Management accounting

Question 1

Characteristics of management accounting

Answer 1

Internal use, future oriented, frequently and timely done, relevance is more important than reliability, no reporting standards, can be focused on individual units

Question 2

Cost behaviour

Answer 2

Reaction of costs to changes in the volume of the activity. Costs are classified in variable, fixed, mixed

Question 3

cost-volume-profit analysis

Answer 3

forecast the changes in income due to changes in price, volume and costs

Question 4

contribution margin income statement

Answer 4

classifies costs according to their behaviour

Question 5

Contribution margin

Answer 5

difference between revenues and variable costs, it is what is left to cover fixed costs and provide for income

Question 6

Break even point

Answer 6

Minimum level of activity not to incur in a loss, at wich net income is zero and contribution margin is equal to fixed costs

Question 7

Cost structure

Answer 7

relative proportion of fixed and variable costs

Question 8

Operating leverage

Answer 8

%change in income/ %change in volume of activity, measures how sensitive net income is to a change in volume of activity

Question 9

Indifference point

Answer 9

Volume of activity at which two companies with different cost structure face the same total costs

Question 10

Cost assignement

Answer 10

Process of attributing an appropriate amount of cost to each cost object > anything for which managers need a breakdown of its component costs. Allocation process to attribute overhead manufacturing costs (indirect costs) to the products through the overhead application rate

Question 11

Future value of money

Answer 11

the value at some future date of an investment made today, computing the amount accumulated when interest on an investment is compounded for a given number of periods. Interest rate

Question 12

Compounding

Answer 12

calculating the interest on one period starting from the principal plus the interest already accumulated

Question 13

Present value

Answer 13

The present value equivalent to an amount to be paid or received at some future date. Discount rate

Question 14

Time value of money

Answer 14

Difference between the future and the present value of a sum

Question 15

Annuity

Answer 15

Amount which will be paid or received every year for a certain number of periods. Annuity rate

Question 16

Cost of capital

Answer 16

Interest rate that the company must pay to its long term creditors to use their funds; it is a sort of minimum required rate of return in computing the present value of future cash inflows in NPV method

Question 17

Internal rate of return

Answer 17

Actual rate of return that will be earned by a proposed investment and has to be compared to the cost of capital. It is the rate of return that equates future cash inflows and cash outflows, for which the net present value is zero

Question 18

Payback period

Answer 18

Number of years to recover the amount of an investment. Doesn’t consider the present value of money and what happens after the payback period

Question 19

Accounting rate of return

Answer 19

Impact of an investment on the financial statements

Question 20

Budgeting

Answer 20

Process of planning in financial terms the organization’s future activities and their results. divided into capital budgeting (long time frame) and operating budget (planned expenses and revenues for one year or less)

Question 21

Functions of budgeting

Answer 21

1.guide management actions 2.compare actual and planned performance 3.plan expenses and distribute resources

Question 22

Budgeting process

Answer 22

1.sales budget 2. production budget 3.cost of goods sold budget 3. operating expenses budget 4.budgeted income statement 4.budgeted statement of cash flows 5.budgeted balance sheet

Question 23

Production budget

Answer 23

Number of units to be produced to meet sales target and provide sufficient ending inventory

Question 24

Cash budget

Answer 24

Cash available to finance activities, composed by cash receipts (cash inflows) and cash payments (cash outflows)

Question 25

Performance reporting

Answer 25

Controlling activity which compares actual and plannedd results

Question 26

Standard cost

Answer 26

Expected cost and amount of input to produce 1 unit of product; it is a target and a benchmark to evaluate the efficiency and the performance of the activity

Question 27

Variance

Answer 27

difference between budgeted and actual amount; it can be favorable or unfavorable

Question 28

Names of cost variance

Answer 28

Price > raw material; rate > labour, spending > manufacturing overhead

Question 29

Names of quantity variance

Answer 29

Usage > raw material, efficiency > labour and manufacturing overhead