Written questions Flashcards
Advantages of ABC
Accurate cost - better pricing
Insight into what drives costs - better decision making
No arbitrary apportionment of overheads
Disadvantages of ABC
It is complex/ time consuming - not be cost effective
Does not separate fixed and variable costs - therefore no contribution - cannot calculate break-even
Advantages of Standard costing
Minimises waste by detecting variances allowing corrective action to be taken
Draws management attention to ares not performing as to plan
Provides the basis for motivation
Encourages reappraisal of systems and methods
Non financial factors that impact decisions (6)
Environmental issues Reputation of business Impacts on current staff Labour shortages Quality control Positive non-financial factors
What is interrelationship between variances?
A cause of one sub-variance could lead to the occurrence of another sub-variance
Disadvantages of absorption costing
Estimation
Accuracy - arbitrary nature
Decision-making - not short term
May have under or over absorbtion
Importance of liquid funds
Pay suppliers
Needed for survival of the business
Pay wages
Importance of break-even
Are enough unit being sold to cover cost
Is contribution per unit unit enough to cover fixed costs
More than break-even = profit
Targets to motivate employees
Why adjust for unrealised profit
Prudence/IAS2 - so inventory is not overstated and present a true and fair view
Realisation - profit has not been achieved so can’t be included
