Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Accounting -507 > Management Accounting test 2 > Flashcards

Management Accounting test 2 Flashcards

1
Q

Define rolling budget

A

A rolling budget, also called a continuous budget is a budget or plan that is always available for a specified future period, by continually adding a period (month, quarter or year) to the period that just ended.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What are the benefits of rolling budgets?

A

There is always a 12-month budget for the next year in place. Rolling budgets constantly force management to think about the forthcoming 12 months, regardless of the quarter at hand.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is an example of a rolling budget?

A

A four-quarter rolling budget for 2015 Is superseded by a four-quarter rolling budget for April 2015 to March 2016 and so on

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What is the purpose of an operating profit budget?

A

In preparing an operating profit budget companies want to avoid unnecessary idle cash and unexpected cash deficiencies.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the purpose of a cash budget?

A

The cash budget highlights periods of idle cash and periods of cash shortage, and it allows the accountant to plan cost effective ways of either using excess cash or raising cash from outside to achieve the company’s operating profit goals.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Should the cash budget be prepared at the same time as the operating profit budget?

A

Yes – Building a profitable operating plan does not guarantee that adequate cash will be available, so a cash budget must be prepared simultaneously

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the are the arguments against using ideal standards?

A

Ideal standards may create unrealistic expectation that demotivate employees who feel that cannot achieve them.
If used for planning, they may create faulty expectations about how much raw material and labour needs to be available

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the are the arguments for using ideal standards?

A

Ideal standards can highlight that there is still room for improvement as practical standards can impose a ‘glass-ceiling’

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

List four reasons for using standard costs

A
  1. Cost management
  2. Pricing decisions
  3. Budgetary planning and control
  4. Financial statement preparation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Why might an analyst examining variances in the production area look beyond that business function for explanations of those variances?

A

An individual business function, such as production is interdependent with other business functions. Factors outside of production can explain why variances arise in the production area.
Examples
• Poor design of products or processes can lead to a sizeable number of defects
• Marketing personnel making promises for delivery times that require a large number of rush orders can create production-scheduling difficulties
• Purchase of poor-quality materials by the purchasing manager can result in defects and waste.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What can be found at the purchasing point in a materials and labour budget?

A

Responsibility for price variance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What can be found at the production point in a materials and labour budget?

A

Efficiency variances

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the impacts of over costing?

A

Over costing may result in competitors entering a market and taking market share for products that a company erroneously believes are low- margin or even unprofitable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the impacts of under costing?

A

Under costing may result in companies selling products on which they are in fact losing money, when they erroneously believe them to be profitable.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the four levels of hierarchy activities?

A
  1. Output-unit-level
  2. Batch-level
  3. Output-sustaining
  4. Organisation-sustaining
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are output-unit-level activities

A

Activities performed on each individual unit of output, such as running machines, that consume resources and cause costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are batch-level activities?

A

Activities that relate to a group of units of outputs rather than to each individual unit of output e.g. set up costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are Output-sustaining level activities?

A

Activities undertaken to support categories of outputs irrespective of the number of units or batches in which the units are produced. E.g., marketing costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are organisation – sustaining activities?

A

Activities that support the company as a whole, but do not have a cause-and-effect relationship with any cost object. E.g., CEO costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are the main benefits of ABC systems?

A

The main benefits of an ABC system is that it provides more meaningful cost information as it assigns overhead costs to activities based on more accurate data.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are the main limitations & costs of ABC systems?

A
  • The measurements necessary to implement the systems. Even basic ABC systems require many calculations to determine costs of products and services. ABC systems often need to be updated regularly
  • Very detailed ABC systems are costly to operate and difficult to understand.
  • Sometimes the allocations necessary to calculate activity costs often result in activity-cost pools and quantities of cost allocation bases being measure with error. When errors are large, activity-cost information can be misleading.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Should all businesses adopt a ABC system?

A

No activity-based approach should be adopted only if its expected benefits exceed its expected costs. It is not always a wise investment. If the jobs, products or services are alike in the way they consume indirect costs of a company, then traditional costing system will suffice.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

The sales forecast is the cornerstone for budgeting why?

A

Because the production & inventory levels generally depend on the forecasted level of sales

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What are prevention costs?

A

Costs incurred to prevent the production of products that do not conform to specifications

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What are the two characteristics of relevant costs?

A

Cost that occurs in the future

Costs that are different for different alternatives

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What are examples of prevention costs?

A
  • Design engineering
  • Process engineering
  • Supplier evaluations
  • Prevention equipment maintenance
  • Quality training
  • Testing of new machines
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What are examples of appraisal costs?

A
  • Inspection
  • Online product manufacturing & process inspection
  • Product testing
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What are examples of Internal failure costs?

A
  • Spoilage
  • Rework
  • Scrap
  • Machine repairs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What are external failure costs?

A
  • Customer support
  • Manufacturing/ process reengineering for external failures
  • Warranty repair costs
  • Liability claims
30
Q

What are the advantages of budgets?

A
  • Compels strategic thinking
  • Provides a framework for judging performance
  • Motivates employees & managers
  • Promotes coordination & communication
31
Q

Explain the difference between traditional & a ABC system

A

Traditional costing uses one cost pool and applies a broad average indirect cost to direct costs. ABC identifies individual activities as fundamental cost objects and uses many cost pools to assign the indirect cost rate, s work according to the hierarchy of activities.

32
Q

What is the difference between market based and cost-based pricing?

A

Market based costing charges a price based on what customers want and how competitors react. Cost-based pricing is based on what it costs to produce coupled with the ability to recoup the cost & still achieve a required rate of return

33
Q

What does the economic order quantity formula indicate?

A

Indicates that EOQ increase with higher demand or higher ordering costs and decreases with higher relevant costs.

34
Q

What are internal failure costs?

A

Costs incurred in defective products before they are shipped to customers

35
Q

What are external failure costs?

A

Costs incurred on defective products after they are shipped to customers

36
Q

What is a master budget?

A

Master budget consists of the operating budget & financial budget monetising the organisation objectives & proposed ways of attaining them.

37
Q

What are prevention costs?

A

Costs incurred to prevent the production of products that do not conform to specifications

38
Q

What are appraisal costs?

A

Costs incurred to detect which of the individual units of products do not conform to specifications.

39
Q

What are value added costs?

A

A cost if eliminated would reduce the actual or perceived value customers obtain from using the products.

40
Q

What are examples of value-added costs?

A

Direct materials, direct labour, tools & machinery

41
Q

What are non-value added costs?

A

A cost if eliminated would not reduce the actual or perceived value customers obtain from using the products.

42
Q

What are examples of non-value-added costs?

A

Breakdown costs, errors, defective products, scrap.

43
Q

Why is it important to distinguish between costs incurred and designed-in costs?

A

It is important to distinguish when costs are locked in and when costs are incurred because it is difficult to alter or reduce costs that have already been locked in.

44
Q

Why is product life cycle budgeting important to making decisions?

A

It is an estimate of the revenues and costs attributed to each product from its initial R&D to its final customer servicing and support. This type of budgeting allows managers to be sure they generate enough revenue to recover all of their costs, especially any high fixed pre-production costs

45
Q

If managers are unsure if a cost is value added or non-value added, how should they classify the cost and why?

A

Non-value added. This focusses organisations attention on reducing these costs instead of assuming that the costs add value.

46
Q

What is the risk of classifying a value-added cost as non-value added?

A

Organisations may cut costs that add value which could lead to poor customer experiences.

47
Q

What are purchasing costs?

A

Organisations may cut costs that add value which could lead to poor customer experiences.

48
Q

What are examples of purchasing costs?

A

Freight costs, discounts

49
Q

What are ordering costs?

A

Costs for preparing and issuing the purchase orders

50
Q

What are examples of ordering costs?

A

Preparing and inspecting items included in orders, matching invoices received, cost of obtaining purchase approvals

51
Q

What are carrying costs

A

opportunity cost in holding inventory for sale

52
Q

What are examples of carrying costs

A

Opportunity cost , storage, space rental, insurance, spoilage and obsolescence.

53
Q

How can standard costs
be useful for planning and
control?

A

A standard cost is a carefully determined cost based on the standard quantity and
standard price for the inputs (direct materials, direct labour and variable overhead).
Knowing the costs of production is important for pricing. Furthermore, based on
expected production levels, the labour and direct materials requirements can be planned
and targets set. After production is complete, the standards become a benchmark for
judging performance. Because standards are important for both planning and control,
an important decision is whether ideal or practical standards are set. Ideal standards
can be good for motivation but practical standards provide a more realistic basis for
planning.

54
Q

How does a flexible budget
differ from a static budget,
and why should companies
use flexible budgets?

A

A static budget is based on the level of output planned at the start of the budget period.
A flexible budget is adjusted (flexed) to recognise the actual output level of the budget
period. Flexible budgets help managers gain more insight into the causes of variances
than is available from static budgets.

55
Q

Why should a company
calculate price and efficiency
variances?

A

The price variance focuses on the difference between actual input price and budgeted input price.
The efficiency variance focuses on the difference between actual quantity of input and budgeted quantity of input allowed for actual output.

56
Q

How can variance analysis
help managers to achieve
continuous improvement?

A

Managers use variances for control, decision implementation, performance evaluation,
organisation learning and continuous improvement. When using variances for these
purposes, managers consider several variances together, rather than focusing only on an
individual variance.

57
Q

What is benchmarking and

why is it useful?

A

Benchmarking is the process of comparing the level of performance against the best
levels of performance from within the organisation, competitors or world best practice.
Benchmarks may be taken for any important dimension of performance.

58
Q

What are the three criteria for an activity-based costing

A

(1) significant
competition; (2) indirect costs are a high percentage of total costs; and
(3) outputs make diverse demands on indirect resources.

59
Q

What are the impacts of broad averaging?

A

Broad averaging has the effect of
reporting a low (high) cost for an output when it consumes a high (low) level
of resources

60
Q

What is activity-based management and

how are activities managed?

A

Activity-based management (ABM) focuses on observing and analysing
activities as a basis for making a range of decisions, including pricing
outputs, deciding on output mix, how to reduce costs, how to improve
processes, product design, profitability and customer satisfaction

61
Q

What is activity-based costing, how do
managers apply it and how can they use
it to support activity-based management?

A

Activity-based costing (ABC) gives managers information about the costs
of making and selling diverse outputs, rooted in activities; in what is
happening in the business; in physical phenomena. A meaningful costing
system embodies the essence of these activities, and activities form the basis
units of measurement. ABC systems provide the detailed cost information
to support ABM in making decisions on issues such as pricing, output mix,
cost reduction, process improvement, and output and process redesign.

62
Q

How do managers evaluate an activity based costing system?

A

To evaluate an ABC system, managers need to establish that: the criteria
for an ABC system exist; cost drivers and cost pools have been accurately
identified with regard to cause-and effect relationships including the
hierarchy of activities; and all costs have been assigned accurately.

63
Q

What are the four main capacity concepts

and how are they calculated?

A

capacity supplied—
theoretical capacity
practical capacity.
Capacity can also be measured in terms of output demanded—normal capacity utilisation or budgeted capacity utilisation.

64
Q

What sort of external reporting
frameworks are there, and why are
they important?

A

External reporting frameworks provide standards that guide social and
environmental reporting. This increases the rigour and comparability of
reports. The most widely used reporting framework is the Global Reporting
Initiative (GRI).

65
Q

What is environmental management
accounting (EMA), and how can it
be used to support an environmental
management system (EMS)?

A

EMA provides financial and non-financial measures of environment-related
performance. This can include the adaptation of existing management accounting
tools (e.g. activity-based costing) or environmental-performance specific systems.
EMA is an important part of an organisation’s EMS.

66
Q

What is involved in performing lifecycle analysis (LCA)?

A

LCA expands the notion of a product’s or service’s cost to include the entire lifecycle—from raw materials to ultimate disposal. Furthermore, LCA considers a
product’s or service’s social and environmental impacts that may be difficult to
measure in financial terms.

67
Q

What non-financial quality
measures of customer satisfaction
can managers use in their
balanced scorecards?

A

number of customer complaints and percentage
of defective units shipped to customers; internal-business-process measures such
as percentage of defective and reworked products; and learning-and-growth
measures such as percentage of employees trained in and empowered to use
quality principles.

68
Q

What are T\three methods to identify quality problems and to improve quality.

A

(a) control
charts to distinguish between random and non-random variations in an operating
process; (b) Pareto diagrams to indicate how frequently each type of failure occurs;
and (c) cause-and effect diagrams to identify and respond to potential causes of
failure.

69
Q

How do managers use the
economic-order-quantity (EOQ)
decision model?

A

The EOQ decision model calculates the optimal quantity of inventory to order
by balancing ordering costs and carrying costs. The larger the order quantity, the
higher the annual carrying costs and the lower the annual ordering costs. The
EOQ model includes costs recorded in the financial accounting system, as well as
opportunity costs not recorded in the financial accounting system.

70
Q

What is a supply chain and what
is the benefit of supply chain
analysis?

A

The supply chain describes the flow of goods, services and information from the
initial sources of materials and services to the delivery of products to consumers,
regardless of whether those activities occur in the same organisation or in other
organisations. Using supply chain analysis allows companies to coordinate their
activities and reduce inventories throughout the supply chain.

Accounting -507 (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions