Management Accounting

What is a cost centre?

A cost centre is a place to which costs can be traced / segragated e.g. IT department.

Why may a customer be less profitable?

A customer may be less profitable if they make frequent order changes, needs special attention and is difficult to please

What is a cash budget?

A detailed budget of cash receipts and cash expenditure incorporating both revenue and items.

It is best to use the price penetration strategy when...

A new product is being launched

What is a revenue centre?

A revenue centre is where costs and revenue are identified e.g. team, person, production line.

What is Just in Time?

A set of techniques to increase productivity, improve quality, and reduce cost of operations. Goods move through the system and services are performed, just as they are needed. Supplies and components are 'pulled' through the system to arrive where they are needed when they are needed.

Which between Marginal and Absorption costing include fixed overheads in unit cost?

Absorption

In absorption and marginal costing, if production is greater than sales then A. Absorption costing income is greater than marginal costing income B. Absorption costing income is lower than marginal costing income C. Absorption costing income is equal to the marginal costing income D. None of the above

Absorption costing income is greater than marginal costing income.

What is an activity based budget?

Activity based budgeting is a budgeting method in which budgets are prepared using Activity Based Costing after considering the overhead costs.

What type of pricing is... Charging a high price when a product is first launched and spending heavily on advertising and sales promotion to obtain sales.

Market skimming pricing

What is process costing?

Process costing does not assign costs to each unit of output because each unit is identical. Instead average unit costs are computed.

Which of the following are key success factors to customer satisfaction? A. Quality B. Time C. Money D. Innovation

Quality, time and innovation

What is ROI?

Return on investment

Overhead costs are in terms of...

Running the business

What order should budgets be prepared in? 1) Sales budget 2) Cash budget 3) Production budget 4) Purchase budget 5) Finished goods inventory budget

Sales Budget, Finished goods inventory budget, Production budget, Purchase budget, Cash Budget

What are the four perspectives of the balance scorecard?

- How do shareholders view us? (financial) - How do customers see us (customer) - What must we excel at? (internal business process) - Can we continue to improve and create value? (Learning and growth)

Mark up on a prime cost =

Mark up on direct costs

What is RI?

Residual income

Key advantages associated with Marginal costing in contrast to absorption costing are...

- Easy to understand and operate as fixed overheads are not included in the production cost and there is no arbitrary apportionment of fixed costs. - Marginal costing is very useful for short term managerial decision making. - Places emphasis on contribution thereby making decisions more reliable. - Shows contribution made by each product thereby making targeted sales easy.

Limitations of traditional costing system:

- Not as accurate as they only adopt one volume related allocation bases. - Mainly ignores unexpected circumstances as all information is factored into the product and cost. - Does not account for non-manufacturing costs. - Some products may be over or under costed.

What are some useful purposes of a budget?

- compel strategic planning including the implementation of plans - provide performance criteria - promote communication and coordination within the organisation.

Which of the following is a premise of Activity Based Costing (ABC)? A. It takes activities to make products and provide services. B. Activities in producing products need to be accurately identified C. Cost pools must match the activities with the costs they cause. D. All of the above

All

What is an investment centre?

An investment centre is where costs, revenue and capital investments are identified. E.g subsidiary company or a division.

Overhead rate is calculated and is then used to charge production overheads to products using: A. Budgeted overhead allocation B. Adjusted overhead allocation C. Weighted overhead D. Treated as period cost

Budgeted Overhead Allocation

What is Kaizen?

Continuous improvement processes and reducing costs.

Under pricing strategies, what pricing strategy is best for firms that sell customized products and for which demand is difficult to estimate? A. Target costing B. Mark up costing C. Cost plus pricing D. Target pricing

Cost Plus Pricing

Which of the following are true? A. Cost allocating involves assigning direct costs to the cost object using a system of surrogates B. Cost allocation involves assigning overheads to the cost object using a system of surrogates C. Cost allocation involves assigning production cost to the cost object using a system of surrogates D. Cost allocation involves assigning indirect costs to the cost object using a system of surrogates.

Cost allocation involves assigning overheads to the cost object using a system of surrogates. Cost allocation involves assigning indirect costs to the cost object using a system of surrogates.

Which of the following are advantages of Cost plus pricing? A. Cost plus pricing may encourage price stability B. Cost plus pricing can be applied to only the relatively minor revenue items C. Cost plus pricing is used as guidance to setting the price for products but other factors must also be taken into account. D. Cost plus pricing uses the selling price as the starting point to determine the cost of any product

Cost plus pricing may encourage price stability, can be applied to only relatively minor revenue items and is used as a guidance to setting the price for products but other factors must be taken into account.

Relevant cost means: A. Cost that can be changed by a decision B. Cost that cannot be changed by a decision C. Cost that cannot be saved by adopting a given alternative D. Cost that have been created by a decision made in the past

Cost that can be changed by a decision

What are opportunity costs?

Cost that measures the opportunity that is lost or sacrificed when the choice of one course of action requires that an alternative course of action be given up.

What are sunk costs?

Costs of resources already acquired and are unaffected by the choice between the various alternatives (e.g. depreciation) Sunk costs are irrelevant for decision-making.

In determining product cost, which of the following is closely related to Prime cost? A. Direct Material and direct labour B. Direct Material, direct labour and manufacturing overhead C. Direct labour, manufacturing overhead and admin expenses D. Direct material, direct labour, manufacturing overhead and admin expenses

Direct Material and Labour

What is prime cost?

Direct Materials + Direct Labor

What is EVA?

EVA is economic value added and determines whether or not a company is really making money or not

A cost driver is A. Factor that causes overhead costs B. Part of direct materials C. Cost of goods sold D. Expected to be offset in future months.

Factor that causes overhead costs

What accounting is devoted to providing information for external users?

Financial accounting

Finished Goods inventory account is credited when: A. Goods are purchased on account B. Raw materials are purchased C. Goods are sold. D. Under allocated overhead is closed.

Goods are sold

In the decision making process, which is the first step: A. Identify objectives B. Search for alternative courses of action C. Select the best course of action D. Implement the decision

Identify objectives

Which of the following apply to market skimming? A. Charge a high price when a product is first launched B. Charge a low price when the product is first launched C. Invest heavily in promotions to increase sales D. Invest heavily to recover the R&D costs as fast as possible

In market skimming a high price is charged when a product is first launched, invest heavily In promotions to increase sales and invest heavily to recover the R&D costs as fast as possible.

For a firm facing short term pricing decision, what cost for undertaking an order should be taken into account? A. Direct Cost B. Variable Cost C. Fixed cost D. Incremental cost

Incremental cost

What type of pricing is... This policy sets a low price when a new product is launched. This enables the product to obtain a foothold in the market.

Market penetration pricing

Why are prevention costs sometimes preferred?

It is a cost which adds value. By contrast failure costs do not as they reflect the cost of referring defects which originally should not have occurred. Preventive maintenance often has benefits beyond the current period e.g. may improve long run efficiency of machines. And preventive maintenance is essential for the functioning of just-in-time production systems. (JIT involve little or no spare production capacity, so is needed to ensure capacity is available for use at all times).

What is job costing?

Job costing assigns each cost to each individual unit of output because each unit consumes different quantity of resources.

What are three EMA methods that provide information to organisation on their impact of the environment?

Kilograms of noxious waste emissions, Kilowatt-hours of electricity used, decibels of noise.

The Balanced scorecard is used to analyse what type of information about a business entity? A. Profit and loss account B. Balance sheet C. Managers performance D. Non-financial information

Non-financial information

Name some sources of waste?

Overproduction Waiting Unnecessary transportation Inventory Inefficient work methods Inefficient processing Unnecessary motions Product defects

What are prime costs compared to conversion costs?

Prime costs are defined as the expenditure directly related to creating finished products, whilst conversions costs are the expense of turning raw materials into a product.

A product's total production cost will include: A. Prime cost plus non production overhead B. Prime costs plus indirect production overhead C. Prime cost plus variable non-production overheads D. Prime costs plus indirect production overhead plus any relevant tax

Prime costs plus indirect production overhead plus any relevant tax

Fixed costs incurred out of production relevant range is referred to as ...

Step fixed cost

Which of the following statements is true? A. The total variable cost varies with a measure of activity. B. A variable cost is an unavoidable cost. C. A variable cost is not relevant for decision-making. D. A variable cost becomes fixed in the long run.

The total variable cost varies with a measure of activity

Which of the following best completes the following statement? A____ system first traces indirect costs to cost centers (normally departments) and then to products. A. Direct costing B. Process costing C. Traditional costing D. Activity-based costing

Traditional costing

Which of the following statements is true? Cost Accounting is: A. Used in determining the product cost B. Used in determining the selling price of our products C. Used for cost control D. Used by shareholders for decision making

Used in determining the product cost, used in determining the selling price of our products and used for cost control.

Are variable costs avoidable?

Yes

What is zero-based budgeting?

Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be justified for each new period

What is EMA?

is the management of environmental and economic performance through the development and implementation of appropriate environment-related accounting systems and practices

If overhead is under-absorbed then...

more actual overhead costs were incurred than expected

What is an incremental cost?

the cost added by producing one additional unit of a product or service