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CIMA P1 > Difficuly > Flashcards

Difficuly Flashcards

1
Q

What is a cost centre?

A

Production or service location, a function, and activity or an item of equipment for which costs are accumulated

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2
Q

What is a time series?

A

Series of figures recorded over time

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3
Q

What is a trend?

A

Some sort of long term movement

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4
Q

What is seasonal variation?

A

Short term fluctuations in value due to different circumstances which occur at different times of year

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5
Q

What is cyclical variations?

A

Economic cycles of booms and slumps

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6
Q

What is residual variations?

A

Irregular, random fluctuations in data usually caused by factors specific to time series

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7
Q

What is the purpose of a budget?

A

Planning
Control and evaluation
Co-ordination
Communication
Motivation
Authorisation

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8
Q

How do you calculate quantity variance?

A

(Actual quantity - budgeted quantity) x budgeted weighted average margin

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9
Q

What are the disadvantages of marginal costing?

A

When fixed costs and overheads are high the marginal cost and sales is only a small proportion of costs
Not useful for measuring product costs and long term
Treatment of direct labour as a variable cost is unrealistic as salaries are fixed

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10
Q

What is batch level?

A

Activities consuming resources in proportion to number of batches e.g. machine set ups

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11
Q

What is unit level?

A

Activities where consumption is strongly correlated with number of units produced e.g. direct materials

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12
Q

What is product level?

A

Consumption of resources related to existence of particular product e.g. admin

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13
Q

What is facility level?

A

Ground maintenance, plot security

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14
Q

What is zero based budgeting?

A

All activities re-evaluated each time a budget is formulated. Starts with assumption that function does not exist.

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15
Q

What are the advantages of zero based budgeting?

A

Creates environment that accepts change
Better focus on goals
Forward looking
Better performance measures

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16
Q

What are the disadvantages of zero based budgeting?

A

Time consuming
Expensive
Encourages short term ism
Management may lose focus on true cost drivers

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17
Q

How do u calculate value of perfect information?

A

Expected profit with information - expected profit without perfect information

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18
Q

What is incremental budgeting?

A

Traditional approach.
Take the previous years budget and add on a percentage to allow for inflation and other cost increases

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19
Q

What are the advantages of incremental budgeting?

A

Simple
Cheap
Suitable in stable environments
Most practical

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20
Q

What are the disadvantages of incremental budgeting?

A

Backwards looking
Builds on previous inefficiencies
Doesn’t remove waste
Unsuited to changing environments
Targets are too easy
Activities are not justified
Encourages over spending

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21
Q

What are the benefits of activity based budgeting?

A

Useful when overheads are significant
Better cost control
Better cost management
Useful for TQM environments

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22
Q

What are the disadvantages of activity based budgeting?

A

Expensive to implement
Only suited to ABC users

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23
Q

What is beyond budgeting?

A

An approach to budgeting that tries to resolve the Weaknesses and limitations of traditional approaches to budgeting

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24
Q

What are the advantages of full cost plus pricing?

A

Required profit will be made if budgeted sales volumes are achieved
It is quick and cheap to employ
Can be useful in justifying selling prices to customers

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25
Q

What are the problems with full cost plus pricing?

A

Mark up can be arbitrary and may not properly account for factors
If prices set on basis of expected volume and actual volume turns out to be considerably lower overheads with not be fully recovered

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26
Q

What are the preferences to using marginal costing pricing then full cost pricing?

A

Just as accurate as cost plu pricing
Gives management the option of pricing below full cost when times are bad
Useful in pricing specific one off contracts because it only account for costs which are likely to change because of the new contract

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27
Q

What are the criticisms of marginal cost plus pricing?

A

Ignores other factors such as level of competition
Mark up become more arbitrary than that used in full cost plus pricing

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28
Q

What are the advantages of Activity based costing?

A

Improves accuracy
Better cost understanding
Fairer allocation of costs
Better cost control
Can be used in complex situations
Can be applied beyond production
Can be used in service industries

29
Q

What are the disadvantages of activity based costing?

A

Not always relevant
Still need arbitrary cost allocations
Need to choose appropriate drivers and activities
Complex
Expensive to operate

30
Q

What is a digital product?

A

Refers to a product that is stored, delivered and consumed in an electronic format

31
Q

Why are digital products more difficult to cost?

A

Marginal costs can be virtually zero and most costs are likely to be fixed in nature
No standard time or cost that can be attributed to digital products
Drivers difficult to determine
Timing of costs difficult to estimate and can extend over a number of accounting periods
Lifespan vary greatly
Features of functions might be shared amongst a number of products

32
Q

What are the four main categories of digital costing?

A

Functional services
Administrative services
Infrastructure services
IT support services

33
Q

What are the benefits of digital costing systems?

A

Real time/up to date information
Access to a wider variety of resources
Reduced operational costs
Better understanding of cost
More accurate costing
Improved communication
More accurate pricing
Improved cost control

34
Q

What does the coefficient of determination measure?

A

How good the estimated regression equation is

35
Q

What are the limitations of linear regression?

A

Assumes a linear relationship between the variables
Only measures the relationship between two variances
Only interpolated forecasts tend to be reliable
Regression assumes that the historical behaviour of the data continues into foreseeable future
Interpolated predictions are only reliable if there is significant correlation between the data

36
Q

What are the classification of costs by behaviour?

A

Fixed
Variable
Semi Variable

37
Q

What are the classification of costs by element?

A

Material
Labour
Expenses

38
Q

What are the classification of costs by nature?

A

Direct
Indirect

39
Q

What is a cost pool?

A

An activity that consumes resources and for which overhead costs are identified and allocated

40
Q

When is ABC relevant?

A

Overheads are high relative to direct costs
Product or services are complex
Diversity in the product range
Products or services are tailored to customer specifications

41
Q

What is a master budget?

A

Summary if all of the functional budgets.

42
Q

What is a stress test?

A

Examines how a budget would perform or function under severe or unexpected pressure

43
Q

What are periodic budgets?

A

Shows the costs and revenue for one period of time

44
Q

What is a rolling budget (continous budget)?

A

Budget continously updated by adding a further accounting period when the earliest accounting period has expired

45
Q

What are rolling budgets most suitable for?

A

Accurate forecasts cannot be made
Any area of business that needs tight control

46
Q

What are the advantages of rolling budgets?

A

Reduce uncertainty in budgeting
Can be used for cash management
Force managers to look ahead continously

47
Q

What are the disadvantages of rolling budgets?

A

Time consuming
Be difficult to communicate

48
Q

If a graph has perfect correlation what does it mean?

A

All the pairs of values lie on straight line

49
Q

If a graph has partial correlation what does it mean?

A

Not exact relationship

50
Q

What does positive correlation mean?

A

High values of one variable are associated with high values of the other

51
Q

What does negative correlation mean?

A

Low values of one variable are associated with high values of the other

52
Q

What does regression analysis assume?

A

Perfect linear relationships

53
Q

If r= +1 what is the correlation?

A

Perfect positive linear correlation

54
Q

If r= -1 what is the correlation?

A

Perfect negative linear correlation

55
Q

What does the coefficient of determination measure and how do you calculate it?

A

How good the estimated regression equation is
R²

56
Q

What are controllable costs?

A

Costs which can be influenced by the budget holder and are generally considered to be those which are:
Variable or
Directly attributable fixed costs

57
Q

What are uncontrollable costs?

A

Costs that cannot be influenced by management action

58
Q

What are the ethical implications of allowing managers to have a high level of participation in budgeting?

A

Inclusion of slack
Lack of goal congruence
Over stating results
Budget constrained management styles

59
Q

What are the ethical implications of a top down budget?

A

Undue pressures on the budget holder
Budget as a pot of cash

60
Q

What are the advantages of a CVP analysis?

A

Provides a target volume
Helps the understanding of costs and revenue and the relationships between them

61
Q

What are the disadvantages of CVP analysis?

A

Profits can be affected by other factors besides volume
A small change in the assumptions could have a large change in the outcome

62
Q

What is a feasible area?

A

An area contained within all if the constraint lines shown on a graphical depiction of a linear programming problem

63
Q

What is a shadow price?

A

Maximum premium on price that the organisation would pay for the extra reosurce

64
Q

What are the limitations of linear programming?

A

Linear relationships must exist
Assumes there is a single quantifiable objective
When there are a number if variables it becomes too complex to solve manually
Assumes all variable are completely divisible
Single value estimates are used for uncertain variables
Assumes that the situation remains static in all other respects
Assumes scenarios is short term

65
Q

What are the advantages if expected values?

A

Takes account of risk
Easy decision rule
Simple

66
Q

What are the disadvantages of expected values?

A

Subjective
Not useful for one offs
Ignores attitudes to risk
Answers may not be possible
Ignores the spread of outcomes

67
Q

What is a standard deviation?

A

Compares all the actual outcomes with the expected values. It then calculates how far on average the outcome deviate from the mean.

68
Q

How do you calculate the coefficient of variation?

A

Standard deviation/Expected value of return per unit

CIMA P1 (14 decks)

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