantages of Divisional Structure?

Answer 10

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

Question 11

Disadvantages of Divisional structure?

Answer 11

-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

Question 12

What are the 4 types of variances?

Answer 12

-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)

Question 13

Whats the difference between the variance being adverse or favourable?

Answer 13

• Adverse means we are lower compared to the model

-Favourable means we are higher compared to the model