B Theory Flashcards
(125 cards)
1
Q
Traditional absorption costing disadvantage (volume)
A
Allocation of more overheads to high volume products
2
Q
What are environmental costs?
A
Prevention
Detection
Internal failure
External failure
3
Q
What are environmental internal failure costs?
A
Environmental failure where failure identified within organisation before manages to affect external environment
4
Q
Environmental prevention costs?
A
Activities which aim to avoid pollution or wastage occurring
5
Q
Environmental detection costs?
A
Costs incurred to test levels of emissions and wastage to ensure organisation compliant with internal standards
6
Q
External failure costs?
A
Pollution which affected the outside environment
7
Q
What are overheads for ABC?
A
Separate costs that need to be allocated
8
Q
Should absorption costing or ABC be used when overheads are high?
A
ABC as it leads to a rational absorption of overheads
9
Q
Marginal costing vs ABC when determining true cost?
A
Marginal costing understates true cost compared to ABC
10
Q
Which costs does marginal costing only take into account?
A
Variable costs
11
Q
Which costs does ABC only take into account?
A
All costs
12
Q
What are cost drivers?
A
Specific actions that cause the costs to be incurred
13
Q
How does absorption costing absorb overheads?
A
In a blanket way
14
Q
How does ABC treat fixed costs?
A
As product costs
15
Q
Can environment related costs be attributed to a joint cost centre?
A
Yes
16
Q
Can environment driven costs be attributed to a joint cost centre?
A
No, as they are allocated to general overheads
17
Q
When labour costs are a relatively minor proportion of total costs (ABC or absorption rate)
A
ABC
18
Q
When overheads vary with many different measures of activity (ABC or absorption rate)
A
ABC
19
Q
Minimising the breakeven time and life cycle costing?
A
Improves financial returns
20
Q
Maximising length of product life cycle and life cycle costing?
A
Improves financial returns
21
Q
Minimising time to get a new product to market and life cycle costing?
A
Improves financial returns
22
Q
What is the theory of constraints?
A
Small amount of buffer inventory maintianed prior to bottleneck activity
23
Q
How is profit determined in throughput accounting?
A
How quickly raw materials can be converted to sales
24
Q
The higher rate of throughout (TPAR)?
A
Higher TPAR
25
Should conversion and investment costs be kept at a minimum in theory of constraints?
Yes
26
What are overhead costs usually a large proportion of?
Total costs
27
What is an effective of reducing the projected cost of a new product?
Simplifying the design
28
What does the value of target costing depend on?
Having reliable estimates of sales demand
29
What are conventional costs?
Raw materials and energy costs having environmental relevance
30
What are potentially hidden costs?
Costs captured by accounting systems but then losing their identity in general overheads
31
What are contingent costs?
Costs to be incurred at a future date
32
What are image and relationship costs?
Costs that, by their nature, are intangible
33
When is product most profitable in lifeycle costing?
Maturity phase
34
Why is life cycle costing not particularly useful for deciding selling price for a product?
Because appropriate selling price changes over the life of a product
35
Does throughput accounting make a distinction between direct and indirect costs?
NO
36
What does throughput accounting assume about labour costs?
They are a fixed cost
37
When is ABC an appropriate system for overheads?
When overheads are high relative to prime costs and when significant diversity in product range
38
What is the aim of JIT?
To hold no inventory
39
What is the aim when dealing with a binding constraint?
To imrpove the output capacity
40
How to improve output capacity?
Achieving more output per unit or obtaining more of the resource
41
Can all costs be linked to an activity?
NO
42
Where are most of a product's life-cycle costs determined?
By decisions made at the design and development stage
43
What life-cycle stage does product development happen?
At maturity phase to extend profitable stage of the life cycle
44
Advantage of life cycel costing (management's attention)
Management's attention to all costs related to a product
45
Advantage of life cycle costing (concept withdrawal)
Measuring a product's costs from concept to withdrawal
46
Advantage of target costing (Prepared pay product)
What consumers are prepared to pay for a product and establishes cost budgets on an expected selling price
47
Is ABC more expensive than absorption costing?
Yes
48
Benefit of ABC for accuracy?
More accurate costs per unit
49
What does throughput accounting assume about material costs?
They can be controlled in the short-term
50
What does throughput accounting assume about labour costs?
They are largely fixed
51
Can bottlenecks be eliminated?
No
52
Throughput accounting vs limiting factor analysis for decision making?
Throughput better for short-term decision-making
53
Why is a certain amount of buffer material nedded for throughput accounting?
To maximise throughput through the bottleneck activity
54
What is JIT often associated with?
Cost reduction and performance improvement
55
What does theory of constraints aim to achieve?
Elevate a bottleneck resource to the level where it ceases to be a bottleneck
56
Should a TPAR be expected to exceed 1?
Yes
57
What is a disadvantage of life cycle costing?
It is costly and time consuming to operate
58
What does life cycle costing aim to ensure for a profit?
It is generated over the entire life
59
What does life cycle costing ensure for costs?
They are based on better knowledge of costs
60
When is a product's life cycle cost determined by?
Decisions made early within the life cycle
61
What does throughput accounting aim to address?
Demand ceases capacity to produce, which stage of production is the bottleneck
62
How to maximise output?
Identify the bottleneck and improve it so throughput contribution is better
63
Steps for target costing?
Determine price, then profit, then target cost
64
How are fixed costs usually fixed?
Only over certain ranges of activity
65
What is the marginal cost?
The additional cost when one more unit is produced
66
When are fixed costs beneficial in absorption costing?
Relatively immaterial compared to material and labour costs
67
How are cost pools made?
By splitting fixed overheads into activities
68
ABC advantage over absorption (savings)
A better indication of where cost savings are made
69
Benefit of increasing the batch size?
Reduces set-up costs
70
Issue with mark-up approach in conventional costing (price)
The product’s price is based on its cost, but no‑one might want to buy at that price
71
Issue with mark-up approach in conventional costing (costs)
Other important costs missed, the focus being current costs
72
Aim of value engineering?
Maximise use and esteem values while reducing costs
73
Which category in life cycle costing are disposal and decommissioning costs at/
End of life
74
Why does life cycle costing give attention to all costs?
Help reduce the cost per unit and will help an organisation achieve its target cost.
75
When are costs incurred in life cycle costing?
Costs are incurred only when a resource is used
76
Main problem with identifying environmental costs?
They are considered general overheads
77
Main environmental costs?
waste and effluent disposal
water consumption
energy
transport and travel
consumables and raw materials.
78
What is input/outflow analysis?
This technique records material inflows and balances this with outflows on the basis that, what comes in, must go out
79
Aim of flow cost accounting?
Reduce the quantity of materials which, as well as having a positive effect on the environment, should have a positive effect on a business’ total costs in the long run
80
What is throughput?
Rate at which the system generates money through sales
81
What must be done with the blottleneck resource?
Must be used as much as possible
82
Is idle time inevitable?
Yes
83
When a bottleneck is elevated, what happens afterwards?
A new bottleneck appears
84
What does marginal costing ignore?
The fixed overheads
85
What does ABC provide for costs?
Greater insight into the causes of costs
86
What does marginal costing understate when compared to ABC?
The true cost
87
Does lifecycle costing have to be performed on a monthly basis?
No
88
What can using cheaper materials do to the cost per unit?
Reduce the cost but could hamper the quality
89
What form of cost is fuel in environmental management accounting?
Conventional costs
90
Can target costing be used in conjunction with lifecycle costing?
Yes
91
What is the priority in theory of constraints?
To maximise throughput
92
What are internal failure costs?
Relate to failures that are identified and dealt with within the organisation before the external environment is affected
93
Does ABC affect the prime costs of products?
No
94
High volume products in absorption vs ABC?
High-volume products receive a higher amount of overhead costs in absorption
95
When can functional analysis be used?
At the product design stage
96
When can value analysis be used?
To identify where small cost reductions can be applied to close a cost gap once production commences
97
Benefits of lifecycle costing (selling prices)
Better selling prices can be set
98
Benefits of lifecycle costing (financial)
It provides a true financial cost of a product
99
Benefits of lifecycle costing (expensive)
Expensive errors can be avoided in that potnetially failing products can be avoided
100
Benefits of lifecycle costing (designing)
Lower costs can be achieved earlier by designing out costs
101
What do traditional capital budgeting techniques not attempt to do?
Minimise the costs or maximise the revenues over the product life cycle
102
Does TPAR measure on the basis of the slowest or fastest machine?
Slowest
103
How are output costs allocated?
Between positive products and negative products costs
104
How are manufacturing costs divided?
Material
System and delivery
Disposal costs
105
What does triple bottom line reporting involve?
Measuring the organisation's profit
106
What stage of lifecycle costing need further capital expenditure?
Introduction stage
107
Where are majority of a product's life cycle costs determined?
By decisions made at the design and development stage
108
When does product development normally occur in life cycle costing?
Maturity stage
109
Advantage of target costing (consumers)
Focuses on what consumers are prepared to pay for a product
110
Can ABC applied to all costs?
Yes
111
When will ABC be limited in benefit (types of cost)
Primarily volume related or if overheads represent a small proportion of overall cost
112
Benefit of ABC (cost per unit)
It gives a more accurate cost per unit
113
What does ABC normally assume for cost per activity?
Cost per activity is constant as the number of times the activity is repeated increases
114
Why can't complete accuracy with ABC be achieved?
Depends on the accuracy of the cost drivers identified
115
When there are lower production runs for ABC?
There is a cheaper unit per cost
116
What does life cycle costing not give a better understanding of?
The actual causes of overhead costs
117
What does improving throughput on a bottleneck improve?
TPAR
118
What does increasing selling price or reducing raw material costs increase?
TPAR
118
What does reducing total factory costs increase?
TPAR
119
What costs does marginal costing only take into account>
Variable costs
120
What pricing technique will likely be used in introduction stage?
Price skimming or penetration pricing may be used
121
Price skimming and the growth phase?
The price will be reduced during this phase
122
Penetration pricing and the growth phase?
Price will start to rise during this phase once the business is confident about having sufficient customer loyalty
123
What will likely happen during the maturity phase?
Likely that profit maximisation pricing policies will be used
124
What will likely happen during the decline phase?
Lower prices may be charged to sell off excess inventories
