Management Accounting

Question 1

STATIC & FIXED BUDGET VARIANCES

Answer 1

A static or fixed budget variance is the level 1 of variance analysis and will tell you what the dollar
value difference is between what your budget is and the actuals.

Question 2

FLEXIBLE BUDGET VARIANCES

Answer 2

A flexible budget variance will tell you what the overall variance is of the budget using the actual
results of the business.

Question 3

Sales Volume
Variance (Flexible budget quantity variance)

Answer 3

(Actual
Quantity - Budgeted Quantity) x Budgeted Price

Question 4

Sales Price Variance (flexible budget price variance)

Answer 4

Actual Price - Budgeted Price) x
Actual Quantity.

Question 5

Static Budget Variance

Answer 5

Flexible Budget Quantity Variance + Flexible
Budget Price Variance

Question 6

Full absorption cost-based pricing

Answer 6

• Target selling price = variable production costs per unit + fixed production costs per unit + markup.
• Conclude on the target selling price.
• Calculate operating profit based on expected number of units sold. (this is where account for the fixed costs, including S&G. Also account for the production costs here).
• Operating margin = operating profit/revenue.

Variable production costs = DM + DL + VOH (EXCLUDES S&A)

Question 7

Full absorption cost pricing - summary

Answer 7

1) Target selling price = variable production costs per unit + allocation of fixed production costs per unit + markup.

Variable production costs = DM + DL + VMOH (EXCLUDES S&A)

Question 8

Full absorption TP

Answer 8

Target selling price = variable production costs per unit + fixed production costs per unit + markup.

Variable production costs = DM + DL + VOH (EXCLUDES S&A)

Question 9

Full aborption costing

Answer 9

ALL costs of production are treated as product costs (DM, DL, MOH; all costs DIRECTLY attributable to manufacturing) and included in inventory

Question 10

Selling, general, and administrative costs

Answer 10

Selling, general, and administration, not matter if its variable, does not get included in variable production costs per unit. Also fixed S&A does not get included in determining the price as it gets expensed to the I/S and never gets added to inventory

Question 11

Demand-based pricing

Answer 11

• Calculate expected operating profit per price level = (price × quantity) – (costs × quantity).
• Operating margin = operating profit/revenue.
• Conclude on the target selling price.
• Compare operating margins under both methods to determine the highest margin.
• Conclude on the price to charge.

Question 12

qualitative factors of absorption cost-based pricing:

Answer 12

”- Advantage: reliability
“
“- Advantage: ease of use
“
“- Advantage: other valid
“
“- Disadvantage: accuracy of information given new product
“
“- Disadvantage: margins expected
“
“- Disadvantage: assumptions regarding book sales volume
“
“- Disadvantage: impact of competition
“
“- Disadvantage: other valid
“

Question 13

qualitative factors of demand-based pricing:

Answer 13

”- Advantage: customer considerations
“
“- Advantage: demand curve
“
“- Advantage: impact of high demand
“
“- Advantage: other valid
“
“- Disadvantage: market research reliability
“
“- Disadvantage: other valid
“

Question 14

CM

Answer 14

CM = rev - VC

Question 15

Break even

Answer 15

BE ($) = FC / CM % per unit
BE (units) = FC / CM$ per unit

Question 16

Target profit

Answer 16

volume = (FC + profit req’d) / CM per unit

Question 17

Gross margin %

Answer 17

GM = Gross profit [rev - COGS] / total sales

Question 18

Gross margin $

Answer 18

GM $ = rev - cost

Question 19

sales commission

Answer 19

Sales commission is not subtracted from the contract sales value to determine gross margin, as it is part of selling costs, not product costs, for financial reporting purposes.

Question 20

MOH costs excluded

Answer 20

Sales commission and website hosting are not directly attributable to the manufacturing process and should not be included.

Question 21

Contribution Margin (scenarios)

Answer 21

● Special Orders
● Optimal Product mix
● Break-Even Analysis

Question 22

Responsbility centres

Answer 22

1) cost centre
2) profit centre
3) investment centre
4) revenue centre

Question 23

transfer pricing

Answer 23

1) Variable cost pricing (incremental costs only)
2) absorption cost pricing (Full cost)
3) market price
4) negotiated price

Question 24

principles of evaluating responsibility centres

Answer 24

● Control
○ Management should have control over what they are measured on. For example, if
management is measured on their abilities to keep costs low, but they are required to
take a set transfer price from another division, they have no control over their
outcomes. This would be an evaluation method that lacks control.
● Alignment
○ Management’s measures should be aligned with the goals of the company as a
whole. Management should not be incentivized to take actions that would not be in
the best interest of the company as a whole. While that sounds obvious, a common
example is when management is incentivized to increase short term profits to
achieve their performance bonus at the expense of long term shareholder value.
● Holistic
○ Management’s measures should encourage decisions that are in the best interest of
the business as a whole, and not just their division. While similar to alignment, holistic
measures focus on incentives across divisions to ensure that one division doesn’t
focus solely on themselves.

Question 25

Direct Material Price (VA explaination)

Answer 25

difference between the actual and expected price of the materials. Increase or decrease in commodity prices New supplier Change to a better or poorer quality of material

Question 26

Direct Material efficiency (VA explaination)

Answer 26

often means there was more or less waste than expected.

Question 27

Direct labour rate (VA explaination)

Answer 27

difference between the expected amount paid per hour and the actual amount paid per hour. Overtime hours Use of contract or replacement workers Union renegotiation

Question 28

Direct labour efficiency (VA explaination)

Answer 28

difference between the actual and expected efficiency of the workers Level of experience and training Quality of materials Amount of supervision Machine downtime

Question 29

Efficiency measures

Answer 29

how well organization uses its resources (e.g. financial, HR) to fulfill its mission ;inputs linked to this is how much company can get from the resources consumed

Question 30

Effectiveness measures

Answer 30

how well an organization actually achieves its mission

Question 31

Relevant costing considerations in excluded in included costS:

Answer 31

Excluded: sunk costs, costs that don't differ, costs that already occured or will continue to occur included: opp. costs (when operating at capacity) and incremental costs/changes/savings

Question 32

What to consider when perofrming relevant costing

Answer 32

ENSURE ANALYSES ARE CONSISTENT WITH EACH OTHER. include/exclude the same types of costs

Question 33

o Multiple product break-even analysis

Answer 33

 Calculate the CM for each product  Calculate the weighted average of each product’s CM o Where: W/A = (CM P1 * P1 product mix %) + (CM P2 * P2 product mix %)

Question 34

Occupancy costs

Answer 34

Sunk cost, as incurred regardless of whether the boutiques go ahead

Question 35

Assumptions

Answer 35

o Discuss assumptions or factors impacting calculation, or reasonableness (add in a sentence for free marks). Always, ALWAYS, do on day 2 identify factor --> what will happen if something (that's part of the calc; i.e. case facts e.g. like cheese sales) changes, how will this impact the result (number of bottles). opprotunity costs

Question 36

Realiability of information

Answer 36

o Case facts will lead me to reading it as a red flag. So, use WIR format  Always be recommending.