Chapter 1 Flashcards
(232 cards)
1
Q
Cost accounting
A
Bank data for managerial accounting
2
Q
Cost accounting is concerned with …
A
Preparing statements
Cost data collection
Applying costs to inventory, products, services
3
Q
Six differences between managerial and financial accounting
A
Users
Purpose
Format
Nature
Legality
Time period
4
Q
Main functions of management accounting
A
Costing
Planning
Control
Decision making
Performance measurement
5
Q
Explain Strategic, Tactical and Operational Planning
A
Strategic: long term
Tactical: medium term
Operational: daily decisions
6
Q
Define Data
A
Raw material for information processing
7
Q
Information
A
Processed data
8
Q
Quantitative data
A
Data that can be measured
9
Q
Qualitative data
A
Data that cannot be measured; descriptive
10
Q
Types of Information
A
Financial, non financial, combination of both
11
Q
Attributes of Good information
A
A
C
C
U
R
A
T
E
12
Q
Main sources of Data
A
Transactional
Human
Machine/sensor
13
Q
Primary Data
A
Data collected for a specific purpose
14
Q
Secondary Data
A
Data already collected elsewhere but can be used for our purposes
15
Q
Discrete data
A
Data that is finite
16
Q
Continuous data
A
Data that can take on any value within a range
17
Q
Non production costs
A
Administrative costs
Finance costs
Selling and distribution
18
Q
Coding System
A
A way of expressing the classification of each cost in a shortened symbolised form
19
Q
Advantages of a coding system
A
Reduces ambiguity
More suitable than a description in a computerized system
20
Q
Structure of a report
A
Title
Introduction
Analysis
Recommendations
Appendix
21
Q
Characteristics of Job costing
A
Each order has a short duration
Work is undertaken to customers special requirements
It is usual for each job to differ in one or more respects from another job
Identify the costs associated with completing the order
22
Q
Batch costing
A
Similar to job costing in that each batch of similar articles is separately identifiable
23
Q
Cost per unit In batch
A
Total production cost of batch/number of units in batch
24
Q
Cost plus pricing
A
A desired profit margin is added to total costs to arrive at the selling price
25
Mark up
Calculated as a percentage of the total costs of the job
26
Process costing
A costing method used where it is not possible to identify separate units of production because of its continuous nature
27
Average cost per unit
Costs of production/expected or normal output
28
Formula for normal loss
Average cost per unit =
total costs of inputs - scrap value of normal loss units / units input - normal loss units
29
Cost Object
Anything to which cost data is desired
30
Cost unit
A product or service to which costs are ascertained
31
Cost center
A holding place for costs
32
Revenue center
Accountable for revenues only
33
Profit center
Accountable for revenue and costs
34
Investment center
Accountable for profits and investment responsibilities . Performance will be measured by roce, ri and roi
35
Random sampling
Each item has an equal chance of being selected
36
Systematic sampling
Considers every nth of an item
37
Stratified sampling
Population is divided into subgroups based on characteristics they share, then a random sample is picked from each strata
Number in each sample is proportional to the size of that group in the population and is known as sampling with probability proportional to size
38
Cluster sampling
Researchers divide the population into multiple groups for research; choosing smaller geographic areas until you get a small enough area
39
Disadvantages of systematic sampling
Sampling method is not completely random
Sample chosen might be biased
40
Quota sampling
Investigators are told to interview all the people they meet up to a certain quota
41
Another name for systematic sampling
Quasi random
42
Which sampling method should not be used if the population follows a repetitive pattern ?
Systematic sampling
43
The only non probability sampling method
Quota sampling
44
Multistage sampling
Draw a sample from the population using smaller and smaller groups at each stage
45
Advantages of high low method
Easy to use
Easy to understand
46
Disadvantages of high low method
Requires two extreme points so won’t show average costs in normal periods
Relies on historical data
Assumes activity level is the only factor affecting costs
Bulk discounts may be available at large quantities
47
Trend line/line of best fit
Straight line which passes through many points on the graph as possible
48
Extrapolating the trend
Extending the trend line into the future
49
Disadvantages of using scatter graphs as a forecasting technique
Uses past information to predict future
Assumes relationship is linear
Not accurate
50
Correlation
Measures the strength between two variables
51
Formula for correlation
Uses r
52
Correlation coefficient
Measures the strength of a linear relationship between two variables. It can only take on values between -1 and +1
53
Coefficient of determination
Measures how much of the variation in the dependent variable is explained by the variation of the independent variable .. denoted by r^2
54
Advantages of linear regression
Reliable approach to forecasting using Mathematical principles
Can use many data sets so therefore more accurate
55
Disadvantages of linear regression
Complicated
Only valid when relationships are linear
Uses past data
56
What does the slope of the regression line tell us
How much change in y variable is caused by a unit change in x variable
57
Does linear regression assume linear cost behavior
No it just assumes linear relationships
58
Retail price index
Government produced index to measure general rate of price change in the economy
59
Time series
A series of values recorded over time
60
Histogram
Graph of time series
61
Trend
Underlying movement over time in data values recorded
62
Seasonal variations
Short term fluctuations in recorded values
63
Cyclical variations
Medium term fluctuations in data values recorded over time
64
Residual variations
Random variations; unpredictable, non repetitive
65
Time series formula
Y = T + S + C + R
66
Moving average
Average of the results of a fixed number of periods
67
Two step process in carrying out time series analysis and forecasting
Establishing long term trend
Establishing regular seasonal variation
68
Advantages of time series analysis
Simple approach
Useful when forecasting data which has a regular seasonal pattern
69
Disadvantages of time series
Assumes that past trend will continue and extrapolating data based on historic information will give valid conclusions
Sales of products may be influenced by the actions of competitors
70
Product life cycle
Concept suggesting all products pass through a number of stages from development to decline
71
Importance of product life cycle in forecasting
When they know what stage a rosy t is in you can market the product more effectively and forecast sales from knowledge on the products current position
72
Limitations of product life cycle
Difficult to determine precise position of a life cycle
Oversymplistic to assume the curve follows the standard model
73
Big data
Collection and analysis of large amount s of data
74
5 v of data
Volume
Variety
Veracity
Velocity
Value
75
Purchase requisition
Sent from stores to purchase department requesting the materials they want
76
Purchase order
Sent from company to supplier telling them what they would like to order
77
Perpetual inventory
Recording inventory as they occur
78
Periodic stocktaking
Checking the balance of every item in inventory at the end if a period
79
Continuous stocktaking
Valuing selected items on a rotating basis
80
Holding costs formula
(Q/2 + buffer inventory) * cost to hold one unit for year
81
Ordering cost formula
(D/Q) * cost to place one order per year
82
Stock out costs
Occurs when the business runs out of inventory
Can cause loss of sales, customers, reputation reduced profits
83
Reorder level
Maximum usage * maximum lead time
84
Minimum level
Reorder level - (average lead time * average usage)
85
Maximum level
Reorder level + reorder quantity - (minimum usage * minimum lead time)
86
Average inventory
Minimum inventory + 1/2 reorder quantity
87
Periodic weighted average formula
Cost of opening inventory + total costs of receipts/ units of opening inventory + total United received
88
Direct Labour
Basic pay of direct workers
89
Indirect Labour costs
Basic pay of indirect workers
Bonus payments
Idle time
Sick pay
Time spent by direct workers doing indirect jobs
90
What is time and a quarter
1.25
91
Are overtime premiums tested as direct Labour costs ?
Only at the specific request of the customer
92
Is premium pay and indirect expense
Yes
93
Labour turnover ratio
Employees at the start - those who left + those replaced * 100
94
Labour efficiency ratio
Standard hours/ actual hours * 100
95
Labour capacity ratio
Actual hours/budgeted hours * 100
96
Labour production volume ratio
Standard hours/budgeted hours * 100
97
Overheard absorbed
Oar * actual level of activity
98
Marginal costing
Only variable production units are charged to cost of sales
99
Formula for contribution
Sales price - all variable costs
100
Formula for total contribution
Contribution per unit * sales volume
101
Profit with contribution
Profit = total contribution - fixed overheads
102
When is marginal costing used for pricing decisions
Short term pricing decisions
More appropriate than absorption in one off pricing decisions
103
When is absorption costing appropriate
Long term pricing decisions
When used for pricing decisions includes the total cost of the product
104
Equivalent units
Notional whole units which represent incomplete work and are used to apportion costs between work in process and completed output
105
Degree of completion equivalent units
Value of 1 closing wip unit/value of a finished unit
106
Budget
Plan of what an organization is aiming to achieve
107
Forecast
An estimate of what is likely to happen in the future
108
Objective of a budgetary planning and control system
Ensure the achievement of organization objectives
Communicate ideas to manages
Evaluate the performance of management
Motivate employees to improve performance
Establish a system of controlling costs by comparing actual with budget
Coordinate activities so managers are working towards the same goal
109
Stages in planning and control cycle
Set mission
Identify objectives
Search for possible courses of action
Gather data about alternatives
Select course of action
Implement short term plans
Monitor actual plans
Respond to divergences from plan
110
Mission
Involves establishing the overall aims and goals of the organization
111
Smart objectives
Specific
Measurable
Attainable
Relevant
Timely
112
Budget center
Unit responsible for preparing budgets
113
Functions of budget committee
Issue timetables for budget preparation
Provide info to assist budget preparations
Compare actual results with budget and investigate variances
Coordinate the predation of budget including issuing manual
114
Budget officer
Ensures deadlines are met
Educates on budgetary control
Deal with budgetary problems
Liaise between budget committee and managers responsible for budget preparation
115
Budget manual
Charts the organization
Details budget procedures
Timetables the process
Defines responsibility of persons
Contains account codes for revenue and expenditure
116
Stages in budgetary process
Communicate policy guidelines to budget preparers
Determine limiting factor
Prepare budget using principal budgetary factor
Initial preparation of budgets
Coordination and review of budgets
Final acceptance of budgets
Budget review
117
Budget principal factor
Factor that restricts output
118
What items make up the master budget
Budget sofp
Budgeted sopl
Cash budget
119
When all functional budgets have been prepared, they are summarized and consolidated into what
Master budget
120
What if analysis
Form of sensitivity analysis which allows the effects of changing one or more data values to be quickly recalculated
121
Flexible budget
Budget that adjusts or flexes for changes in the volume of activity
122
When are flexed budgets prepared
At the planning stage, before production starts
123
Fixed budget
Not changed in response to changes in activity level, costs or revenues
Produced for a single level of activity
Comparison of actual results with different levels of activity is not useful for budgetary control purposes
124
Purpose of a fixed budget
Useful for controlling any fixed cost and non production fixed costs
125
Capital investment
Expenditure on non current assets for use to provide a return by way of interest, dividends or capital appreciation
126
What do capital investment decisions affect
Growth
Risk
Increased funding and company value
Complexity
127
Steps involved in the prerogative a capital expenditure budget
Identify investment required
Evaluate capital expenditure
Authorize capital expenditure and disposal
Implement, monitor and review investments
128
Simple interest
Calculated on the original principal only
129
Compound interest
Internet on principal + interst
130
Formula for future value
Fv = Pv (1+r)^n
131
Standard deviation
Measures the spread of data around the mean
132
Variance
Squared of deviation
133
Coefficient of variation formula
Standard deviation/mean
134
Coefficient of variation definition
Standard deviation as a proportion to the mean
135
Expected values
What an outcome is likely to be in the future if the decision can be repeated many times over
136
Expected values formula
Sum of px
Where p= probability of outcome occurring
Where x = outcome/results
137
Limitations of using expected values
Inappropriate for one off decisions
Heavily dependent on probability distribution
Ignores risk where risk is the spread of outcomes
138
Basic groups of remuneration method
Time work
Piece scheme
Bonus
139
Standard hour of production
Number of units that can be produced by one worker, working in the standard way, at the standard rate for one hour
140
Labour turnover rate
No of replacements/ average number of employees in a period * 100
141
Free inventory
Materials in inventory + materials on order from suppliers - materials requisitioned but not yet issued
142
Reorder level
Maximum * maximum
143
Minimum level
Reorder level - (average * average)
144
Maximum level
Reorder level + reorder quantity (minimum * minimum)
145
Average inventory
Minimum level + 1/2 reorder quantity
146
Coefficient of variation formula
Standard deviation/mean
147
Formula for correlation coefficient
R
148
Performance measurement
Ensuring the business runs as efficiently as possible
149
Mission statement
Organizations purpose and they are trying to achieve
150
Smart objectives
Specific
Measurable
Attainable
Relevant
Time bound
151
Are secondary objectives strategic, tactical or operational
Strategic objectives
152
Critical success factor
Performance requirement that is fundamental to competitive success
153
Examples of critical success factors
Profitbailtity
Market share
Productivity
Employee attitudes
Public responsibility
154
Key performance indicators
Measures that used to assess whether or not the CSF’s are being achieved
155
Components of time series
Trend + seasonal + cyclical + random
156
Goal congruence
When individuals make decisions that are in the self interest and in the interest of the organization
157
Dysfunctional decision making
Occurs when goal congruence does not exist or is impaired
158
Is motivating managers an important aspect of setting and achieving targets ?
Yes
159
Top down budget
Set without allowing the budget holder to have the opportunity to participate in the budgeting process.
Are appropriate in newly opened business and small businesses, in times of economic hardship and when managers lack budgeting skills
160
Bottom up budget
Budget holds are given the opposite to participate in the budget preparation process
161
Advantages of bottom up budgeting
More achievable targets based on local knowledge
Increases morale
Reduces workload of top management
162
Disadvantages of bottom up budgeting
Time consuming
Staff may lack knowledge required
Staff may set targets that are too easy
163
Should employees receive feedback on performance
Yes
164
Key features of feedback
Timely reports
Accurate information
Reports identify controllable costs and revenues
165
Budgetary slack
The difference between the minimum necessary costs and the costs actually incurred
166
Profit sharing scheme
A scheme where employees receive a certain proportion of their company’s year end profits
167
Advantages of profit sharing scheme
Company will only pay what it can afford out of profits
Bonus can be paid to non production personnel
168
Disadvantage of profit sharing scheme
Employees must wait till year end
Factors affecting profit may be outside employees control
169
Share option scheme
Gives it member the right to buy share in the company
170
Employee share
A scheme which acquired shares on behalf of a number of employees and must distribute it within a certain number of years of acquisition
171
Let mechanisms in the control process
Review of corporate plan to reflect significant new information
Actual performance compared with planned performance
172
Short term iam
Bias towards short term rather than long term performance due to managers performance being measured on short term results
173
Benchmarking
Measuring business performance against targeted performance
174
Internal benchmarking
Comparing one unit with another in the same organisation
175
Competitive benchmarking
Information is gathered about other competitors
176
Functional benchmarking
Internal functions are compared regardless of industry
177
Strategic benchmarking
Competitive benchmarking aimed at strategic action and organizational change
178
External conditions that can affect performance
Market conditions
General economic conditions
Government influences
179
Interpolation
Using a long of best fit to predict a value within two extreme points of the observed data range
180
Consumer price index
Measures the change in the average basket of goods and services
181
Base weighted price index/Laspeyres index formula
PnQo/PoQo * 100
182
Current weighted index (Passche index)
PnQn/PoQn x 100
183
Job costing
Consists of a single order or contract
184
Batch
Cost units that consists of a separate readily identifiable group of units
185
Service costing
Concerned with establishing the costs of services rendered
186
Formula for service costing
Total costs for period/number of service units in the period
187
Characteristics of service organizations
Simultaneous - cannot be inspected for quality in advances
Heterogeneous - services rendered will vary each time
Intangible - actual benefit cannot be touched
Perishable - they cannot be stored
188
Composite cost units
A cost derived by cost per kg per kk (useful when comparing costs for any weight traveling any journey)
189
Service department costing
Used to establish a specific cost for an internal service that is a service provided by one department for another rather than one sold externally to customers
190
Purpose of service department costing
1. Control the costs and efficiency of the service departments
2. Control the costs of the user departments and prevent the unnecessary use of services
191
Joint products
Two or more products which are output from the same processing operation but indistinguishable from each other up to the point of separation
192
By product
A secondary product whose value is small relative to that of the principal product
193
Objectives of a budgetary planning and control system
P - plan
R - responsibility
I - integration and coordination
M - motivation
E - evaluation and control
194
Responsibility center
A department or function in an organization that is headed by a manager who is responsible for its performance
195
Responsibility accounting
Segregates revenues and costs into areas of personal responsibility to assess the performance of each part of an organization
196
Master budget
Consists of Sopl Sofp and cash budget
197
Functional budget
Various departments in an organization
198
Cost control
Regulating the costs of operating a business and keeping costs within acceptable limits
199
Cost reduction
A planned and positive approach to reducing expenditure
200
Aproa
201
Approaches to cost reduction
Crash programmed to cut spending levels
Planned pregames to reduce costs
202
Value analysis
A planned approach to cost reduction which reviews the material composition of a product and so that improvements can be made which do not r it reduce the value of the product
203
Value engineering
Application of value analysis to new product so products are Designed at minimum cost
204
Aspects of value
Cost value: cost producing and selling an item
Exchange value: market value of the product or service
Use value: what the article does; the purpose or fulfills
Esteem value: prestige the customer attaches to the product
205
Value added incentive scheme
An alternative to profit as a business performance measure and can be used as the basis of an incentive scheme
206
External conditions that affect performance
Market conditions: entry of new competitions to the market is likely to impact on performance
Economic conditions: overall demand and supply will be affected by interest and inflation charges
Government influence: taxation, legislation
207
Profitability ratios
How efficiently a business can make profit from the resources it has available
208
Return on capital employed formula
PBIT/Capital employed
209
ROCE Definition
Shows how much profit has been made in relation to the amount of resources invested
210
Operating profit margin
PBIT/revenue
211
Operating profit margin definition
Return on sales
212
Gross profit margin
Gross profit/revenue
213
Gross profit margin definition
Shows the gross profit generated as a percentage of sales
214
Asset turnover
Revenue/capital employed
How the assets are being used to generate sales
215
Return on equity
Profit after tax and preference dividend/equity shareholders funds
Shows how much profit each unit of shareholders equity generates
216
Asset turnover
Measure of how well the assets are being used to generate sales
217
Current ratio
Current assets/liabilities
218
Quick ratio
Current assets - inventories/current liabilities
219
Inventory holding period
Inventory/cost of sales * 365
220
Inventory turnover
Cost of sales/inventories
221
Receivables collection
Receivables/credit sales * 365
222
Payables payment
Payables/credit purchases * 365
223
Hearing
Debt/equity
224
Interest cover
PBIT/interest charges
225
Hearing
Amount of debt in a company’s long term capital structure
226
Interest cover
Number of times a company can afford to cover its interest costs from the profit generated
227
Return on investment
Controllable divisional profit/divisional capital employee * 100
228
Two ways of measuring the performance an investment center
ROI and RI
229
Residual income
Measure of the center profits after deductions a notional or imputed interwar charge based on the total invested in the division multiplied by the company’s cost of capital
230
Residual income
Controllable profit - (controllable investment
231
Opportunity Cost
Value of the benefit sacrificed when one course of action is chosen in preference to another
232
Incremental costs
Extra costs which will be incurred in the future
