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CIMA > P2 > Flashcards

P2 Flashcards

1
Q

ABC use?

A

Used to cost a product

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2
Q

ABM use?

A

Uses ABC information to control or reduce cost drivers and reduce overheads.

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3
Q

ABB def

A

Activity based budgeting

Uses cost determined by ABC to prepare budgets

CIMA: “…. Cost driver data in the budget-setting and variance feedback process”

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4
Q

ADA activity driver analysis?

A

What is is?

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5
Q

Functional analysis

What is it?

A

It is the analysis of the relationship between product functions, perceived customer value and their cost.

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6
Q

Functional analysis

What is it part of?

A

Part of value analysis

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7
Q

What value analysis is applied during the development phase?

A

Functional analysis.

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8
Q

Conditions for learning curves?

A
  1. Mostly Manual work
  2. Repetitive
  3. Early stage of product
  4. Consistency in workforce (not a high staff turnover)
  5. Breaks cannot be too long-or they will forget
  6. Workforce is motivated.
  7. Complex
  8. Small quantities for special orders
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9
Q

Theory of constraints

A

Maximising throughput

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10
Q

What is
marginal cost plus pricing
Otherwise know as?

A

Mark-up pricing

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11
Q

What is full cost pricing?

A

It is where the price includes VC + FC (that is FC related element of overhead)

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12
Q

What is

Full cost plus pricing ?

A

Pricing is the same as full cost pricing but includes a profit margin also.

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13
Q

Two part tariff transfer pricing.

What is it?

A

Pricing where variable costs are covered at time of transfer and an annual fixed fee. Which is payment towards fixed costs.

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14
Q

What is minimum pricing based on? +why?

A

Based on relevant costing because it is the VC + the opportunity cost of not selling at the market price.

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15
Q

What is a contribution?

A

Sales value less VC

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16
Q

What is Marginal costing as a system?

A

System where cost of one unit is just VC.

Profit/Loss is calculated by taking FC away from Contribution for the period.

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17
Q

Diff Marginal costing of inventory vs absorption costing?

A

Inventories are valued at VC in marginal costing

In abs costing they are valued at full production cost.

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18
Q

What is the optimal selling price?

A

When MC = MR

Marginal cost = marginal revenue.

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19
Q

Gradient of Revenue vs quantity graph?

A

Marginal revenue

Change in rev/change in quantity

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20
Q

What price maximises profit? (If price affects demand?)

A

Marginal cost = Marginal revenue.

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21
Q

How is MR linked to price and revenue?

A

MR is the gradient of Revenue vs volume.

Revenue is price*volume.

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22
Q

Ways of cutting costs to achieve target cost?

A

Reduce number of components

Cheaper staff

Using standard components

Acquiring new more efficient tech

Training staff to use more efficient techniques

Cutting out non-value add activities

Using different materials

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23
Q

Target cost formula

A

Target cost= selling price at capacity - desired profit

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24
Q

Four aspects of value analysis?

A

Cost Value (of creating and selling)

Esteem value (what the customer feels about he product)

Exchange value (price customer is prepared to pay)

Use value (purpose a product fulfils.)

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25
Q

Target costing purpose

A

To set a cost target for a new product at the product design stage.

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26
Q

Life cycle costing aim?

A

Increase return and reduce cost over the entire lifetime of the product.

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27
Q

5 stages in product life cycle?

A 
Development
Introduction
Growth
Maturity
Decline
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28
Q

Conditions for learning theory to work?

A
  • Significant manual element
  • The task must be repetitive
  • Production at early stage (room for improvement)
  • Consistent workforce (low staff turnover)
  • No/few breaks/gaps in production
  • Motivated workforce
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29
Q

ROCE os otherwise known as …

A

ARR- Accounting rate of return.

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30
Q

Average investment

A

(Initialoutlay + scrap value )

/2

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31
Q

ROCE formula

A

PBIT/Capital Employed

  • 100%
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32
Q

What is capital employed?

A

CE= nca + ca - cl

Capital employed =
Non current assets + current assets
- current liabilities.

Ie
All assets - current liabilities.
(Just nc liabilities + equities?)

33
Q

Operating Profit Margin

Formula

A

PBIT/Sales. *100%

34
Q

Asset Turnover formula

A

Sales/Capital Employed

35
Q

ROI formula

A

ROI =

Controllable divisional profit
/
Divisional Investment

  • 100
36
Q

Residual Income formula (2ways)

A

PBIT
-(divisional investment*Cost of capital)

PBIT - (capital employed*Cost of Capital)

37
Q

When is Value engineering done?

A

During the development phase.

Before production

Applied to new products

38
Q

When would price skimming be appropriate?

A
  • new and different
  • strength and sensitivity of demand to price is unknown.
  • high prices may help with cash flow problems
  • short life cycle, so need to recover costs quickly.
39
Q

When would market penetration be useful?

A
  • to discourage new entrants
  • to shorten initial period of product life cycle in order to reach growth and maturity as soon as possible.
  • if possibility of economies of scale due to high output.
  • if demand is highly elastic so would respond well to low price
40
Q

Beyond budgeting is also known as?

A

Participative budgeting

41
Q

EVA formula

A

Economic profit - capital charge

42
Q

Economic profit. What adjustments to profit?

A
  1. Use replacent Value not depreciation. (Add dep, minus economic depreciation)
  2. Advertising spend/development spend charged to periods that benefit.
  3. Lease charges capitalised
  4. Interest excluded. (Already included)
43
Q

Capital Charge formula

A

Cost of Capital *
replacement cost of net assets

Or

Cost of capital *
(NCA+working capital)

44
Q

Net assets

A

Assets minus liabilities

Same as net worth

45
Q

Working capital

A

CA - CL

46
Q

EVA

Absolute or relative?

A

Absolute measure. Positive means yes

Negative means don’t do it!

47
Q

Capital employed?

A

Assets -current liabilities

Or

Working capital + NCA

48
Q

How is replacement cost calculated in EVA?

A

Replacement cost of net assets plus any capitalised costs

49
Q

Eq of sensitivity

A

NPV of project
/
NPV of variable

%

50
Q

ARR formula

A

Yearly profits
/
Initial investment

51
Q

P(A|B) =

Formula

A

P(A|B) =

P(A)*P(B|A)
/
P(B)

52
Q

Value of perfect information formula

A

Value of perfect information=

Expected profit with the information
- expected profit without

53
Q

ARR formula

A

ARR =
Average annual profit
/
Initial/average investment

Profit/Investment

54
Q

Cash flow names when they are already inflated

A

Money, actual, nominal

55
Q

Cash flows that are not inflated

A

Current or real

56
Q

Fisher equation

A

(1+r) * (1+i) = (1+m)

57
Q

Profitability Index Eq

A

NPV/Capital Invested.

Not PV

58
Q

When does uncertainty exist?

A

When decision maker has no past experience on which to base decision.

59
Q

When does risk exist?

A

When decision maker knows there are multiple outcomes due to past experience.

60
Q

Sensitivity analysis -what is it?

A

It is finding out he percentage change of a variable in order to reach an NPV of zero.

61
Q

What is risk mapping?

A

A technique for assessing risk for frequency and severity (think TARA)

62
Q

What performance measure should be used for an investment centre?

A

ROI/ROCE would be the most appropriate.

63
Q

Characteristics of a good performance measure for an investment centre?

A

Goal congruent-decisions will be favoured that benefit overall company

Responsibility accounting- only include factors which can be controlled by manager.

Recognise long term objectives

64
Q

What is an investment centre?

A

It’s a profit centre where manager has responsibility to make decisions on capital investments.

65
Q

Disadvantages of market based transfer pricing?

A

Market price may be temporary because of market conditions or might be affected by the volume

May act as a disincentive to use up spare capacity

Product may not exist on the open market

Due to imperfect external market-(if increase output, price needs to be reduced as buyer wants discount)

66
Q

Problems with full cost and VC transfer pricing?

A

Leads to either no profit or loss as FC are not covered. So selling division may not transfer unless they have spare capacity.

67
Q

What is dual pricing?

A

Seller receives external market price.

Buyer buys at variable cost.

Group take hit.

68
Q

Two part tariff-what is it?

A

Variable costs plus annual fixed fee

69
Q

How should the transfer price be set between parts of a group in different tax countries?

A

It should not look like either side is manipulating.

So it would be good to avoid either making an artificial loss.

So a middle ground “arms length” transfer price should be set.

70
Q

Aims of transfer pricing?

A

Goal congruence

An even and fair goal performance evaluation

Retain divisional autonomy(they decide and agree)

Motivate divisional managers-(?)

Optimum resource allocation.

71
Q

Default ARR

A

Ave profit / Ave investment

72
Q

Non default ARR

A

Ave investment / initial investment

73
Q

Characteristics of re-engineering?

A

Often:
Several jobs merged into one
Workers often make decisions
The steps in the decision are made in a logical order.
Work is performed where it makes sense
One single point of contact
Joins adv of both central and decentralised.

74
Q

Profitability index.

A

PI=
NPV/initial cash outflow

But when limited capital
PV of inflows /initial outflow

75
Q

Cost of prevention- what is it and examples

A

It’s like setting stuff up. TRAINING / designing

76
Q

What is an appraisal cost? Example

A

Doing stuff during the process, anything “checking” related.

Acceptance testing
Inspection of goods inwards/outwards

77
Q

Throughout contribution equation?

A

Throughout contribution= Sales-direct material cost

78
Q

Conversion costs equation?

Throughput

A

Conversion costs=

All operating costs - direct material costs

CIMA (6 decks)

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