Management Accounting - Core

Question 1

Activity Based Costing Management Accounting Core – Level B

Answer 1

• Costs are allocated to activity cost pools and activity rates are calculated
• Costs that are not driven by activities are not allocated to cost pools

Question 2

Contribution margin Management Accounting Core – Level A

Answer 2

•Contribution margin (CM) is the determination of how much variable profit is available to cover fixed costs and generate a profit.
• CM is highly dependent on the industry and type of business.
• In general, the higher CM, the better.
• To determine CM, calculate the variable revenues per unit (hour, day, year, quantity) offset by the variable costs of the same.
• CM is A – B where:
- A is the total variable revenue per unit;
- B is the total variable expenses per unit.

Question 3

Break-even analysis Management Accounting Core – Level A

Answer 3

•Break-even is the determination of sales volumes necessary to generate a zero-profit.
• Break-even can be expressed in number of units, total revenues, or a percentage of expected revenues.
• To determine, calculate the fixed costs per period, and divide them by the contribution margin (CM) per unit, to determine the necessary sales volumes to generate zero-profit.
• Break-even is A / B where:
- A is the total fixed costs;
- B is the CM per unit.

Question 4

Efficiency variance Management Accounting Core – Level A

Answer 4

• Efficiency variance is the difference between the actual unit usage of something and the expected amount of usage. The expected amount is usually the standard quantity of direct materials, direct labour, machine usage time, and so forth that is assigned to a product.
• Efficiency variance = standard price × (actual quantity − standard quantity)•Using the above formula, positive result is unfavourable; negative result is favourable.

Question 5

Price variance Management Accounting Core – Level A

Answer 5

• Price variance is the difference between the actual cost and standard cost of materials or labour.
• Price variance = actual quantity × (actual price − standard price)
• Using the above formula, positive result is unfavourable; negative result is favourable.

Question 6

Flexible budget variance Management Accounting Core – Level

Answer 6

• A flexible budget variance is the difference between the actual costs and standard costs based on the actual production levels.
• Flexible budget variance = actual costs − flexible budget costs (that is, standard quantity of an item for actual units produced × standard price)
• Using the above formula, positive result is unfavourable; negative result is favourable.