Management Accounting

Question 1

Break even calculation

Answer 1

(price-variable costs)

Question 2

Contribution calculation

Answer 2

price - variable costs

Question 3

margin of safety definition

Answer 3

the different between the actual level of output and the break even level

Question 4

stepped fixed cost definition

Answer 4

a cost that does not change within certain high and low thresholds of activity, but which will change when these thresholds are breached.

Question 5

3 benefits of break even analysis

Answer 5

• easy to view
• can assess the consequences of change using margin of safety
• shows the level of profit at a given level of output

Question 6

3 limitations of break even analysis

Answer 6

• 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

Question 7

margin of safety calculation

Answer 7

actual sales - break even

Question 8

3 methods of appraisal

Answer 8

• payback
• accounting rate of return
• net present value

Question 9

fixed costs are the same as ..

Answer 9

.. overheads and indirect costs

Question 10

variable costs are the same as …

Answer 10

direct costs

Question 11

fixed costs

Answer 11

do not vary with the level of output

Question 12

2 examples of fixed costs?

Answer 12

factory

machines

Question 13

stepped fixed costs

Answer 13

fixed in the short term

Question 14

variable costs

Answer 14

change in proportion to the level of goods a business produces

Question 15

revenue is

Answer 15

cash that flows into the business from the sale of goods or services

Question 16

total cost =

Answer 16

fixed costs + variable costs

Question 17

unit cost =

Answer 17

output

Question 18

3 reasons for cashflow forecasts

Answer 18

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

Question 19

3 limitations of cashflow forecasts

Answer 19

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

Question 20

3 impacts of cash flow forecast/statement on a business

Answer 20

• used as measure if performance
• allows management to correct any problems
• potential lenders will look at statement

Question 21

4 causes of cash flow problems

Answer 21

1- level of sales
2- excess stock
3- late/early payments to/from debtors/creditors
4-business environment

Question 22

how to improve cash flows of the business

Answer 22

-increase sales

Question 23

a favourable variance -

Answer 23

• costs lower than expected

- revenue/profits higher than expected

Question 24

an adverse variance -

Answer 24

• costs higher than expected

- revenue/profits lower than expected