ACCA F2 flashcards – set 2

See also ACCA F2 Flashcards: Set 1 | Set 3 | Set 4


What is meant by an ‘incremental cost’?

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An incremental cost is an extra cost (and is relevant for investment decisions).

What is the Current Ratio?

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The current ratio = current assets / current liabilities

What are the four main elements that one would expect to appear in a Mission Statement?

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The four main elements are:

  • Purpose
  • Strategy
  • Culture
  • Values

Give possible reasons for an adverse material expenditure variance.

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Possible reasons for an adverse material expenditure variance include:
- paying more than the budgeted price per unit of materials due to errors in purchasing
- a price increase in materials
- purchasing better quality materials
- incorrect budgeting of the standard cost of materials

What is meant by the ‘payback period’?

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The payback period is the number of years it takes to get back the original investment, in cash terms.

What is a ‘sunk cost’?

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A sunk cost is a cost already incurred (and is not relevant for investment decisions)

What are the purposes of budgeting?

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Planning
Control
Co-ordination
Authorisation
Communication
Motivation
Evaluation

How is the coefficient of determination calculated?

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The coefficient of determination is the square of the coefficient of correlation.

What is a ‘variable cost’?

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A variable cost is one which varies in total with the level of activity.

What is a ‘delivery note’?

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A delivery note is included by the supplier with the goods, and lists the quantity of goods that are being delivered.

In the formula on the formula sheet for the Economic Order Quantity, what does the symbol D represent?

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D represents the total demand per year.

What is meant by a piecework system of remuneration?

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Employees are paid a fixed amount for each unit produced.

Define the labour capacity ratio

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Labour capacity ratio = Number of hours spent working / total hours available x 100%

What is the symbol for the coefficient of correlation on the formulae sheet?

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r is the coefficient of correlation

What is meant by the ‘cost gap’ in the context of target costing?

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The cost gap is the excess of the estimated actual cost over the target cost.

What are the four main differences between the output of service and manufacturing businesses?

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* Intangibility – the output of a service industry is performance rather than tangible goods.
* Perishability – a service cannot be stored
* Simultaneity – a service is received by the customer at the same time as it is delivered – it cannot be checked first.
* Heterogeneity – every service is likely to be different.

What is meant by the term ‘by-product’?

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A by-product is output from a process which has a low value relative to the main product(s) being produced in the process.

 What is the difference between a profit mark-up and a profit margin?

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A mark-up is when the profit is calculated as a percentage of cost; a margin is when the profit is calculated as a percentage of selling price.

Under what circumstances will the profit using marginal costing and the profit using absorption costing be the same?

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The profits will be the same if there is no change in the level of inventory over the period (i.e. when the closing inventory is the same level as the opening inventory).

What is the reason for a difference between the profit calculated under marginal costing principles and the profit calculated under absorption costing principles?

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The difference is because of the difference in the way opening and closing inventories are valued. Under marginal costing they are valued at the marginal (variable) cost of production; under absorption costing they are valued at the full cost of production (variable plus fixed).

What is meant by the word ‘contribution’?

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The contribution is the profit before fixed costs (or the revenue less all variable costs).

What is the difference between the allocation of overheads and the apportionment of overheads? 

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Allocation – whole cost items are charged to the relevant cost centre

Apportionment – cost items are shared/divided between several cost centres


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