ACCA F2 flashcards – set 4

See also ACCA F2 Flashcards: Set 1 | Set 2 | Set 3


What is meant by the FIFO method of valuing inventory?

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FIFO means first-in-first-out and means that we assume that items are issued out of inventory in the order in which they were received into inventory. Therefore, any closing inventory is assumed to be made up of the most recent items received into inventory.

Define the labour turnover ratio.

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Labour turnover ratio =

number of leavers who require replacing / average number of employees x 100%

How is the Dividend Cover calculated?

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The dividend cover = profit after tax / dividends

What is meant by the ‘marginal cost of production’?

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The marginal cost of production is the total of all variable production costs.

If there is an over-absorption of overheads, does it mean that the actual total overheads a more or less than the total overheads absorbed?

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The actual overheads are less than the total overheads absorbed.

What is a flexed budget?

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A flexed budget is a budget re-written for the actual level of activity.

What is meant by a ‘cost unit’?

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A cost unit is a unit of product or service for which the cost is calculated.

What is the difference between data and information?

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Data consists of facts that have been gathered.

Information is data that has been processed in a way that is meaningful to the person who receives it.

What are ‘direct costs’?

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Direct costs are those that can be specifically measured in each unit of production.

What is meant by the expression ‘perfect positive linear correlation’?

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Perfect positive linear correlation means when the observations are plotted on a graph they all lie exactly on a straight line pointing upwards (i.e. both variables increase together)

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

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Ch represents the cost of holding one unit for one year.

What is a ‘fixed cost’?

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A fixed cost is one which remains constant in total over certain levels of activity.

What is meant by the term ‘benchmarking’?

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Benchmarking is the comparison with best practice.

 What are the four perspectives covered by the Balanced Scorecard?

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The four perspectives are:

  • Financial
  • Customer
  • Internal
  • Innovation and learning

What is the Quick Ratio (or Acid-test Ratio)?

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The quick ratio = (current assets – inventory) / current liabilities

What is meant by the ‘principal budget factor’?

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The principal budget factor is the factor that limits the level of activity of the organisation (usually sales).

A Laspeyre price index number uses base year or current year quantities. Which?

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A Laspeyre price index number uses base year quantities.

In process costing, what is meant by a normal loss?

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A normal loss is the loss that is expected to occur.

What is meant by ‘systematic sampling’?

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Every n’th item is selected, after a random starting item

What is meant by a ‘cost centre’?

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A cost centre is a production or service location, activity, function or item of equipment for which the total cost can be calculated.

Which of the following methods of inventory valuation are acceptable under IAS 2 for financial accounting:

FIFO; LIFO; Weighted Average Cost ?

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FIFO and Weighted Average Cost are allowed by IAS 2. LIFO is not allowed.

In inventory control, what is the difference between the ‘re-order quantity’ and the ‘re-order level’?

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The re-order quantity is the quantity actually ordered each time. The re-order level is the level of inventory that triggers the placing of an order.

Define the labour efficiency ratio

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Labour efficiency ratio =  expected hours to produce actual output / actual hours to produce actual output x 100%


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