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Intro to management equations > Management > Flashcards

Management Flashcards

1
Q

What is management accounting?

A

helps managers understand the financial health of their organization, make informed decisions, plan, and monitor performance to achieve their goals

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2
Q

Who is the user of management accounting?

A

Only produced if the benefits it offers management exceed the cost of collecting it

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3
Q

What are the legal requirements of management accounting?

A

MA is both past and future
FA is generally passed info

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4
Q

What is the report frequency of MA compared to FA?

A

MA is daily, weekly or monthly (depends on management needs)
FA is annually (Sometimes semi-annually)

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5
Q

What are the key elements of decision making?

A
  1. Identify objectives
  2. Search for alternative courses of action
  3. Select appropriate courses of action
  4. Implement the decisions
  5. Compare actual and planned outcomes
  6. Respond to divergences from plan
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6
Q

What are the ethics of management accounting?

A
  • integrity
  • objectivity
  • Professional competence and due care
  • confidentiality
  • Professional behavior
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7
Q

explain Integrity

A

Always be honest and straightforward in your professional and business dealings. Avoid any information that you believe is false or misleading, whether by statement or omission.

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8
Q

explain Objectivity

A

Don’t let personal interests or other people’s influence affect your professional decisions.

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9
Q

explain Professional competence and due care

A

Keep improving your professional skills and knowledge. Stay updated on new practices, laws, and techniques. Make sure your team receives proper training and supervision.

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10
Q

explain Confidentiality

A

Don’t share professional information unless you have permission or a legal obligation to do so.

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11
Q

explain Professional behavior

A

Follow the law and rules. Don’t do anything that could harm the professional’s reputation.

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12
Q

What can costs be broadly characterized into?

A

Fixed costs
Variable costs

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13
Q

What are the fixed costs?

A

Stay the same unless there unless when changes occur to the volume

Fixed costs remain constant over wide ranges of activity for a specified time (total fixed cost is a constant)

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14
Q

What are variable costs?

A

Vary according to the volume of activity

Costs that vary in direct proportion to the volume of activity

Unit variable cost is a constant i.e cost per unit is constant

Anything you can trace into each unit will increase in cost with every item you make.

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15
Q

What is a semi-fixed cost?

A

some costs that appear fixed in the short term will vary over the longer term when a wider range of activity is considered

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16
Q

give an example of semi-fixed cost

A

Example: rents over a period, wedding venue hire under 100 guests is £10,000, between 100 and 150 £13,000 etc.

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17
Q

What is a semi-variable cost?

A

These costs have both a fixed and a variable element

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18
Q

give an example of semi-variable cost

A

Example: mobile or energy bills

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19
Q

What is meant by a break-even analysis?

A

Break-even analysis helps a business figure out:

  • How many units does it need to sell to cover all its costs.
  • At what level of sales revenue it will start making a profit
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20
Q

What is the breakeven point?

A

The Breakeven point - BEP (in units sold) is the point at which a business makes neither a profit nor a loss

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21
Q

What is target profits?

A

If business wants to achieve a target level of profit, it must sell enough units to make enough contribution

So, it can cover fixed costs AND target profit

22
Q

What is the margin of safety (Mos)?

A

It is the fall in expected sales volume that would reduce expected profit to zero

23
Q

What are the qualitative factors of breakeven point?

A

Break-even analysis can aid managers to make decisions but does not give “the answer”

24
Q

give one assumption and limitation of the accountants’ model?

A

Sales prices are constant

ignored discounts and price elasticity of demand

25
Q

What does a ‘relevant cost’ need to be?

A

For a revenue to be relevant to a particular decision it must:

Future
Incremental
Cash flow
Relate to the objectives of the business

26
Q

When does a cost become an irrelevant cost?

A

If costs and revenues aren’t relevant, they are irrelevant to the decisions

27
Q

What is ‘sunk cost’?

A

Have already been incurred and cannot be avoided (even if alternatives are considered)

28
Q

What is the difference between relevant and irrelevant cost?

A

relevant costs are future-oriented and directly affect decision outcomes

irrelevant costs are historical or sunk and have no impact on decision-making

29
Q

What is the difference between relevant and irrelevant revenues?

A

relevant revenues are future-oriented and directly affect decision outcomes

irrelevant revenues are unrelated or already accounted for and have no impact on decision-making

30
Q

What are special pricing decisions?

A

The idea that organizations remain the same for all customers is unrealistic

Most organizations will have different selling prices for different customers

Special pricing decisions are typically one-time only orders and orders below the prevailing market price

Relevant costing is useful to help managers make special pricing decisions

31
Q

What are the relevant costs?

A

Material cost
Labour cost

32
Q

What is the administration cost?

A

It is a variable element of administration costs is a supervising cost and it is estimated as being equal to 10% of the labour cost on any order

33
Q

What happens to the remainder of any admin cost?

A

It is a fixed cost, incurred irrespective of the number or orders
e.g. rent

34
Q

When do we use relevant costing?

A

Help management decisions: special pricing decisions, replacement of equipment, outsourcing of equipment etc.

35
Q

What are scarce resources?

A

Also known as limiting factors

In the short term, sales demand may be more than current productive captivity

36
Q

What is outsourcing decisions?

A

Process of obtaing goods or services from outside suppliers instead of producing same goods/services within the organisations

37
Q

give an example of ‘outsourcing decisions’

A

delivery

38
Q

What are the advantages of outsourcing?

A

Allows the business to focus on core activities

May result in cost savings

flexibility

39
Q

What are the disadvantages of outsourcing?

A

Loss of control e.g. overprice, quality and reliability of supply

Hidden costs

Bad publicity

40
Q

What is ‘cost object’?

A

Any activity for which a separate measurement of cost is required

41
Q

What is direct costs?

A

Costs that are directly attributable to each unit of output

42
Q

What are total direct costs sometimes called?

A

Prime cost

43
Q

What is ‘indirect costs’?

A

Cannot in any way be attributed directly to each unit produced
Need to be covered some how to make a profit

44
Q

Why are direct costs treated as indirect costs?

A

It is not cost effective to take costs directly to the cost object

45
Q

Why should we use full costing?

A

Decision making
Financial reporting
Provides holistic view of costs
Accurate costing
Profitability analysis

46
Q

What are the three types of direct costs?

A

Material
Primary product used manufacturing product

Labour
Amount paid to workers for making products

Expenses
Costs other than material and labour that can be traced directly to the production of each unit of product

47
Q

What are the different manufacturing costs?

A
  • direct materials
  • direct labour
  • indirect cost = overhead costs
48
Q

What are the different types of non-manufacturing costs?

A
  • administration overheads
  • marketing overhead
49
Q

how do we work out ‘conversion costs’?

A

direct labour + overhead

50
Q
A

Intro to management equations (2 decks)

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