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CIMA P1 > Difficuly > Flashcards

Difficuly Flashcards

(68 cards)

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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
What are the problems with full cost plus pricing?
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
26
What are the preferences to using marginal costing pricing then full cost pricing?
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
27
What are the criticisms of marginal cost plus pricing?
Ignores other factors such as level of competition Mark up become more arbitrary than that used in full cost plus pricing
28
What are the advantages of Activity based costing?
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
What are the disadvantages of activity based costing?
Not always relevant Still need arbitrary cost allocations Need to choose appropriate drivers and activities Complex Expensive to operate
30
What is a digital product?
Refers to a product that is stored, delivered and consumed in an electronic format
31
Why are digital products more difficult to cost?
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
What are the four main categories of digital costing?
Functional services Administrative services Infrastructure services IT support services
33
What are the benefits of digital costing systems?
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
What does the coefficient of determination measure?
How good the estimated regression equation is
35
What are the limitations of linear regression?
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
What are the classification of costs by behaviour?
Fixed Variable Semi Variable
37
What are the classification of costs by element?
Material Labour Expenses
38
What are the classification of costs by nature?
Direct Indirect
39
What is a cost pool?
An activity that consumes resources and for which overhead costs are identified and allocated
40
When is ABC relevant?
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
What is a master budget?
Summary if all of the functional budgets.
42
What is a stress test?
Examines how a budget would perform or function under severe or unexpected pressure
43
What are periodic budgets?
Shows the costs and revenue for one period of time
44
What is a rolling budget (continous budget)?
Budget continously updated by adding a further accounting period when the earliest accounting period has expired
45
What are rolling budgets most suitable for?
Accurate forecasts cannot be made Any area of business that needs tight control
46
What are the advantages of rolling budgets?
Reduce uncertainty in budgeting Can be used for cash management Force managers to look ahead continously
47
What are the disadvantages of rolling budgets?
Time consuming Be difficult to communicate
48
If a graph has perfect correlation what does it mean?
All the pairs of values lie on straight line
49
If a graph has partial correlation what does it mean?
Not exact relationship
50
What does positive correlation mean?
High values of one variable are associated with high values of the other
51
What does negative correlation mean?
Low values of one variable are associated with high values of the other
52
What does regression analysis assume?
Perfect linear relationships
53
If r= +1 what is the correlation?
Perfect positive linear correlation
54
If r= -1 what is the correlation?
Perfect negative linear correlation
55
What does the coefficient of determination measure and how do you calculate it?
How good the estimated regression equation is R²
56
What are controllable costs?
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
What are uncontrollable costs?
Costs that cannot be influenced by management action
58
What are the ethical implications of allowing managers to have a high level of participation in budgeting?
Inclusion of slack Lack of goal congruence Over stating results Budget constrained management styles
59
What are the ethical implications of a top down budget?
Undue pressures on the budget holder Budget as a pot of cash
60
What are the advantages of a CVP analysis?
Provides a target volume Helps the understanding of costs and revenue and the relationships between them
61
What are the disadvantages of CVP analysis?
Profits can be affected by other factors besides volume A small change in the assumptions could have a large change in the outcome
62
What is a feasible area?
An area contained within all if the constraint lines shown on a graphical depiction of a linear programming problem
63
What is a shadow price?
Maximum premium on price that the organisation would pay for the extra reosurce
64
What are the limitations of linear programming?
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
What are the advantages if expected values?
Takes account of risk Easy decision rule Simple
66
What are the disadvantages of expected values?
Subjective Not useful for one offs Ignores attitudes to risk Answers may not be possible Ignores the spread of outcomes
67
What is a standard deviation?
Compares all the actual outcomes with the expected values. It then calculates how far on average the outcome deviate from the mean.
68
How do you calculate the coefficient of variation?
Standard deviation/Expected value of return per unit

CIMA P1 (14 decks)

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