Lectures 5 - 7

Question 1

financial models

Answer 1

accurate, reliable simulations of relations among relevant costs and benefits that are useful in supporting business decisions

Question 2

financial modelling objectives (3)

Answer 2

improve quality of decisions
allow responsive analysis
simulate accurately the relevant factors

Question 3

BASIC CVP model

Answer 3

revenue = Var. Costs + F Costs + Income

Question 4

at the breakeven point

Answer 4

income = 0 (revenue and expenses are equal)

Question 5

Break even point

Answer 5

fixed expenses / unit contribution margin

Question 6

Contribution margin ratio

Answer 6

contribution margin / sales

Question 7

target income

Answer 7

fixed expenses + target income / unit contribution margin

Question 8

operating leverage is

Answer 8

the risk of missing sales target

Question 9

high operating leverage is

Answer 9

indicative of high committed costs like interest (small change in sales can lead to a loss)

Question 10

Low operating leverage is

Answer 10

indicative of low committed costs

Question 11

operating leverage factor

Answer 11

contribution margin / net income

Question 12

Best case scenario

Answer 12

high price and high quantity with low costs

Question 13

worst case scenario

Answer 13

low price and low quantity with high costs

Question 14

most likely case scenario

Answer 14

most likely price and quantity and costs

Question 15

Managing scarce resources

Answer 15

the contribution margin per unit of scarce resources should be maximised

Question 16

pricing decisions

Answer 16

product costs
product life cycle
competitors
customers

Question 17

influences on prices

Answer 17

prices are determined by the market, subject to costs that must be covered in the long run

Question 18

life cycle costing

Answer 18

tracks costs attributable to each product from start to finish and provides important info for cost management and pricing

Question 19

linear programming

Answer 19

applied to production situations with multiple products

Question 20

Job costing

Answer 20

units of output are different
each unit has a high value
costs can be traced to the unit

Question 21

Process costing

Answer 21

units of output are homogenous
each unit has a low value
costs cant be traced back to the product

Question 22

Operation costing

Answer 22

is a hybrid often used for batches of similar products with different types of materials

Question 23

Basic cost flow model

Answer 23

BB + TI - TO = EB

Question 24

POHR formula

Answer 24

budgeted total manufacturing o/h cost for the coming year / budgeted total units in the allocation base for the coming period

Question 25

Overhead applied =

Answer 25

POHR * Actual Activity

Question 26

actual > applied

Answer 26

under applied

Question 27

applied > actual

Answer 27

over applied

Question 28

difference between applied and actual overhead

Answer 28

overhead variance

Question 29

Job order costing for decision making

Answer 29

gives a quick overview of info to plan costs AND provides an overview of profitability of individual jobs

Question 30

difference between absorption and variable costing

Answer 30

fixed manufacturing o/hd in absorption costing

Question 31

job order costing in service organisations

Answer 31

similar to costing for manufacturing, most costs related to labour and o/hd

Question 32

ethical considerations of job costs

Answer 32

misstating the stage of completion
charging costs to the wrong job
misrepresenting the cost of jobs

Question 33

throughput costing

Answer 33

TC assigns only out of pocket spending for direct costs as the cost of products or service