Week 8 Flashcards
Main differences between management and financial accounting
Management focuses on internal decision-making and is flexible, unregulated and forward looking.
Financial is for external people and follows strict standards and reports past performances and produced periodically
Definition of management accounting
a method of accounting that creates statements, reports, and documents that help management in making better decisions related to their business’ performance
Definition of financial accounting
Financial accounting records and reports financial data for external stakeholders, following standardised rules
What are fixed costs?
Costs that do not vary with output e.g. rent, salaries
What are variable costs?
Costs that do vary with output e.g. raw materials, direct labour costs
What are semi-variable costs?
costs have both fixed and variable components e.g. utilities, salaries with overtime, and maintenance expenses, where a base cost remains constant, but the rest varies with usage.
What are step-fixed costs?
costs stay constant within certain production levels but increase when production exceeds a threshold e.g. supervisory salaries, additional rent, and extra equipment.
What is break-even analysis?
a calculation to determine the point at which total revenues equal total costs, resulting in no profit or loss.
Break-even calculation =
Break-even (in units) = fixed costs / contribution per unit
What is contribution?
the amount that the product contributes to
fixed costs, after deducting variable costs from the selling price.
Contribution calculation
Selling price per unit - variable costs per unit
What is the margin of safety?
the difference between expected sales and break-even sales
Margin of safety calculation
Expected Sales - Break-even Sales
