Management Accounting: Decision and Control Flashcards
What is a sunk cost?
Costs that can never be recovered during a decision making process and irrelevant of the decision.
What is economies of scale?
Times when costs can be reduced due to increase in activity. E.g a bulk discount
What is opportunity cost?
Lost profit or income from picking another decision.
What is the 5 steps of product life cycle?
Development Introduction Growth Maturity Decline
What does standard costing do?
Establishes in detail the standard cost of each component of a product, so that a total cost can be calculated for that product.
What are standard costs used for?
To set budgets
What is the reason for an adverse material price variance?
Unexpected price increase from supplier
Loss of Previous trade or bulk buying discount from supplier
Purchase of a higher grade of materials
What can cause a adverse material usage variance?
Greater wastage due to lower grade material
Greater wastage due to lower grade labour
Problems with machinery
What is the reason for an adverse Labour rate variance?
Unexpected increase in labour costs
Use of higher grade of labour than anticipated
Unexpected high levels of overtime
What can cause an adverse Labour efficiency variance?
Use of a less skilled grade of labour Use of a lower grade of material which takes longer to work on More idle time than budgeted Poor supervision of workforce Problems with machinery
What are the advantaged of ideal standard?
No waste
No inefficiency
Everything’s perfect
What are the disadvantages of ideal standard?
Seldom attained Variance generally always adverse Managers come to expect adverse variances Informal dual standard can appear Unattainable = demotivated
What is the advantage of a target standard?
Fair and achievable if set correctly
Challenges and motivates managers
Managers involvement increases motivation
Bonus schemes introduced
What are the disadvantages of a target standard?
Different people have different views on what attainable
Can be time consuming
Needs to be constantly reviewed
What are the advantages of a basic standard?
Can be used to identify trends
