Decision And Control

Question 1

What is costing information used for?

Answer 1

Setting selling prices
Valuing items of inventory
Identifying ways to reduce costs
Setting cost targets for production staff and managers
Using the cost targets set to review and imprice actual performance

Question 2

Classifying costs by nature

Answer 2

Direct - traceable e.g. labour and materials

Indirect - overheads e.g. factiry rent, admin expenses

Question 3

What is prime costs?

Answer 3

Total of direct costs

Question 4

Classifying costs by function

Answer 4

Production costs - direct materials, wages of production staff are direct costs
Non-production costs - not specific to production, can be direct or indirect

Question 5

Tyles of cost centres

Answer 5

Production cost centre
Service cost centre
Revenue centre
Profit centres
Investment centres

Question 6

Classifying costs by behaviours

Answer 6

Variable costs
Fixed costs
Stepped fixed costs
Semi-vairable costs

Question 7

Splitting a semi-variable costs

Answer 7

1. Select highest and lowest production volume and related costs
2. Find the difference between 2 volume figures and cost figures
3. Divide the difference in cost by difference in volumes to determine the cost per unit
4. Use the variable cost to establish the fixed cost

Question 8

Types of costing methods

Answer 8

Absorption
Marginal
Activity based

Question 9

Absorption costing - costing card

Answer 9

Prime costs + variable overheads + fixed production overheads = full production cost

Question 10

Process of absorption costing

Answer 10

Identify costs
Allocate and apportion costs
Reapportion to service centre
Absorb indirect costs into cost units

Question 11

Overhead Absorption Rate

Answer 11

OAR = production overhead / activity level

Question 12

Under- and over-absorption of overheads

Answer 12

Predetermind OAR = budgeted production overhead / budgeted activity level
Deduct from actual spend

Question 13

Marginal costing - cost card

Answer 13

All direct costs (prime costs) + variable production overheads = variable production costs

Question 14

Reconciling absorption to marginal costing

Answer 14

Absorption costing profit
Add: opening inventory x fixed overhead absorption rate per unit
Less: closing inventory x fixed overhead absorption rate oer unit
Marginal costing profit

Question 15

Activit based costing

Answer 15

Splits overheads into ‘cost pools’ which are then absorbed into production units by the cost driver

Question 16

Contribution Analysis

Answer 16

Allows managers top understand how profit and cksts are affected by change in volume

Question 17

Break-even analysis

Answer 17

Sales revenue - variable costs = contribution
Contributuion - fixed costs = profit
Therefore
Contribution = fixed costs

Question 18

Break-even analysis

Answer 18

Volume of sales X contribution oer unit = fixed costs

Volume of sales to break-even = fixed cksts / contribution per unit

Question 19

Break-even revenue

Answer 19

Break-even point in units X selling price

Fixed costs / C/S ratio

Question 20

Margin of Safety

Answer 20

Units v budgeted sales volume = break-even sales volume

% = ((budgeted sales volume - break-even sales volume) / budgeted sales volume) X 100

Question 21

Dealing with a target profit

Answer 21

Number of units to reach target profit = (fixed costs + target profit) / contribution per unit

Question 22

Limiting factors on production

Answer 22

Shortages of raw materials
Shortages of experienced labour with a particular skills
Lack of manufacturing capability

Question 23

Limiting factors on sales

Answer 23

Economic recession
Product being soecialis/niche
Lots of competitors reduces market shares

Question 24

Calculate optimal production plan

Answer 24

1) identify limiting factor
2) caluclate contribution per phycisal unit of product
3) calculate contribution of the limiting factor
4) rank the products according to their contribution
5) follow ranking to work out optimal plan

Question 25

Relevant costs

Answer 25

Must be a future cost Must be an incremental cost Must be a cash cost

Question 26

Discount factors

Answer 26

1) identify all cash-flows that are relevant 2) add up the total cash flows for each year and multiply them by the relevant discount factor to give the present value for each year 3) add up the present values to give the ‘net present value’

Question 27

Discount factor (decision rule)

Answer 27

Positive should be accepted Negative should be rejected If multiple - pick highest NPV

Question 28

Target costing

Answer 28

1) start with the sales price per unit 2) caluculate the profit per unit that we want 3) decuct the profit from the sales price to give the total target cost we can avoid 4) if you are given certain elements cost you can deduct that dron iverakk target cost

Question 29

Ethical considerations (costs saved by)

Answer 29

Limiting the use of resources and improving efficiencies Reducing packaging materials Installing energy efficient lighting in offices and stores Minimising translortation costs

Question 30

Linear regression

Answer 30

``` Y = a + bx Y = total costs at given output X = the production volume achieved A = fixed costs that are incurred no matter level of output B = variable costs per unit ```

Question 31

Limitations of linear regression

Answer 31

Recent historical data may not be typical of ‘normal’ situation Using historical data may not be indicative of future outcomes Technique assumes linear relationship between 2 variables If volume increases above levels previously it ,ay increase fixed costs

Question 32

Time series analysis

Answer 32

Trend (T) Seasonal Variation (SV) Cyclical Variation Random Variation

Question 33

Time series additive model

Answer 33

TS = T + Sv

Question 34

Time series multiplicative model

Answer 34

TS = T x SV

Question 35

Time series steps to follow

Answer 35

1) calculate moving average figures 2) centre the moving averages to establish the trend 3) caluculate the seasonal variations 4) calculate predications for the forecast period

Question 36

Price index

Answer 36

Measures change in price over a period of time

Question 37

Quantity index

Answer 37

Measure change in quantity over time

Question 38

Base period

Answer 38

Point intime which the index was started and future values are compared

Question 39

Index Values calculations

Answer 39

(price now / price in base period) x 100

Question 40

Index numbers ot create forecasts

Answer 40

Forecast price = price in the base period x (new index value / 100)

Question 41

To deflate using an index

Answer 41

Cash flow x (index in earlier period / index in later period)

Question 42

To inflate using an index

Answer 42

Cash flow x (index in later period / index in earlier period)