Week 3 - cost behavious

Question 1

What information is produced by management accountants?

Answer 1

Information produced to assist with decision making by internal managers.
Information is used internally and is NOT always shared with external parties.

Question 2

How does management accounting use the accountability model?

Answer 2

Why - to assist managers to achieve goals.
Whom - managers and some stakeholders (ie. banks)
What - depends on what performance is considered important. The cost verses benefits decision needs to be considers.
How - Not bound by regulation. In the most useful manner. Various forms might be used.

Question 3

What is the function of managers?

Answer 3

1. Planning (Identify problems / collect data / determine alternative course of action / evaluate the alternatives / Make decisions.
2. Implement action
3. Monitor and evaluate
4. Learn, revise and adjust.

Question 4

What are some aspects of planning?

Answer 4

1. It should be a continuous process that starts well before the organisation starts.
2. Provides a benchmark for future performance to be measured against.
3. Future plans can be revised against results.

Question 5

What is long-term planning?

Answer 5

Strategic planning - this may be over a timeline of a number of years.

Question 6

What is short-term planning?

Answer 6

Operational planning - budgets and day to day activities.

Question 7

Planning to incorporate both long and short-term plans, but what pressures might managers feel to make them focus on short term planning predominately?

Answer 7

Profits and short term bonus.

Question 8

What is sustainability development in accordance with the 1987 World commission on environment and development.

Answer 8

Development that meets the needs of the present world without compromising the ability of future generations to meet their own needs.

Question 9

Sustainable business operation require?

Answer 9

1. An organisation to be economically responsible.

2. Consider the impact on both the environment and society.

Question 10

Organisation NOT embracing sustainability are regarded as?

Answer 10

1. Higher perceived risk

2. Higher cost of finance.

Question 11

What is behaviour cost?

Answer 11

A key component of planning is to understand the cost that will be generated by the proposed activity of an organisation.
How cost will change/behave as a result of volume of activity.

Question 12

Cost information helps us determine?

Answer 12

1. Selling price that will at least cover costs.

2. If it is feasible to supply goods and services at the price the customer wants to pay.

Question 13

What are relevant costs?

Answer 13

Cost that come about due to a particular decision and will differ between different courses of action.

Question 14

What are variable costs?

Answer 14

Cost associated with the number of goods/services produced. These costs increase and decrease with production volumes.
Total variable cost fluctuate with changes in volume, but the variable cost per unit remains the same.

Question 15

What are fixed costs?

Answer 15

Costs that do NOT vary with volumes of production.

The more fixed costs a company has the more revenue a company needs to break-even.

Question 16

What are stepped fixed costs?

Answer 16

Costs might only be considered fixed for a particular range of activity. Beyond that they will increase and then stay constant for a given range of activity.

Question 17

What are mixed costs?

Answer 17

It will have a fixed component that remains the same regardless of volume and a variable component that will increase as volume increases.
A mixed cost with a low fixed element is preferable for a business because of the break-even point.

Question 18

High-low method

Answer 18

It is a way of separating the fixed and variable costs with a limited amount of data.

Question 19

High-low method - how to calculate the variable cost?

Answer 19

Highest volume - lowest volume = average volume
Highest revenue - lowest revenue = average revenue

Average volume / average revenue.

Question 20

High-low method - how to calculate fixed cost?

Answer 20

Highest or lowest revenue - (variable cost x highest or lowest volume)

Question 21

High-low method - how to predict a value?

Answer 21

Fixed cost + (variable cost x estimated volume)

Question 22

What is a contribution margin and how is it calculated?

Answer 22

This represents the proportion of a products sole revenue that is not used up by the variable cost and therefore can contribute to covering the companies fixed costs.

Sales revenue (either total or per unit)  minus 
Variable cost (either total or per unit)

Question 23

What is the break-even point and how is it measured?

Answer 23

Profit is zero at the break-even point.
Managers need to know what level of activity needs to be achieved to start making a profit.

Total fixed costs / contribution margin (per unit)
= number of units required to break-even

Question 24

What is the margin of safety and how is it measured?

Answer 24

Units of sales made or expected to be made ABOVE the break-even point. This is the cushion or acceptable drop in sales that the company can incur before incurring a loss.

Actual or projected units - break-even units

Question 25

What is target financial profit and how is it measured?

Answer 25

Profit that results when:
sales revenue - variable cost - fixed cost, than equals management profit goals.

(Target profit + fixed cost) / contribution margin per unit.

Question 26

What does critical thinking mean?

Answer 26

Making reasoned judgements that are well considered, logical and based on asking the right questions and collecting the appropriate supporting information.

Question 27

What skills to accountants require?

Answer 27

1. Intellectual skills
2. Technical and functional skills
3. Personal skills
4. Organisational and business management skills
5. Interpersonal and communication skills.