Management Accounting: Decision and Control

Opening Inventory + cost of production =? - correct answer Cost of Sales + Closing Inventory If inventory levels increase, which costing method would create the largest profit and why? - correct answer Absorption Costing, because more of the costs incurred are pushed into the next period If inventory levels Decrease, which costing method would create the largest profit and why? - correct answer Marginal Costing, Because more of the cost from the previous period are set against income If there is no change in inventory levels, which costing method would create the largest profit? - correct answer Either, assuming that unit costs remain the same then there will be no difference in profit What happens if costs are under-absorbed? - correct answer The costs are debited to the profit or loss statement What happens if costs are over-absorbed? - correct answer The costs are credited to the Profit or Loss statement What are the main uses of management accounting? (3) - correct answer Planning Monitor / Control Decision making What is stated in IAS2 regarding the valuation of inventory? - correct answer "..Valuation of inventory requires that fixed and variable overheads are included as part of the 'cost of conversion'" What is minimum price-setting? - correct answer The marginal cost that can be used as the absolute minimum that can be charged per product or service to cover the costs What is break-even Analysis? - correct answer The calculation of number of items or sales value that will result in neither a profit or loss, this can be used as a base target. What is the margin of safety? - correct answer This calculation shows how far away the planned volume level is from the break-even volume. What is contribution Analysis? - correct answer This calculation shows the profit (contribution) per unit by deducting the variable costs from the selling price. What is 'What if?' Analysis? - correct answer A tool used to test outcomes from possible scenarios. How is the high-low method incorporated with stepped costs? - correct answer Difference in cost - stepped increase / difference in units How is the high-low method incorporated with quantity discount to variable costs if you know the unit discount? - correct answer First you will have to calculate the costs with the discount ignored. The divide the difference in cost by the difference in units. You can less the unit discount from the result to give the variable cost per discounted unit. What is discounted cash flow? - correct answer A method used with long term decision making which takes in to account the time-value of money. It converts cash flow to present cash flow. What is the initial rate of return? - correct answer The interest rate when applied to cash flows from a project which results in a net present value of zero. What is the net present Value? - correct answer Comparing the present values of all future cash flows, the original cost is a negative, costs are positive. If the net present value is negative this means that the outgoing cash flow is less than the incoming cash flow,which means the project would be worthwhile. What are the three types of standard costing? - correct answer Ideal Attainable Basic What is Ideal standard costing? - correct answer Ideal standard makes no allowances for inefficiency or wastage of labour or materials, which therefore assumes perfect conditions What is Attainable Standard costing? - correct answer Attainable standard allows for a small amount of normal wastage and inefficiency, but is set at a level that is considered to be a challenging target based on current conditions What is Basic Standard costing? - correct answer Basic standard is a historical (out-of-date) standard that allows comparisons to be carried out over long periods. What are current standards? - correct answer Current standards are base on current conditions What are 'normal' standards? - correct answer Normal standards are set at the expected level under normal conditions What are 'target' standards? - correct answer Target standards are at the level that the organisation wishes to achieve under current conditions What type of management is concerned with long-term planning and decision making? - correct answer Strategic What is operational management? - correct answer Focusing on day-to-day activities. Which standards are covered by strategic management? - correct answer Ideal and Attainable Which type of management covers Attainable standards and actual results? - correct answer Operational Management What are the two sub-variances the relate to the cost of materials? - correct answer Cost and usage How do you work out the material variance? - correct answer Standard cost of materials for actual production level - the actual costs of material cost What is the PAUS method for direct variances? - correct answer Price variances are based on Actual quantities, but