Managerial Accounting Flashcards
Balance Scorecard
Goals’ and ‘Measures’ per these 4 perspectives:
* Financial
* Customer
* Internal Business
* Innovation and learning
Balance Scorecard - Disadvantages
- No overriding goal
- Difficult to balance
- Requires strong leadership and can be costly to administer
Contribution Per Limiting Factor - Principle
When a key resource is the limiting factor, profit is maximised by
maximising the contribution of the limiting factor
Contribution Per Limiting Factor - Process
- Convert contribution per product to contribution per unit of scarce resource
- Prioritise product production by contribution per unit of scarce resource
In the case where there is scarce resource surplus, compare with:
- Maximised utilisation of scares resource
And use the highest.
Absorption Costing - Principle
Calculate total cost per unit based on variable cost per unit + Fixed cost per unit
Absorption Costing - Variable Costs
- Identify per unit costing for each variable cost
- Sum these up to give you the total variable cost per unit
Absorption Costing - Fixed Costs
- Derive: ‘Fixed Overhead Absorption Rate’ (FOAR, eg dollars per machine hour)
- This is the Total Overhead Cost divided by the total utilisation of the most impacting fixed cost
- (ie total overhead / total machine hours, if ppe is the highest cost)
- This is the Total Overhead Cost divided by the total utilisation of the most impacting fixed cost
- Calculate: FOAR x usage per unit (eg dollars per machine hour x machine hours per unit)
- This gives you the fixed cost per unit
Activity Based Costing - Principle
Per absorption costing, however with multiple cost pools and absorption rates, per activity / pool
Activity Based Costing Fixed Costs - Process
- Identify activities / cost pools
- Identify ‘cost drivers’ per activity
- Calculate activity cost driver rate
- This is a rate base of the number of activities (machine hours, )
- These can be transaction or duration based (whether it’s time or count based)
- Calculate per unit cost by multiplying rate by activity consumed per unit
Activity Based Costing Variable Costs - Process
As per absorption costing.
Variance Analysis - Principle
Compare budget with ‘flex’ budget to understand where/why variance has occured
Variance Analysis - Process
- Set Budget
- ‘Flex’ budget - what would the budget have looked like if we budgeted for the actuals
- Identify Actual results
- Compare overall variances (actuals compared to flex budget)
- Variance analysis - determine price vs quantity variance per item
NOTE: - Always use favourable - f, and unfavourable - u rather than than parentheses for negative numbers
- Sales variance can only be price
- Price variance - uses actual quantity
- Quantity variance - uses budgeted price
Practical solutions to dealing with the issue of the material shortage in the
longer-term? (solution 1)
Advice:
- Redesign/ standardize the product to minimise material usage
- Improve quality of materials (fewer rejects -> less scrap)
- Redesign work process to reduce material spillage
- Hire more qualified personnel -> less scrap
- Arrange long term material contracts with suppliers
- Redesign product to use other more available materials.
Suggest any practical solutions to dealing with the issue of the resource shortage in the longer-term? (solution 2)
Think of all the different stakeholders internal and external to the organisation and think how you can use any of them to improve the materials shortage.
For example, externally:
- Look at suppliers, can you find a new supplier in addition to the current one.
- Can you improve delivery of materials
- Can you improve reliability of the materials, which again needs coordination with the supplier
Looking internally:
- Can you you reduce wastage materials by improved training of labour?
- Can you reduce wastage of materials by using better machinery?
- Could you possibly change the design of the product, or use alternative materials?
