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acct 102 > test 2 > Flashcards

test 2 Flashcards

1
Q

what is horizontal analysis

A

comparing two companies in one year

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2
Q

what is vertical analysis

A

comparing one company within two years

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3
Q

what are the limitations on financial and ratio analysis

A

historical based information, timeliness, limited information and perspective (bias), limited comparability, quality of information

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4
Q

what are the 4 profitability ratios

A

gross profit margin, operating profit margin, return on equity, return on capital employed

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5
Q

what information has to be averaged for ratios and how do you do this

A

average the balance sheet information where there is a mix of income statement and balance sheet information, do this by adding this year and last year and dividing by 2

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6
Q

what is capital employed

A

every dollar contributed by the owners or lent to the business

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7
Q

what is ‘equity’ for ratios

A

every dollar of owners equity

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8
Q

what are the 3 efficiency ratios

A

average inventory turnover, average debtors settlement, average creditors settlement

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9
Q

what are the two liquidity ratios

A

current ratio and acid test ratio (quick ratio)

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10
Q

what does the quick ratio represent

A

only cash and cash equivalents are left from current ratios to pay current liabilities

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11
Q

what is a good current ratio

A

2:1

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12
Q

what is a good quick ratio

A

1:1

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13
Q

what are the two gearing ratios

A

gearing ratio and interest cover

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14
Q

what does the gearing ratio show

A

how much the company is borrowing

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15
Q

what does the interest cover ratio show

A

tells you about the companies ability to borrow even more

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16
Q

what is management accounting needed for

A

planning, controlling and decision making

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17
Q

what are the three types of organisations

A

service, retail and manufacturing

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18
Q

what is a service organisation

A

ones that perform a task or activity for the customer

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19
Q

what are retailers

A

buy products and sell them on

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20
Q

what are manufacturers

A

buy raw materials and components to make products

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21
Q

define a cost

A

cash or cash equivalent value that we give up to get some future benefit

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22
Q

define a cost object

A

an item for which costs are measured

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23
Q

what is included in a classification of costs by traceability

A

direct costs, cost driver and indirect costs

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24
Q

what classifications are there when we classify by function

A

production and non-production costs

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25
Q

what are production costs

A

direct materials, direct labour and overhead

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26
Q

define a prime cost

A

the sum of direct materials cost and direct labour cost

27
Q

define conversion cost

A

direct labour and overhead costs

28
Q

what classifications do non-production costs have

A

selling costs (market and distribute) and administrative costs (all costs that are associated with general admin or that can’t be assigned to marketing or production)

29
Q

what is the job environment

A

there is a variety

30
Q

what job order costing source records

A

materials requisition, job time record, job time records or record of activity driver for overhead cost, job order cost record for total cost

31
Q

what is actual costing

A

using the actual cost of everything and putting it into the job - we don’t use this

32
Q

what is normal costing

A

using the actual cost of direct materials and direct labour, but using normal costing for overhead by determining a rate

33
Q

what are the main problems with using actual overhead

A

non-uniform occurence, non-uniform production, can’t wait till the end of the year, activities included in overhead benefit all jobs

34
Q

what does non-uniform occurence mean

A

overheads aren’t incurred evenly during the year eg: yearly insurance, quarterly rates etc. so the same job could cost different at different times if actual costing was used

35
Q

how do we treat overheads

A

work out a predetermined rate at the start of the year based on estimated overheads/expected activity and then use this and the actual overhead that is incurred on the job to allocate overheads

36
Q

what do you need to put after the number when you work out an overhead rate

A

per ___

37
Q

what is a prime cost

A

direct materials and direct labour

38
Q

what is over-applied overhead

A

the actual amount is less than the applied amount

39
Q

what cost driver is best

A

use the one that causes the most, don’t choose one that is too complicated or too costly to maintain

40
Q

what are the problems with estimated overhead rates

A

based on estimates, uncertainties, what capacity level to use 0 expected or maximum

41
Q

what are the uses of job costing

A

calculating inventory and cost of goods sold on financial statements, calculating costs of services, estimating costs for decision making, comparing actual to estimated costs

42
Q

what are non-production costs

A

period costs - selling costs (necessary to market and distribute a product or service) and administrative costs (all costs associated with general administration of the organisation that can’t be assigned to marketing or production costs)

43
Q

what do we classify costs as when we are classifying by behaviour

A

variable, fixed or mixed

44
Q

what are variable costs

A

costs which vary in direct proportion to output

45
Q

what are fixed costs

A

costs that don’t change with activity level

46
Q

what are mixed costs

A

costs with both variable and fixed components

47
Q

what is the relevant range concept

A

fixed costs behave weird on graphs (eg: step fixed costs, learning curve, economies of scale) so we approximate it to a straight line by just looking at a small range value on the graph

48
Q

what is the high low method

A

helps to find the equation of a line through two points

49
Q

to work out variable costs with the high-low method what do you do

A

highest cost - lowest cost / highest activity - lowest activity

50
Q

what is the overarching formula for high-low method that you can rearrange to get fixed costs

A

TC = F + VX

51
Q

what is the regression method

A

identifies the line that best fits the points and tells us how good this line is by how close to 1 the R square value is

52
Q

what do we do for managerial judgement

A

use past experience, confirm results with operating personnel, use common sense to confirm statistical studies

53
Q

what is the order of the traditional/functional income statement

A

sales - production costs = gross margin/profit - non-production costs = net income/profit

54
Q

what is the middle line of the traditional/functional income statement

A

gross margin

55
Q

what is the middle line of the behavioural income statement

A

contribution margin

56
Q

what is the order of the behavioural income statement

A

sales - variable expenses = contribution margin - fixed expenses = net income

57
Q

what is the basic CVP analysis formula

A

I = PX - VX - F

58
Q

what do the letters stand for in the CVP formula

A

I = Net income/profit before taxes

P = selling price

X = units sold

V = variable cost per unit sold

F = total fixed costs

59
Q

what is the formula for sales units from the CVP formula

A

X = (I+F)/(P-V)

60
Q

what formula gives the contribution margin

A

P - V

61
Q

what is the CVP formula for after-tax profit

A

i(1-t)

62
Q

what gives the contribution margin ratio

A

contribution margin/selling price

63
Q

to work out breakeven in dollars what formula should you use

A

fixed costs/contribution margin ratio

64
Q

apart from the formula with contribution margin ratio, how else can we work out the breakeven in dollars

A

work out the units and multiply by the price

acct 102 (3 decks)

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