Management Accounting 1

Question 1

Normal costing

Answer 1

based on expected costs and expected volumes (uses budgeted/predetermined allocation rate)

Question 2

Actual costing

Answer 2

During the year, costs and volumes will vary (uses actual allocation rate)

Question 3

Proration methods of under absoption (3)

Answer 3

1. Proration based on overheads already allocated
2. Proration based on year-end values
3. Proration directly to cost of goods sold

Question 4

Weighted average method

Answer 4

NO distinction between opening WIP and production in the current month

• Just uses completed and transferred out + wip end

Question 5

FIFO

Answer 5

Separate the work and materials costs of opening WIP from the current months cost

• just uses W-i-p opening + started and completed + w-i-p closing

Question 6

Stand-alone method

Answer 6

divide the common costs in proportion to what individual users would pay

Question 7

Incremental method

Answer 7

choose a main user, allocate its stand-alone costs, and allocate the reminder to the other users

Question 8

Overall gross profit margin

Answer 8

Total profit / total sales value

Question 9

Absorption costing and inflating profits

Answer 9

!!! Absorption costing can be used to inflate profits (short run) through stock build-up

Question 10

Variable cost

Answer 10

variable manufacturing cost

Question 11

Absorption cost

Answer 11

variable manufacturing cost + fixed manufacturing cost

Question 12

Flex Budget

Answer 12

Budgeted prices * Actual quantity

Question 13

Efficiency variance

Answer 13

= (budgeted quantity for actual volume - actual quantity) * budgeted price

Question 14

Price variance

Answer 14

= price variance + efficiency variance

Question 15

Yield Variance

Answer 15

(Budgeted total quantity of inputs for actual volume – actual total quantity of inputs) * budgeted share in input mix * budgeted price per input unit

Question 16

Mix Variance

Answer 16

(Budgeted share in input mix – actual share in input mix) * actual total quantity of inputs * budgeted price per input unit

Question 17

Selling price variance

Answer 17

(actual selling price – budgeted selling price) * actual sales volume

Question 18

Sales volume variance

Answer 18

(actual sales volume – budgeted sales volume) * budgeted selling price

Question 19

Market size variance

Answer 19

(Actual market size – budgeted market size) * budgeted market share * budgeted selling price

Question 20

Market share variance

Answer 20

(Actual market share – budgeted market share) * actual market size * budgeted selling price

Question 21

Benefits of decentralization (5)

Answer 21

1. More and better information for decision making
2. Quicker decision making
3. Higher motivation of business unit managers
4. In large organizations, it helps in management development
5. Sharpen the focus of managers

Question 22

Downsides of decentralization (4)

Answer 22

1. Suboptimal decision making in supply chain
2. Prioritising local needs
3. Duplication of support activities
4. Increased information costs

Question 23

Responsibilities centers (4)

Answer 23

1. Cost centre
2. Revenue centre
3. Profit centre
4. Investment centre

Question 24

Method of transfer pricing

Answer 24

1. Market-based transfer prices
2. Cost-based transfer prices
3. Negotiated transfer prices

Question 25

Goals of transfer pricing

Answer 25

1. Preserve autonomy
2. Goal congurence
3. Good performance measurement
4. Motivation

Question 26

Residual Income

Answer 26

= Income - (ROI * Investment)

Question 27

Social Measures in a balanced Scorecard - Strategic Objectives (4)

Answer 27

1. Financial Perspective
2. Customer Perspective
3. Internal - Business - Process Perspective
4. Learning - and - Growth Perspective