Week 8 - Costs Flashcards
What is strategic management accounting?
o Strategic management accounting is the provision and analysis of management accounting data relating to business strategy.
o It looks beyond the financial year and long term in relation to business.
Explain environmental management accounting
o Whether a firm/business meets the needs of today without compromising the needs of the future
o Concerned with recognising environmental costs for the purposes of internal decision making
o Helps monitor performance towards “non-financial” objectives and introduce course of actions as necessary
Explain Target costing and ts four stages
and involves FOUR stages.
Determine the target price that customers will be prepared to pay for the product service
Deducing a target profit margin to determine the target cost, which becomes the cost to which product/service should be engineered.
Estimating the actual cost of the product/service based on the current design
Investigating wats of reducing the estimated cost to the target cost
Explain the management cost concept
o Mangers need to be aware of the cost of a business, as this allows it to fix selling prices to make money, manage/control costs and compete with competitors
What are direct costs?
o Costs that can be readily traced to a particular product made or service supplied
What are indirect costs?
o These are costs that cannot be easily traced to a particular product or service.
What are product costs?
o These are costs that are a necessary and integral part of a product or service
What are period costs?
o These costs are matched with the income of a specific time period rather than included as a part of a cost of the saleable product.
What are variable costs?
o Variable costs change in total directly with increases and decreases in activity level.
o Any costs that change as business activity changes
o They are identified on a per-unit basis
o Variable costs stay the same per unit as business activity increases
What are fixed costs?
o Fixed costs do not change with increases and decreases in activity level
o Fixed costs per unit declines as business activity increases.
o Total fixed costs of the facilities will remain constant at every level of activity.
What are mixed costs?
o Mixed costs include a fixed cost component and a variable cost component
What is Cost Volume-Profit Analysis CVP?
o Cost Volume Profit analysis examines the effects of changes in costs and consume on an entity’s profits
o Important for planning, setting prices etc.
What are the basic components of CVP
o Volume of level of activity o Unit selling prices o Variable cost per unit o Total fixed costs o Sales mix
What are the assumptions of CVP
o Costs and revenues are linear within the relevant range
o All costs are identified as variable or fixed
o Costs are affected only by changes in activity level
o All units produced are sole
o Sales mix is constant if there is more than one product
What is a contribution margin statement and what is it used for?
o Used for internal decision making and how CVP is presented
o Expenses are classified as variable or fixed and it calculates a contribution margin
How does a contribution margin statement differ to an income statement
o Differs to an income statement as fixed costs are aggregated lower and follow the contribution margin, variable costs are groups so that they are part of the calculation of the contribution margin and the gross margin is replaced by the contribution margin
Net Profit/Lost when referring to cost
o Net Profit/Loss = - fixed production costs or expenses and – fixed costs of selling as well as admin expenses
What does the contribution margin equal?
o Contribution margin equals the difference between estimated revenue and estimated variable costs
What is the breakeven point?
o The break-even point is the level at which total revenues equal total costs.
o Can either be expressed in terms of sales dollars or units
What is the formula for the breakeven point in units?
o Break-even point in units = fixed costs/ contribution margin per unit
What is the formula for the break even point in dollars
o Break- even point in dollars = fixed costs/ contribution margin ratio
Explain target profit analysis
o The net profit objective for an individual product line. Break- even analysis is expanded by adding target net profit to fixed costs
