Lectures 1 /2/3/4 Flashcards
(14 cards)
What’s the difference between managerial accounting and financial reporting?
Management Accounting involves only internal parties and is used to influence future internal decisions
Financial Accounting involves external parties and reports on past performance
Define cost
The monetary value of resources sacrificed in order to achieve a specific objective.
What is a cost object?
Anything for which a seperate measure of cost is required: Product, Service, Project, Activity, Department
What is an outlay cost?
A direct incurred cost in order to acheive a particular objective
What 3 qualities must a cost/benefit have to be considered relevant?
-Relate to the objectives of the business
-Be a future cost
-It must vary with the decision
Talk through the decision flow diagram for determining relevant labour costs
Is there spare labour capacity?
Yes = Zero relevant cost
No = Has new labour been hired?
-Yes = Cost of additional labour
-No = The opportunity cost of the diverted labour
Talk through the decision flow diagram for determining relevant material costs
Are the materials held in inventory?
No = Current purchase cost
Yes = Do they need to be replaced?
-Yes = Current purchase cost
-No = Sales value OR alternative use (whichever is higher)
How do you calculate the relevant cost of machines?
Calculate the net relevant cash flows as the difference in cash received for selling the machines now or in one years time
What are stepped fixed costs?
Those that do eventually increase with large increases in output (i.e. rent)
What are semi-fixed/semi-variable costs?
When a cost has an element of fixed and variable i.e. electricity bill of hairdressers
How can we estimate semi-fixed/variable costs?
High-Low method:
If we have data over many months, take highest and lowest costs, assume the difference between the two are the variable costs
More reliable:
Plot costs against volume of activity for each month with a scatter graph.
The line of best fit represents the VC, and where it begins on the Y axis represents the FC
What is the margin of safety?
In a BE analysis, the extent to which the planned volume of output/sales lies above the break even point
What is the difference between an economists and accountants approach to BE analysis?
Accounts assume that sales price assume the same regardless of demand, therefore somewhat unrealistic.
Accounting approach assumes you can easily divide costs for making lots of different types of product
Neither take into account changing fixed costs due to external factors
Accounting assumes you sell all goods produced within exactly a year
What are some other factors involved in choosing a pricing strategy?
-Psychological pricing
-Pricing policy of the business
-Marketing strategies may be price related
