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AAT Level 4 > Costing > Flashcards

Costing Flashcards

(92 cards)

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1
Q

Hi-Lo Advantages

A

Easy to calculate
Can apply to any level of production
Quick calculation
Easy to communicate

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2
Q

Hi-Lo Disadvantages

A

Assumes there is a linear relationship
Only takes into account 2 levels of output
Need to have 2 outputs with the same conditions

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3
Q

Feedback Control Definition

A

Learning from past events and reacting to them.
E.g adjusting budgets

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4
Q

Feedforward Control Definition

A

Reacting to current issues for future budgets.
E.g day of lockdown announcement

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5
Q

Lagging Definition

A

Delay in time waiting for money

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6
Q

Top Down Budgeting

A

AKA Imposed
Decisions made by senior management

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7
Q

Top Down Budgeting Advantages

A

Less people to agree, quicker to do
Senior management know long term plans

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8
Q

Top Down Budgeting Disadvantages

A

Lack of local knowledge
Lack of ownership - can be demotivating for staff

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9
Q

Bottom Up Budgeting

A

AKA Participative
Everybody is involved in creating the budget

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10
Q

Bottom Up Budgeting Advantages

A

Increased motivation as they have input - ownership of budget
Increased amount of local knowledge
Goal congruence - everyone working together towards the same thing

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11
Q

Bottom Up Budgeting Disadvantages

A

Slower - more people to agree to the budget
Budget can be manipulated for extra time / money - Budgetary Slack
Staff don’t know long term goals (like directors)

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12
Q

Budgetary Slack

A

Budget can be manipulated for extra time / money

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13
Q

Incremental Budget

A

Adjusting the last budget with any relevant changes
Most common type of budget
If there are any errors, they can continue to be included

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14
Q

Zero Based Budget

A

Budget starts from zero every time
More time consuming
Every part of the budget needs to be justified
Potentially more accurate - can learn from mistakes

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15
Q

Priority Based Budget

A

Bidding for resources by creating a budget / plan
Have to justify all parts of the plan
Resource allocated on priority (winner of resource)

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16
Q

Activity Based Budget

A

Budget based on ABC Costing
Looking at the activities that make costs happen

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17
Q

Rolling Budget

A

Rolling - as a month passes, add another month on
Budget is for a set amount of time

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18
Q

Contingency Budget

A

Backup budget
Plan for the unexpected

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19
Q

Budget Committee

A

Usually senior executives in a business form a committee
They AGREE and OVERSEE the ‘master budget’

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20
Q

Budget Manual

A

INSTRUCTIONS on how the budgets are to be prepared / created
May detail relevant people, policies, format. etc

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21
Q

Master Budget

A

All small budgets pulled together in one ‘master budget’
May include a budgeted P&L

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22
Q

Budget Holders

A

The PEOPLE who are CREATING / RESPONSIBLE for all of the small budgets which make up the master budget

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23
Q

Budget Accountant

A

The accountant to assist the committee, as the accountant will prepare the master budget

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24
Q

Materials Variance

A

Total:
AQ x AP
SQ x SP

Price:
AQ x AP
AQ x SP

Usage:
AQ x SP
SQ x SP

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25
Labour Variance
Total: AH x AR SH x SR Rate: AH x AR AH x SR Efficiency: AH x SR SH x SR
26
Labour Variance - Idle Time
Idle time = adverse + Idle time to Labour efficiency = Favourable Staff were actually efficient but couldn't work due to idle time
27
Material Variance - Excess Iventory
Excess inventory = adverse = Excess to Material usage = Favourable Material usage was good, not their fault there was excess inventory
28
Variable Overhead Variance
SAME AS LABOUR Only occurs when work occurs Total: AH x AR SH x SR Rate: AH x AR AH x SR Efficiency: AH x SR SH x SR
29
Ideal Standard
Perfect conditions No wastage, idle team & machine breakdowns Unrealistic & demotivating
30
Attainable Standard
Allowed for some wastage & idle time Realistic, but still challenging
31
Current Standard
Based on current working standards Not trying to improve
32
Basic Standard
Unaltered over a long period of time May be out of date
33
Revised Variances
1) Ignore the change - complete variance as normal 2) Split into: Controllable (balancing figure) Uncontrollable - the update to the budget - calculation
34
Sales Variance
Sales Price Variance: Difference in selling price x number sold Sales Volume Variance: (Actual - Budgeted Sales) x Expected profit / contribution
35
Fixed Overhead Variance
Total FOH Variance: Actual FOH (Budgeted Units x OAR) Expenditure Variance: This is the "error" in original budget Original budgeted FOH (Actual FOH) Volume Variance: Actual - Budgeted Units x OAR
36
Limiting Factor Steps
Identify LF Calculate contribution PER UNIT of LF Rank Produce optimal production plan
37
ABC Costing
Looks at activities that CAUSE the costs Meaning costs will be allocated more accurately
38
Cost Pool
Amount of money to be split
39
Cost Driver
The method to split the costs out
40
Target Costing
We want to close the cost gap Method to do this: Value analysis - for existing products Value engineering - for new / planned products Looking at all aspects of the product, removing / adapting items that don't add value
41
Life Cycle Costing
Add costs together over the life cycle of the product
42
Product Lifecyle
Development: Market research, development & testing takes place Patents / copyrights set up Introduction: Introducing product to the market Big spend on marketing Some companies start selling at a loss (loss leader) or offers Growth: Happens at different rates for different products Maturity: Got their space in the market Steady sales Reduced marketing Businesses want this to last as long as possible Decline: Costs of closing Disposal of excess stock
43
Gross Profit Margin
Gross profit / Revenue X 100 = % Shows the amount of revenue which has been converted into gross profit
44
Operating Profit Margin
Operating profit / Revenue X 100 = % Shows the amount of revenue which has been converted into operating profit
45
Return On Capital Employed
Operating profit / Capital employed X 100 = % Shows how well the long term funding is being used and how much profit is being generated from it
46
Capital Employed
Non Current Liabilities + Total Equity OR Total Assets - Current Liabilities
47
Asset Turnover
Revenue / Capital Employed = x times Shows how many times the long term funding has been turned into revenue
48
Expense As % Of Revenue
Expense / Revenue X 100 = % Shows how much revenue is spent on a specific expense
49
Receivable Days
Trade receivables / Revenue (only credit) X 365 = x days Average number of days for credit customers to pay Can be affected by: discounts, credit terms, bad debts, credit control department Aim to be as small as possible / on target
50
Payable Days
Trade payables / cost of sales X 365 = x days If no cost of sales, use PURCHASES Average number of days to pay credit suppliers If bigger: improve cash flow, possible late fees If smaller: better supplier relationships, better terms, discounts, increased credit rating
51
Inventory Days
Average inventory / cost of sales X 365 = x days Use closing inventory if can't work out average Average amount of days inventory is held for Pros: buffer stock so can meet demand if there are shortages elsewhere Cons: can become obsolete, have to pay to store / insure
52
Working Capital Cycle
Inventory days + receivable days - payable days Ideally want this to be 0
53
Forecasting
Trying to predict what we expect to happen In the planning stage
54
Seasonal Trend
Same things every year repeated e.g christmas, easter, summer, winter
55
Cyclical Trend
Long term cycle e.g recession - less disposable income, less money spent, business closures, job losses, interest rate change
56
Random Trend
Something out of the ordinary happens e.g natural disaster
57
Variation
Differ from the trend Can be seasonal, cyclical or random
58
Time Series Analysis
A Graph
59
Time Series Analysis: Calculation
Trend + or - Variation = Actual
60
Line of Best Fit
Trend Line
61
Interpolation
Within the range of information (on graph)
62
Extrapolation
Outside the range of information (on graph)
63
Multiplicative Model
Expected X Trend % = Actual
64
Linear Regression
The cost of production, using a fixed and variable cost Y = a + bx
65
Linear Programming
1. Make an equation for each limiting factor 2. Make a common number 3. Subtract from eachother 4. Put answer into other equation
66
Value Added
In House Cost The value each member of staff is generating Revenue - (bought in services + materials used)
67
Indexation
The time/value of money relationship Inflation / deflation INDEX BASE = 100 Divide base cost by 100 (base number), multiply/divide other costs with this number to work out their index number
68
Expected Values
Takes into account uncertain circumstances Uses probability, various outcomes are possible Profit/Loss X Probability
69
PESTLE
Political Economic Social Technology Legal Environment
70
Total Quality Management Costs
Prevention Costs Appraisal Costs Internal Failure Costs External Failure Costs
71
Total Quality Management - Prevention Costs
Cost of trying to stop problems from occurring
72
Total Quality Management Costs - Appraisal Costs
Cost of monitoring quality in the business
73
Total Quality Management Costs - Internal Failure Costs
Cost of mistakes before the product gets to the customer
74
Total Quality Management Costs - External Failure Costs
Cost of mistakes once the product is with the customer e.g recalls
75
Balanced Scorecard
4 PERSPECTIVES Financial Customer Internal innovation & Learning
76
Labour Efficiency Ratio
Should be hours / Actual hours = % Actual Units Produced X Budgeted Hours Per Unit = should be hours Shows how fast staff are working
77
Labour Capacity Ratio
Actual Hours / Budgeted Hours = % Budgeted Units X Budgeted Hours Per Unit = Budgeted Hours Shows how many hours are available compared to used
78
Labour Activity Ratio
Actual Units / Budgeted Units = % Shows how many units should have been produced compared to how many were actually produced
79
ACE Check
Activity = Capacity X Efficiency
80
3 Point Moving Average
Calculate average based on previous, current and next period
81
Accounting Rate of Return - Initial Investment
Average Annual Profit / Initial Investment = % Shows the conversion of investment to profit
82
Accounting Rate of Return - Average Investment
Average Annual Profit / Average Investment Average investment = (Start investment + scrap value) / 2
83
Sensitivity Analysis
How much % could change before a decision would change? Adv: Easy to understand, highlights key elements to a projects success Dis: Only looks at one element, only looks at % of change doesn't show profit in relation to change
84
Sunk Cost
Past cost, already paid for - NOT RELEVANT
85
Committed Cost
Cost already committed to regardless - NOT RELEVANT
86
Non Cash Cost
Not real money, e.g depreciation - NOT RELEVANT
87
Avoidable Cost
Only occurs based on the decision made - RELEVANT
88
Return on Investment (ROI)
Controllable Profit / Controllable Capital Employed
89
Residual Income
What is left over of the profit after the cost of funding the investment
90
Internal Rate of Return (IRR)
The discount factor where the value is £0 If DF is lower than IRR - Accept If DF is higher than IRR - Reject
91
Inventory Turnover
Cost of Sales / Inventory
92
Written Question Guide - Performance Indicators / Ratio Analysis
Write introduction Write headings for each ratio Write one sentence for each ratio explaining each formula State whether the variance is positive or negative Write a conclusion - explain whether performance has improved

AAT Level 4 (7 decks)

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