ACCA F2 flashcards – set 3

A purchase requisition form is prepared by the department that requires the material and is sent to the purchasing department.

Good information should be:

• Accurate
• Complete
• Cost-effective
• Understandable
• Relevant
• Accessible
• Timely
• Easy to use

The interest cover = profit before interest and tax / interest

An abnormal loss is the excess of the actual loss over the normal (or expected) loss.

The operating statement shows why the actual profit differs from the budgeted profit.

‘Get it right first time’ – i.e. good quality production – no re-working, no rejects

Continuous improvement

Customer focus

The target cost is the maximum cost we can allow in order to achieve the target level of profitability based on a pre-determined selling price.

If there is perfect negative correlation, then r will equal -1.

Bottom-up budgeting is where lower level managers are involved in the budget process – they prepare budgets for their departments which are then checked and co-ordinated by higher level management.

It means that 75% of the changes in y are explained by changes in x.

C_o represents the cost of placing one order.

Capital expenditure is the acquisition of non-current assets (which appear on the Statement of Financial Position)

Revenue expenditure is the payment of running expenses (which appear on the Income Statement)

Prevention costs (the costs of improving the quality of the production process)

Appraisal costs (the costs of quality control checks)

Internal failure costs (the costs of re-working; the costs of rejects)

External failure costs ( the costs of delivering poor quality to the customer – e.g. replacements, repair work)

The prime cost is the total of the direct costs of a unit.

n is the number of pairs of observations

 Direct labour costs are directly involved in the making of products – the basic pay plus overtime premium on specific jobs

Indirect labour costs are all other labour costs – general overtime premiums, bonus payments, and the cost of indirect workers (e.g. canteen, maintenance)

Each item in the population has an equal chance of being selected.

The three ‘E’s’ are:

• Economy
• Efficiency
• Effectiveness

ROI = profit / capital invested

A stepped fixed cost is one that is fixed in total within a certain level of activity, but where once an upper limit of activity is reached then a new higher level of fixed cost occurs.

A cost driver is whatever activity is causing the cost to occur.