Management Accounting Flashcards
Break even calculation
(price-variable costs)
Contribution calculation
price - variable costs
margin of safety definition
the different between the actual level of output and the break even level
stepped fixed cost definition
a cost that does not change within certain high and low thresholds of activity, but which will change when these thresholds are breached.
3 benefits of break even analysis
- easy to view
- can assess the consequences of change using margin of safety
- shows the level of profit at a given level of output
3 limitations of break even analysis
- based on predicted figures
- a manufacturer might negotiate prices from buying in bulk, therefore the direct/variable costs may change
- calculating relies on one price, there may be discounts offered to customers
margin of safety calculation
actual sales - break even
3 methods of appraisal
- payback
- accounting rate of return
- net present value
fixed costs are the same as ..
.. overheads and indirect costs
variable costs are the same as …
direct costs
fixed costs
do not vary with the level of output
2 examples of fixed costs?
factory
machines
stepped fixed costs
fixed in the short term
variable costs
change in proportion to the level of goods a business produces
revenue is
cash that flows into the business from the sale of goods or services
total cost =
fixed costs + variable costs
unit cost =
output
3 reasons for cashflow forecasts
1- allows business to implicate strategies
2- if forecasted sales are low, marketing team would consider promotional pricing
3- looked at by investors and suppliers to see the success of the business
3 limitations of cashflow forecasts
1- changes to interest rate (can’t predict it, higher/lower costs to pay, but may have had a fixed interest on loan)
2- world events
3- changes in technology
3 impacts of cash flow forecast/statement on a business
- used as measure if performance
- allows management to correct any problems
- potential lenders will look at statement
4 causes of cash flow problems
1- level of sales
2- excess stock
3- late/early payments to/from debtors/creditors
4-business environment
how to improve cash flows of the business
-increase sales
a favourable variance -
- costs lower than expected
- revenue/profits higher than expected
an adverse variance -
- costs higher than expected
- revenue/profits lower than expected
