MADC - Management Accounting Decision & Control Flashcards
What are 5 reasons for a material price variance?
1) Using higher quality material which will be more expensive.
2) Changing suppliers which can be more expensive.
3) Not having bulk discounts or losing them which you would expect from the suppliers.
4) Inflation - This will cause prices to rise.
5) A standard that was set incorrectly by not taking in to account the the price of material or under-estimating it.
What are 5 reasons for material usage variances?
1) Low quality material - this will increase wastage and therefore more will be used.
2) Less skilled staff
3) Less training which will result in staff not able to perform to the best of their abilities.
4) Old machinery will be more unreliable which can cause more waste.
5) Budget set incorrectly by under-estimating the usage of materials. Or ideal standard was set, which does not allow for any wastage.
What are 4 reasons for labour rate variances?
1) Employing higher skilled workers would cost more.
2) More overtime worked - normally at a premium to normal working hours.
3) Unplanned pay rises given due to strike action or industrial unrest.
4) Government increases in minimum wage
What are 3 reasons for labour efficiency variances?
1) Reducing hourly wages - which will de-moralise staff and productivity.
2) Employing lower skilled staff which would take longer at the job.
3) Cheaper materials will be not as good to work with - therefore taking longer to produce a single unit
What are 3 reasons for fixed overhead expenditure variances?
1) Increasing the rental space will cost more in rent.
2) Unexpected rent increases set by the landlord.
3) More machinery purchased which increases the depreciation charge
What are the 4 types of Standard Cost?
1) Ideal Standard
2) Attainable Standard
3) Basic Standard
4) Current Standard
Explain an Ideal Standard
This is where the production is expected to be perfect with no wastage of materials and no idle time for labour which is unrealistic as nothing is ever perfect. This will demotivate staff.
Explain an Attainable Standard
This is where there is room for expected wastage & idle time which in turn keeps staff motivated. This needs to be monitored to adjust for skill levels or material changes which can change the production levels or processes.
Explain a Basic Standard
This is where the standard could have been set many years ago, and doesn’t take in to account any changes that have happened since the beginning. This wont provide a useful target as it will be out of date.
Explain a Current Standard
This is where the standard is up to date and shows the current level of efficiency however not necessarily motivating as the current level of performance might not be acceptable.
What are the 3 calculations for working out the material variances?
1) Total direct material cost variance
2) Material price variance
3) Material usage variance
What are the 3 calculations for working out the labour variances?
1) Total direct labour cost variance
2) Labour rate variance
3) Labour efficiency variance
What are the 3 calculations for working out the variable overhead variances?
1) Total direct variable overhead cost variance
2) Variable overhead expenditure variance
3) Variable overhead efficiency variance
What are the 4 perspectives that make up the balanced scorecard?
1) Financial
2) Internal business
3) Innovation & learning
4) Customer
Balanced Scorecard - What are 4 performance indicators that could be used for the financial perspective?
1) Gross/Net profit margin
2) ROCE
3) Dividend per share
4) Cash Flow
Balanced Scorecard - What are 4 performance indicators that could be used for the Internal perspective?
1) Staff productivity
2) Defect rates in production
3) Lead times to produce units
4) Machine capacity utilisation
Balanced Scorecard - What are 4 performance indicators that could be used for the Innovation & learning perspective?
1) Number of new products launched
2) Percentage of sales made over the website
3) Training days per employee
4) Research & development expenditure
What is variance analysis?
Variance analysis is performed at the end of a period as part of the control process of a business.
Compares the budget to the actuals. This is then flexed to make the variances more meaningful as it is unlikely you will budgeting the correct amount of units.
If the variances are favourable, that means the business is more profitable from the flexed budget.
If the variances are adverse, that means the company spent more money than they should have.
This process allows managers to see where they can improve the performance in future.
What does the total direct labour variance show?
This compares the actual cost of labour to the flexed budget cost of labour.
What does the labour rate variance show?
This looks at whether more or less was spent than the standard labour rate per hour. This is based on the actual number of hours paid.
What does the labour efficiency variance show?
This shows how long it took to produce the units compared to what was actually budgeted, the difference is then multiplied by the standard cost.
What is financial gearing?
This looks at the debt of a business and the financial risk.
How is financial gearing calculated?
1) Total long-term debt +Total short-term debt/Total equity x 100
2) Total long-term debt +Total short-term debt/ Total debt + equity x 100
What is classed as total debt in relation to financial gearing?
Banks loans, outstanding obligations, corporate bonds.
