management Flashcards
what is management accounting
generating informartion needed by management elements; planning directing and motivating controlling decision making
name the elements of management accounting
no requirement
internal to company; unplublished + confidential
used to plan budget and forecast any period
flexible timely and aproximate
focus on one area of a company
no presribed rules
any time period
name the elments of financial acccounting
legal requirement external to company; published + registered focuses on historic performance accurate and audited focuses on whole company must comply with regulations annualy done
what are the thics to accounting
integrity objectivity proffessional competance/ due care confidentiality professional behaviour
what are direct materials
materials that become integregal part of the cost unit and can be conviently tradced direct to it
what is manufacturing overhead mean
it is the cost of manufacturing that cant be traced directly to specific with produced
what is a cost object
something for which seperate cost information is desired
what is cost unit
individual unit of production or service for cost information desired
what is a cost centre
production or service location a function an activity or an item of equipment for which costs are accumulated
what is prime cost made up of
direct cost
+
direct materials
what is the relevant range
range of activity within which assumptions about variable + fixed costs are valid
what is the formula for semi variable costs
y = a + bx
y= semi variable cost
a= fixed cost
b=unit veriable cost
how to do high low method (step by step)
highest and lowest activity leveks with corresponding total costs
unit variable cost = change in costs/ change in units
then implement y=a+bx
how to work out unit variable costs
change in cost/change in units
disadvantages of high low method
only uses two data points
uses most extreme values may be anomalous
what is residual
distance each point on scatter diagrams and line of best fit
what are the methods of inventory valuation
AVCO
LIFO
FIFO
what is AVCO formula
total cost of inventory in store/ number of items in store
closing inventory formula
opening inventory + purchases of inventory - issues of inventory
what is full/absorption cost
total resources used to achieve a given objective
what is OAR
cost centre overhead/ absorbtion basis
how to workout overhead applied
POHR * actual activity
formula for POHR
predetermined overhead rate =
estimate total manufacturing overhead cost coming period / estimated total units in allocation basis for coming period
when is item underabsorbed
overhead absorbed - actual absorbtion
<0
when is it overabsorbed
overhead absorbed - actual absorbtion
>0
name types of costing systems
marginal costing
Activity Based Costing
absorbtion/total costing
what is a cost driver
activity thats a root cause of why a cost occurs
contribution formula
selling price - variable costs
profit formula
contribution - fixed costs
or
margin of safety * contribution
what is breakeven point and formula
it is the point at which no profit or loss is made so fixed costs equal to contribution
total fixed cost/contribution per unit
formula for magin of safety units
budgeted sales unit - breakeven sales unit
formula margin of safety %
(budgeted sales unit - breakeven sales unit)/budgeted sales unit
difference between marginal and absorbtion cost
fixed cost overhead is put in product cost for absorbtion where as for marginal its included in period cost
how to allocate scarce resources
identify limiting factor calculate contributions per unit calculatre contributions per limiting factor carry out ranking on previous step dtermine scarce resources required allocste scarce resources determine optimal mix of resources determine optimal product mix
full cost pricing advantages and disadvantages
adv price easy quick calculate ensure cover all costs price increase costs rise dis no reflection impact prices of sales demand reduce initative for cost control
marginal cost plus pricing advantages and disadvantages
adv simple to use avoids abitrary apportionkent and absorb good decision making short term dis doesnt gurantee recovery of full cost not reflect any impact price on sales demand
gross profit margin formula
gross profit/ (cost of sales +gross profit)
OR
gross profit/sales
gross profit mark up formula
gross profit /(sales-gross profit)
OR
gross profit/cost of sales
what is gross profit formula
cost of sales
what is net profit formula
expenses
what is a budget
a detailed plan for acqusition and use of financial and other resources over a specified time period
what is budgetting
the act of preparing a budget
why have budgets
to define goals and objectives communicate ideas and plans improve allocation of resources goals and objectives serve as benchamrks for performance evaluation establishing a system of controls motivate employees means of performance evaluation co ordinates activities whole organisation by integrating plans different parts
what is the master budget and what does it include
comprehensive expression of managements plan for future and how to acomplish these in a acash budget SOP/L budgeted SOFP
types of budgets and explain them
Incremental
zero based
rolling
what is responsibility accounting
holding management accountable for only what they can control to a significant extent
what is top down budgetting
top management prepare budget with little input from operations
what are the adv and dis of top budgetting
advantages
use top management big picture awareness
enhance coordination between areas of budget
quicker to draw up and implement
disadvantages
demoralising for staff esp targets too tough
reduce initative for lower management
ignores knowledge those doing day to day jobs
what is bottum up budgetting
developed by lower managers who fed upwards to senior managers
whata re the adv and dis of bottum up budgetting
adv based knowledge employees familiar with work plus knowledge together various sources better for morale/motivation maybe more realistic dis employees introduce budget slack more time consuming any changes senior management make demoralising
what is required production formula
sales + closing stock - opening stock
what are the measures of correlation
coefficent of correlation r perfect negative is -1 and posotive perfect + 1if r=0 then not correlated
coefficent of determination r^2 mesasure proportion of change one variable explained variation in value of other variables; values between 0 and 1
what is the difference between interpolation and extrapolation
interpolation is independent variabke c within range of sample data so reliable
extrapolation where independent variable x outside range of sample data not reliable
what is working capital
amount that can be used to measure both a company operational efficency and its short term financial health
–> DIFFERENCE CURRENT ASSETS AND CURRENT LIABILITIES
what is formula for current ratio
current asset/ current liabiltiies
what is quick ratio formula
(current asset-inventories)/current liabiltiies
what is the formula for inventory turnover period
inventory/cost of sales *365
what is the formula for rate of inventory turnover
cost of sales/ avergae inventory
what is the formula for recievables collection period
average recievables/annual sales revnue *365
what is the formula for payables payment period
average payables/annual purchases *365
why hold cash
transactions
precautionary
investment
finance
what are standard costs
benchmark for measuring performance
what is a materials price variance
actual quantity(actuap price-standard price)
what is the formula for materials quanity variance
standard price (actual quantity - standard quantity)
what is the formula for labour rate variance
actual hours(actual rate-standard rate)
what is the formula for labour efficency variance
standard rate (actual hours-standard hours)
what is the formula for variable overhead spending variance
actual hours(actual rate - standard rate)
what is the formula for variable overhead efficency variance
standard rate(actual hours-standard hours)
examples of an unfavourable efficency variance
poorly trained employeed poor quality materials poorly maintained equipemtn poor supervision of workers insufficent demand to occupy workers
when is a variance unfavourable
when actual cost exceeds standard costs
what is the formula for return on investment ROI
operating profit/ average operating assets
what is the formula for avergae operating assets
2
how to improve ROI
increase sales reduce assets reduce expenses
what are criticisms of ROI
focus on short term peformance
evaluate ROI reject profitable investment opputunities
managers inherit commited costs over which no control
how to work out residual income RI
controllable dividional profit x
imputed interst cost of capital (x)
residual income
what are the capital budgetting techniques
screening decisions
preference decisions
what is discounting formula
x = v / (1+r)^n
