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Flashcards in Management Accounting Deck (24)
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1

Break even calculation

fixed costs
---------------------
(price-variable costs)

2

Contribution calculation

price - variable costs

3

margin of safety definition

the different between the actual level of output and the break even level

4

stepped fixed cost definition

a cost that does not change within certain high and low thresholds of activity, but which will change when these thresholds are breached.

5

3 benefits of break even analysis

- easy to view
- can assess the consequences of change using margin of safety
-shows the level of profit at a given level of output

6

3 limitations of break even analysis

- based on predicted figures
-a manufacturer might negotiate prices from buying in bulk, therefore the direct/variable costs may change
- calculating relies on one price, there may be discounts offered to customers

7

margin of safety calculation

actual sales - break even

8

3 methods of appraisal

-payback
-accounting rate of return
-net present value

9

fixed costs are the same as ..

.. overheads and indirect costs

10

variable costs are the same as ...

direct costs

11

fixed costs

do not vary with the level of output

12

2 examples of fixed costs?

factory
machines

13

stepped fixed costs

fixed in the short term

14

variable costs

change in proportion to the level of goods a business produces

15

revenue is

cash that flows into the business from the sale of goods or services

16

total cost =

fixed costs + variable costs

17

unit cost =

total cost (fc+vc)
----------------------------
output

18

3 reasons for cashflow forecasts

1- allows business to implicate strategies
2- if forecasted sales are low, marketing team would consider promotional pricing
3- looked at by investors and suppliers to see the success of the business

19

3 limitations of cashflow forecasts

1- changes to interest rate (can't predict it, higher/lower costs to pay, but may have had a fixed interest on loan)
2- world events
3- changes in technology

20

3 impacts of cash flow forecast/statement on a business

-used as measure if performance
-allows management to correct any problems
- potential lenders will look at statement

21

4 causes of cash flow problems

1- level of sales
2- excess stock
3- late/early payments to/from debtors/creditors
4-business environment

22

how to improve cash flows of the business

-increase sales

23

a favourable variance -

-costs lower than expected
-revenue/profits higher than expected

24

an adverse variance -

-costs higher than expected
-revenue/profits lower than expected