Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

110.229 - Management accounting > Week 9 - 12 Study > Flashcards

Week 9 - 12 Study Flashcards

1
Q

What are the five purposes of budgeting?

A
  1. Planning
  2. Facilitating communication and co-ordination
  3. Allocating resources
  4. Controlling profit and resources
  5. evaluating performance and providing incentives.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is responsibility accounting?

A

Holding management responsible for activities and performance of their area of the business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the difference between budgeting and strategic planning?

A

Budgeting =short term and strategic planning = long term.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Contrast the line item and zero based budgeting techniques?

A

Line item budgeting techniques allocate resources line by line.

Zero based budgeting techniques - when all activities in the org. start with no budget. to receive an allocation, managers must justify each activity in terms of usefulness to the business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a responsibility center? What different types are there?

A

Responsibility center = a sub unit of the org whose manager is held accountable for the sub-units activities and performance.

Different types = cost centres, revenue centres, profit centres, investment centres.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the typical process through which managers set the annual of master budget?

A

Firstly, managers look at the SALES budget. this is determined by looking at forecasting and other budget assumptions such as past sales/trends etc.

Next, COST budgets are determined based on the forecasted sales.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What are some internal and external factors that impact operating sales budgets?

A

Internal:

  • past sales/trends
  • new products planned
  • pricing policy
  • planned marketing & promotions

External

  • Economy
  • Industry
  • Consumer Trends
  • Political/legal events
  • Competitor activity
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What factors impact operating cost budgets?

A
  • production budget levels
  • desired WIP and finished goods levels
  • direct materials levels (including purchase and ussage)
  • direct labour budgets
  • manufacturing overhead
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is budgetary slack and budget difficulty in the context of behavioral budgeting issues?

A

Budgetary slack = the difference between the revenue or cost projection that a person provides and the realistic estimate of that revenue or cost.

Budget difficulty - in order for employees to be motivated to reach budgets, they must be able to accept the budgets/targets as their own (i.e. goal congruence)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Businesses are in CONTROL when operations proceed to plan and objectives are achieved.

What are the three necessary requirements for control?

A
  1. a predetermined STANDARD performance level/forecast
  2. A measure of ACTUAL performance
  3. A COMPARISON between standard and actual performance is made to form a COST VARIANCE

Note: these are also the three steps in the STANDARD COSTING budgetary control system.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are the two most common ways of setting standards for standard costing budgetary purposes?

A
  1. Analysis of historical data - focus is on the past. (note: past data may include inefficiencies of the past).
  2. Engineering methods - focus is what it SHOULD cost in the future.

A combination of both of these methods is common in practice.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Contrast perfection and practical standards in the context of setting standards for controlling costs?

A

Practical standards - where standard costs are set so that actual costs come close to the actual budget.

Perfection standards - where standard costs are set based on near perfect operating conditions (unattainable?)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Contrast a flexible and a static budget.

A

Static budget = based on planned level of output only. (i.e. one level of activity)

Flexible budget = based on budgeted revenues and costs on actual level of output (i.e. a range of levels of activities)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the benefit of a flexible budget over a static budget?

A

Flexible budgets provide a more accurate basis for comparing actual and expected costs for the actual level of activity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is a “variance” in the context of standard costing? What the the two variance outcomes?

A

A variance = the difference between cost and planned cost of production

Outcomes:

  • favourable (F) - if operating income increases relative to the budgeted amount
  • Unfavourable (U) - if operating income decreases relative to the budgeted amount.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the two main types of variance (i.e. not variance outcomes)?

A

Purchase price variance - the difference between standard and actual prices paid for resources purchased and used in the production of goods and services.

Efficiency variance - provides information about how economically direct resources such as materials are used.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What does ‘management exception’ mean in the context of budget variances?

A

Only variances that are significant (or material) should be investigated.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What are the behavioural implications of budget variances?

A

Standard costing can create incentives for managers to meet targets (which has good and bad implications for behaviour)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is a flexible overhead budget? What is the common sense formula that can be used to calculate overhead at different levels?

A

Flexible o/head budget = shows flexible overhead budgets at various levels of activity.

Formula =

Budgeted costs = (Variable o/head cost per unit of activity * total activity units) + budgeted fixed o/head.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are the journal entries required to reflect variances when using standard costing?

Key: Sosts of direct material, direct labour and man o/head are all charged to inventory using standard costs (NOT ACTUAL costs).

A

Favorable variances are Cr’d to inventory (representing a saving in production costs)

Unfavourable variances are Dr’d to inventory (oposite to above).

Variances are closed off to COGS at the end of the accounting period. (or if the variance is large, the variance should be prorated between WIP, FG, and COGS)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What are some criticisms of standard costing systems for budgeting and control activities?

A
  • focusses on consequences rather than the causes of problems.
  • reports are not timely
  • focus on cost minimisation may not be consistent with other objectives e.g. quality.
22
Q

What is supply chain management (SCM)?

A

Managing costs and the supply chain activities by creating close relationships with SUPPLIER and CUSTOMERS

23
Q

What method can be used to analyse supplier costs?

What sort of costs are included in the “total costs of ownership” when using such a method?

A

ABC can be used to estimate the cost of dealing with suppliers.

It can be used to estimate the Total costs of ownership i.e.

  • costs of purchasing (ordering, receiving, inspection etc)
  • costs of poor quality
  • costs of delivery failure
24
Q

When comparing net profit after using either the absorption costing or the Variable costing method, what differences are there?

A

Because the absorption costing method includes fixed manufacturing overhead in product costs, inventory is valued higher than that of the variable costing method. Therefore, such costs are included in closing inventory that is brought forward under the absorption method (as opposed to being expensed under the variable method). therefore, profit is higher using the absorption method.

25
Q

What are the three types of costs that a manager looks to control as part of inventory management?

A
  • Ordering costs (including the cost of setting up plant when inventory is produced in house)
  • Carrying costs
  • Shortage costs a.k.a Stock out costs.
26
Q

What is the EOQ?

A

The economic order quantity is the optimum size for individual inventory items that minimises the total ordering and carrying costs.

27
Q

What is the ROP (inventory re order point)? What us the formula (common sense)

A

the level of inventory on hand that triggers the placement of a new order (i.e. the point in which inventory should be re-ordered)

Formula = inventory per period of time x order lead time

28
Q

What is safety stock in the context of inventory management?

A

It is the extra inventory kept on hand to cover any above-average usage or demand.

29
Q

What are some characteristics of the JIT inventory management system?

A
  • simplification of the production process by removing non-value-added activities
  • pull method i.e. inventory requirements are tailored to meet customer requirements rather than inventory requirements
  • flexibility
  • few suppliers
  • materials and parts delivered in small lots as needed
  • zero inventories
30
Q

What is CRM?

A

Customer relationship management looks at collecting and analysing data to understand customers behaviour patterns and needs.

31
Q

What costing method can be used to determine the profitability of customers?

A

ABC can be used to determine the profitability of customers.

32
Q

What is TQM?

A

A management approach that focuses on meeting customer requirements by achieving continuous improvement in products and services.

33
Q

Contrast conventional based performance measurement systems compared to contemporary systems.

A

Conventional methods focus on financial aspects. Focus is on consequences rather than causes.

Contemporary includes BOTH financial and non-financial aspects. The contemporary focus is on activities that ADD VALUE. It is more actionable and emphasizes continuous improvement,

34
Q

What is the ROI formula?

A 
ROI = Profit/invested capital
or
(Profit/sales revenue)*(sales revenue/invested capital)
or
return on sales x investment turnover
35
Q

What is “return on sales”, “investment turnover”and “invested capital” (used in the ROI formula)

A

Return on sales = the % of each sales dollar that remains as profit after all expenses are deducted.

Investment turnover = the # of times or # of sales dollars generated for every dollar of invested capital.

Invested capital = assets available to generate profit

36
Q

What can be done to improve ROI? Hint: think about the different factors in the ROI fomulae

A
  • increase return on sales (by increasing sales price/revenue or decreasing expenses)
  • increase investment turnover (by increasing sales revenue or reducing invested capital)
37
Q

What are the benefits of using ROI to measure performance?

A
  • widely used
  • encourages managers to focus on profits
  • promotes an understanding of the relationship between revenues, costs and assets
  • can be used to evaluate the relative performance of investment centres (even if those units are of different sizes)
38
Q

What are the limitations of ROI as a performance measurement tool?

A
  • focus is on short term performance
  • encourages the deferral of asset replacement
  • discourages managers from accepting projects that are acceptable from the org’s view but decreases the investment centres ROI
39
Q

What are the behavioral issues associated with the use of ROI as a performance measurement tool?

A
  • managers may act in a self-interest manner (i.e. short term vs. long term)
  • Lack of goal congruence
40
Q

What is the RI performance measurement method?

A

Residual income = Profit -(invested capital x imputed interest rate)

The RI shows the residual income of the investment over and above the orgs required return.

RI helps to overcome the issues associated with the ROI method.

41
Q

What is “invested capital” and “imputed interest rate” in the context of the RI formula?

A

Invested capital = plants/equipment/buildings

Imputed interest charge - based on required rate of return (usually WACC)

42
Q

What are the advantages of the RI performance measurement tool?

A
  • more likely to promote goal congruence as it takes into account the organisations required rate of return
43
Q

What are the disadvantages of the RI performance measurement tool?

A
  • cannot be used to assess the relative performance of units that are different sizes. (like ROI)
  • also tends to encourage short term focus (same as ROI)
44
Q

When using performance measurement techniques, what are the general different types of ASSETS that can be included in the formulae?

A
  • Total assets that the investment manager is responsible for
  • Total productive assets that the investment manager is responsible for
  • Total assets less liabilities
  • average or end of year balances
45
Q

What are the different NON CURRENT ASSET measures that can be used?

A
  • Carrying amount (i.e. less depreciation)
  • Acquisition cost

Note: the carrying amount shows a misleading increase in ROI and RI over time.

46
Q

What is the EVA and how is it used to measure shareholder value?

What is the EVA formula?

A

Economic value added shows the spread between the return generated by the business and the cost of capital.

Formula:
NPBT- (capital employed x WACC)

47
Q

How does an org improve EVA?

A
  • Borrow additional fund when profits exceed the cost of borrowing.
  • pay off debt
  • improve profitability

Note: no future orientation

48
Q

What are some examples of non financial performance measures?

What can be some issues of using such measures to measure performance.

A

Customer satisfaction, # of defects, internal quality audit, productivity, safety reports etc.

issues: how to choose, trade offs between different measures, some measures lack integrity and do not translate into financial outcomes.

49
Q

What is the balanced scorecard and what are the four perspectives?

A

The balanced scorecard reports on performance measures in key strategic areas of the businesses:

  1. Financial
  2. Customers
  3. Internal business processes
  4. Learning & Growth
50
Q

What are lag and lead indicators in the context of balanced scorecard outcome measures?

A

Lag - where performance outcomes are monitored providing limited information for managers to directly manage performance.

Lead - measures are used that drive outcomes and provide info that is actionable and manageable.

51
Q

Why would a PMS not work?

A
  • no link to strategy
  • when performance is acceptable on all dimension except profit
  • when customers do not buy product, even when prices are competitive
  • managers are not concerned when performance management reports are not supplied
  • untimely
  • complicated
  • does not encourage participation and empowerment
  • does not encourage continuous improvement
52
Q

What are the behavioural issues related to PMS?

A
  • resistance to change when targets are unfair or unachievable
  • resistance to change when rewards are affected by changes
  • no support across entire org
  • bottom up approaches help this
  • new measures should not be seen to be an add-on to an already crap system.

110.229 - Management accounting (3 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions