ACCA PM
ACCA Performance Management (PM) Flashcards
What is meant by the term ‘cost driver’ in the context of activity based costing?
What are steps involved in calculating a ‘target cost’?
What is meant by a ‘cost gap’ in the context of target costing?
What steps might be taken in order to reduce the ‘cost gap’ in the context of target costing?
What is the basic idea of lifecycle costing?
What are the phases in a product’s life cycle?
What are the main steps that should be considered in order to maximise the return over the life cycle of a product?
What are the two main assumptions in throughput accounting?
What is meant by the term ‘bottleneck’ in the context of throughput accounting?
What is the definition of the throughput accounting ratio (TPAR) for a product?
In what ways can the throughput accounting ratio of a product be improved?
List four methods that may be used to account for environmental costs.
What is meant by the term breakeven sales volume?
What is meant by the term breakeven sales revenue?
What are the labels of the axes on a breakeven chart?
What are the labels of the axes on a profit volume graph?
What is meant by the term ‘margin of safety’?
What is the definition of the CS ratio?
What is meant by the term shadow cost (or shadow price)?
What is meant by the market skimming pricing strategy?
What is meant by the penetration pricing strategy?
What is meant by volume discounting pricing strategy?
What is meant by price discrimination?
What is meant by the term ‘sunk cost’?
What is the difference between risk and uncertainty?
What is meant by the term ‘expected value’ in the context of decision making under uncertainty?
What are the limitations of using expected values for decision making?
What is the maximin decision rule?
What is the maximax decision rule?
What is the attitude to risk of a decision maker who uses the maximin approach?
What is the attitude to risk of a decision maker who uses the maximax approach?
What is the attitude to risk of a decision maker who uses the minimax regret approach?
What is the difference between sensitivity analysis and simulation?
What are the principal aims / uses of budgeting?
What is the difference between top-down budgeting and bottom-up (or participative) budgeting?
What is meant by incremental budgeting?
What is meant by a ‘rolling budget’?
What is the difference between feedback and feedforward control?
Learning curve theory is useful when budgeting for which costs?
In relation to learning curves, what does Wrights Law (or the ‘doubling rule’) state?
What is a flexed budget?
What is the purpose of a flexed budget?
Suggest three possible reasons for the existence of a sales volume variance.
Suggest three possible reasons for the existence of a materials price variance.
Suggest three possible reasons for the existence of a materials usage variance.
Suggest three possible reasons for the existence of a labour efficiency variance.
If absorption costing is being used, what is the cause of a fixed overhead volume variance?
What is the purpose of an operating statement?
When considering planning and operational variances, what is meant by the revised standard cost?
What are planning variances measuring?
What are operational variances measuring?
What is meant by the JIT (just in time) inventory strategy?
What is meant by TQM (total quality management)?
Why is important that non-financial performance is measured rather than concentrating solely on financial performance?
What are characteristics of a service business that distinguish services from manufacturing?
What are the three categories of stakeholders in a business?
What is mean by the term ‘transfer price’?
In the context of divisionalisation,what is meant by a division?
In the context of divisionalisation, what is meant by an ‘investment centre’?
How is the ROI (return on investment) of a division calculated?
How is the RI (residual income) of a division calculated?
For theoretical transfer pricing, how is the minimum transfer price calculated?
For theoretical transfer pricing, how is the maximum transfer price calculated?
When measuring Value for Money for a not-for-profit organisation, what are the three E’s?
In the context of linear programming, what is meant by ‘slack’?
What is the difference between ‘mark-up’ and ‘margin’?
In pricing, how is the price elasticity of demand calculated?
What is meant by the term ‘critical success factor’?
What are ‘key performance indicators’?
What are the four perspectives that the Balanced Scorecard focuses on?
What are the six dimensions in Fitzgerald & Moons’ building block model?
What are the three levels of planning and control in an organisation?
When comparing service businesses with manufacturing businesses, what is the relevance of intangibility?
When comparing service businesses with manufacturing businesses, What is meant by simultaneity?
What is meant by total factory costs for throughput accounting?
What is meant by the return per factory hour in throughput accounting?
What are the main factors influencing the selling price decision?
What are decision trees?
What is Trend in time series analysis?
What are Cyclical Variations in time series analysis?
What are Seasonal variations in time series analysis?
What are the practical reasons for the learning effect to cease?
What is Standard costing?
What are the uses of standard costing?
What are the limitations of standard costing?
List four standards in Standard costing?
Set out the stages in calculating a product cost using activity based costing.
Define a 'cost pool' and give examples of activities that would each form one.
Under ABC, how is set-up cost absorbed into a unit of product?
Under traditional absorption costing using labour hours, which products tend to be under-costed and which over-costed compared with ABC?
In what circumstances does ABC give materially different product costs from traditional absorption costing?
Why does ABC give a different overhead cost per unit from traditional absorption, and which products are affected?
How are facility-sustaining costs (such as factory rent and heating) dealt with under ABC?
State three practical drawbacks of implementing activity based costing.
How can activity based costing improve decision-making rather than just inventory valuation?
How would you decide whether a proposed cost driver is appropriate?
How is a target cost and a cost gap calculated?
How does the target cost differ when the profit is expressed as a MARK-UP on cost rather than a margin on price?
How does target costing reverse the logic of traditional cost-plus pricing?
Why is target costing more difficult to apply in service industries?
At which point in the product life-cycle must target costing be applied, and why?
What is value engineering, and how does it help close a cost gap?
What is the danger in closing a target cost gap, and how should it be avoided?
What costs enter a life-cycle cost, and how is the life-cycle cost per unit found?
Distinguish between costs committed and costs incurred over a product's life-cycle.
State three benefits of life-cycle costing.
Which costs dominate at each phase of the life-cycle?
Why can conventional annual profit reporting be misleading for a product with a short life-cycle?
How does life-cycle costing apply to a service, and to a customer?
How does the life-cycle stage influence the pricing strategy chosen?
Explain input/output analysis for environmental costs.
Explain flow cost accounting and the three categories of cost it uses.
How is activity based costing applied to environmental costs?
How does life-cycle costing serve as an environmental management accounting technique?
Give the four categories used to classify environmental costs, with an example of each.
Why are environmental costs often invisible to management?
What difficulties do organisations face in managing environmental costs?
What is an externality, and why does it matter for performance management?
What role should the management accountant take in supporting sustainable practice?
State the TPAR calculation.
State the five steps in the theory of constraints.
What does a TPAR of less than 1 tell you, and what should be done?
On what basis are products ranked in a multi-product throughput decision, and why not on contribution per unit?
Why does throughput accounting treat labour as a fixed cost, and what is the consequence for inventory?
How is the optimal production plan determined where there is a SINGLE scarce resource?
Set out the steps in solving a two-product linear programming problem graphically.
What is the feasible region, and where does the optimal solution lie?
In linear programming, how is the optimal plan found and what does a shadow price mean?
What does the shadow price of a resource tell management, and what are its limits?
What is the relationship between slack and shadow price?
How is a make-or-buy decision made when a resource is scarce?
When are simultaneous equations used rather than a graph in limiting factor problems?
What is the significance of slack for performance management?
State four assumptions underlying linear programming.
How is the demand equation P = a - bQ derived from market data?
How is the profit-maximising price and quantity found from P = a - bQ?
How is price elasticity of demand calculated and interpreted?
State the advantages and disadvantages of cost-plus pricing.
Explain complementary product pricing, product-line pricing and relevant cost pricing.
In what circumstances is market skimming preferable to penetration pricing?
How are the breakeven point in units and in revenue calculated?
How is the volume needed for a TARGET PROFIT calculated?
How is multi-product breakeven revenue calculated, and what assumption does it depend on?
How is a multi-product profit-volume chart constructed, and what does it show?
How is the margin of safety calculated and what does it tell you?
State the limitations of CVP analysis.
What three tests must a cost pass to be a relevant cost?
State the rules for the relevant cost of material.
State the rules for the relevant cost of labour.
What is the relevant cost of MATERIAL, in each of the possible situations?
What is the relevant cost of LABOUR, in each of the possible situations?
Which costs are relevant to a make-or-buy decision where capacity is not scarce?
How is a further-processing decision made, and what is irrelevant to it?
On what basis is a shutdown decision taken?
What is the minimum price for a one-off contract, and what qualitative factors qualify it?
How is sensitivity calculated and interpreted?
How is the value of PERFECT information calculated?
Set out the stages in zero based budgeting.
State the benefits and problems of zero based budgeting.
What is activity based budgeting, and how does it differ from incremental budgeting?
Explain the beyond budgeting model, with its benefits and problems.
Explain the benefits and difficulties of participation in budget setting.
What difficulty level should a budget be set at, and what conflict does this create?
How can budgeting systems deal with uncertainty and volatility?
What ethical and sustainability considerations arise in setting budgets?
State the high-low method for splitting fixed and variable cost.
State the learning curve formula and calculate the learning index for an 80% curve.
How is a learning curve applied when the output is a DOUBLING of units?
State the learning curve formula and how it is used where output is not a doubling.
What is meant by the steady state, and how is a budget prepared once it is reached?
Distinguish the additive and multiplicative time series models, and explain how a forecast is made.
What do the correlation coefficient and the coefficient of determination measure, and what are the reservations about regression?
State the material price and usage variance calculations.
State the labour rate and efficiency variance calculations.
How is the material MIX variance calculated?
How is the material YIELD variance calculated?
What is the relationship between the material usage, mix and yield variances?
What wider issues should be considered before accepting a favourable material mix variance?
How are the sales MIX and sales QUANTITY variances calculated?
How are PLANNING and OPERATIONAL variances separated?
Which factors justify revising a budget to create a planning variance, and which do not?
What manipulation issues arise from revising budgets, and how can they be controlled?
How is ROCE calculated and what does it measure?
Distinguish gross profit margin from operating profit margin, and state what a divergence between them indicates.
Show how ROCE decomposes into margin and asset turnover, and use it to explain a ROCE of 20%.
How are the current and quick ratios calculated, and how should they be interpreted?
How are gearing and interest cover calculated, and what do they show?
How is the working capital cycle calculated and what does it drive?
Explain short-termism and financial manipulation, and how they can be reduced.
What are the risks of favouring short-term financial gain over long-term sustainability?
What difficulties arise in setting targets for qualitative areas, and how can they be overcome?
Why must external considerations be allowed for when assessing performance?
How is a project evaluated under ROI, and what is the behavioural problem?
How is a project evaluated under residual income, and why is it more goal-congruent than ROI?
State the shortcomings of ROI as a divisional performance measure.
State the shortcomings of residual income.
How does the basis of asset valuation distort divisional comparison?
Distinguish cost, profit and investment centres, and relate this to the controllability principle.
What are the objectives of a transfer pricing system?
When is market price the appropriate transfer price, and what adjustment is usually made?
What is the effect of transferring at marginal (variable) cost?
Why can transferring at full cost, or full cost plus, lead to poor decisions?
How do a two-part tariff and dual pricing resolve the marginal cost problem?
How is the range of acceptable transfer prices determined?
What additional issues arise in setting transfer prices in a multinational group?
Why can profit-based measures not be used to assess a not-for-profit organisation?
Define economy, efficiency and effectiveness, giving an example measure of each for a hospital.
What problems arise from non-quantifiable objectives?
What is value for money, and how is it achieved?
Distinguish inputs, outputs and outcomes, using a school as an example.
How can effectiveness be assessed when there is no market price for the output?
What problems do multiple objectives create in the public sector and not-for-profit organisations?
What are the dangers of published targets and league tables in the public sector?
Contrast the characteristics of information needed for strategic, tactical and operational decisions.
What is a transaction processing system, and what does it produce?
What is a management information system?
What is an executive information system, and how does it differ from an MIS?
What is an enterprise resource planning system, and what are its benefits and drawbacks?
What is a customer relationship management system, and how does it support performance management?
What controls are required over the generation and distribution of internal information?
What controls protect highly confidential information not intended for external consumption?
Why is data visualisation important in presenting management information?
What is the role of information systems in an organisation?
What are the costs of an information system?
What are the benefits of an information system, and why are they hard to quantify?
What are the main business uses of the internet?
Distinguish an intranet from an extranet.
What are the benefits and risks of wireless technology in business?
What are the qualities of good information?
Distinguish internal and external sources of management information, with examples.
How are principal sources of management information used for control purposes?
State and explain the five characteristics of big data.
What is the purpose of the big data pyramid?
What is data mining?
What is data analytics, and what benefits does it bring to performance management?
What is descriptive analytics?
What is diagnostic analytics?
What is predictive analytics?
What is prescriptive analytics?
What are the challenges and risks of implementing big data and data analytics?
Give practical examples of big data being used in performance management.
What does the employability and technology skills area of the syllabus require?
Which spreadsheet functions should you be able to use in the PM exam?
How should numerical answers be presented in the spreadsheet response area?
How should the word processing response area be used for discussion requirements?
How should you navigate the exam screen efficiently?
How should data and information be presented effectively in an answer?
How should the exhibits and given data be handled in a computer-based PM exam?
How should you decide between the spreadsheet and word processing response areas?
What attitude to risk is implied by choosing on the basis of expected values?
What does activity based costing (ABC) try to improve on in the traditional treatment of overheads?
List the six steps of activity based costing.
In ABC, what is a cost driver? Give the chapter's two examples.
In ABC, what is a cost pool?
How is an ABC absorption rate calculated, and how is it charged to a product? Use set-ups in Example 1.
In Example 1, how did ABC change the result for low-volume product C compared with absorbing overheads on labour hours?
What two problems arise from pricing by adding a profit percentage to cost, and what is the market-driven alternative?
List the four steps involved in target costing.
How is a target cost found when the required profit is a percentage of selling price? Use Example 1.
How is a target cost found when the required profit is a return on investment? Use Example 2.
What is the target cost gap?
What five characteristics distinguish services from manufacturing and make target costing much harder to use in service industries?
Why could costing a product only over the short term lead to bad decisions?
What does life-cycle costing do?
Name the five phases of the product life cycle.
Name four ways of maximising the return over a product's life cycle.
How is a target cost found from a selling price and a required mark-up on cost? Use Example 1.
How is the life-cycle cost per unit calculated, and what did it show in Example 1?
In Example 1, an extra $20,000 spent on design lowers manufacturing cost. What is the maximum manufacturing cost per unit?
What does environmental management accounting (EMA) focus on?
In what three ways is a company affected if it wastes resources or causes pollution?
Apart from dealing with waste, give three typical environmental costs named in the chapter.
Name the four methods suggested for accounting for environmental costs.
What is inflow/outflow analysis?
How does flow cost accounting differ from inflow/outflow analysis, and what are its three categories of resources?
Why is lifecycle costing relevant to environmental management accounting?
In key factor analysis, how are products ranked when they share one limited resource?
What are the two main concepts of throughput accounting?
Define throughput and total factory costs.
How is the throughput accounting (TA) ratio calculated?
What TA ratio must a product achieve, and how are products prioritised?
In the chapter's example, how does the ranking of A and B change between key factor analysis and throughput accounting?
How were the TA ratios of A and B found in the chapter's example?
What is the bottleneck resource?
How is the bottleneck process identified from processing times?
When must linear programming be used instead of key factor analysis?
List the five steps of linear programming.
Formulate the constraints and objective for the chapter's chair example.
Once the optimum point is identified on the graph, how is it found exactly?
What is slack in linear programming? Give the chair example's slack.
What is a shadow price (dual price)?
How are shadow prices calculated? Use the chair example.
Why is the shadow price of demand for executive chairs $0?
Why are truly limited resources unlikely in real life?
What are the three main areas to consider when setting a selling price?
What is cost-plus pricing, and what is the first question to settle when using it?
How do full cost plus, marginal cost plus and opportunity cost plus pricing differ?
Variable costs are $23 per unit and fixed overheads $50,000 for 10,000 units. What are the full cost plus 20% and marginal cost plus 40% prices?
What is one major disadvantage of cost-plus pricing?
At what point is profit maximised?
How is price elasticity of demand (PED) calculated and interpreted?
In the demand equation P = a − bQ, what do P, Q, a and b stand for?
How is a linear price/demand equation derived? Use Example 4.
How is the profit-maximising price found from the demand equation? Use Example 6.
What is breakeven, and how is breakeven volume calculated?
Product X sells at $6 with variable costs of $2 and fixed costs of $1,000. What are its breakeven units and breakeven revenue?
How many units must be sold to earn a target profit? Use product X.
What does the margin of safety measure, and how is it calculated?
What is the C/S ratio, and why does it stay constant?
How is the sales revenue needed for a target profit found with the C/S ratio?
What does a breakeven chart show, and what does a profit-volume chart show?
How is breakeven revenue found when several products are sold?
How could a multi-product company reach breakeven sooner?
List the four limitations of CVP analysis given in the chapter.
What is the marginal cost of production, and is variable cost per unit always constant?
What is contribution, and why is it fundamental to decision making?
What are avoidable (discretionary) fixed costs?
Why are sunk costs irrelevant to a decision?
What is an opportunity cost? Give the chapter's example.
What are incremental costs?
How is a shutdown decision evaluated? Use the Rooks example.
In the special order example, why is the relevant materials cost $31,500 rather than the $34,000 paid or the $33,375 replacement cost?
How are machine hours valued when part of a special order displaces existing work?
Why are depreciation and the supervisor's fixed salary left out of the special order's relevant cost?
How does a firm decide which products to make and which to buy in?
How do a risk seeker, a risk-neutral person and a risk avoider each make decisions?
How is an expected value calculated, and which attitude to risk does it suit?
How does the maximin criterion choose between options?
How does the maximax criterion choose between options?
How is the minimax regret criterion applied?
What is a decision tree, and when is it relevant?
In the decision tree example, what did the tree recommend about the market research, and what kind of information does it give?
List the six benefits of budgeting.
What is the principal budget factor?
How is a production budget in units calculated? Use product X.
How is a materials purchases budget calculated? Use wood in Example 1.
Name the three types of budget in the chapter, and say how a flexed budget is used.
What is incremental budgeting, and what are its strengths and one large potential problem?
What is zero-based budgeting, and why is it often limited to a few activities each year?
What is the difference between top-down and bottom-up budgeting?
At what level should targets be set, and what makes a good target?
What are responsibility accounting and management by objectives?
Give six criticisms of the annual budgeting process from the chapter.
What is beyond budgeting, and what are its two fundamental elements?
What does the high-low method do, and what does it assume?
How is the high-low method applied? Use Example 1.
What is the learning effect?
List the conditions under which learning curve theory will hold.
State the learning curve theory.
The first unit takes 100 hours with a 75% learning rate. How long will the next 7 units take?
In the learning curve formula y = ax^b, what do y, a, x and b stand for?
How is the time for one particular batch, such as the 30th, found?
What is the steady state, and give three practical reasons for the learning effect to cease.
Give the six uses of standard costing listed in the chapter.
What limitations of standard costing does the chapter list?
What are ideal and basic standards, and why is an ideal standard not useful for variance analysis?
What are expected and current standards used for?
How is the materials price (expense) variance calculated? Use Example 2.
How is the materials usage variance calculated? Use Example 2.
How are the labour idle time and efficiency variances calculated? Use Example 2.
How are the fixed overhead expenditure and capacity variances calculated under absorption costing? Use Example 2.
What does an operating statement do?
How does marginal costing change variance analysis?
Why are variances split into planning and operational variances?
What do planning and operational variances compare?
How is a materials price variance split into planning and operational parts? Use Example 1.
How is a materials usage variance split into planning and operational parts? Use Example 1.
When are mix and yield variances calculated, and what does each show?
How is the materials mix variance calculated? Use Example 3.
How is the yield variance calculated, and how do mix and yield relate to the usage variance?
How are the sales mix and sales quantity variances calculated? Use Example 4.
In Example 4, how do the sales price, mix and quantity variances reconcile with the total sales margin variance?
When idle time is budgeted, how is the effective rate per hour worked found and used? Use Example 5.
How are ABC overhead variances split into expenditure and efficiency? Use Example 6.
Why may traditional standard costing conflict with TQM and JIT?
What are the three main areas analysed when interpreting financial statements?
How are the net profit margin and gross profit margin calculated? Use the 2007 figures.
How is return on capital employed (ROCE) calculated? Use the 2007 figures.
How are ROCE, asset turnover and net profit margin linked?
How are the current ratio and quick ratio calculated? Use the 2007 figures.
How are inventory days and receivables days calculated? Use the 2007 figures.
How are payables days and gearing calculated?
Why do most ratios mean little on their own?
What is the problem with using statement of financial position figures in ratios?
Why is it important to measure non-financial as well as financial performance?
List Fitzgerald and Moon's six areas needing measures of performance.
What is the balanced scorecard?
What question does each balanced scorecard perspective ask?
Give possible measures for the customer and internal business perspectives.
Give possible measures for the learning and growth and financial perspectives.
What is divisionalisation?
How are autonomous divisional managers controlled?
Why should a divisional manager have several performance measures rather than profit alone?
What is controllable profit?
What is an investment centre, and why must its profit be related to the capital invested?
How is ROI defined, and which capital figure is used in the exam?
How can ROI lead a manager to a decision that is not goal congruent? Use Example 2.
How is residual income (RI) calculated?
Why is RI technically better than ROI in the chapter's examples, and which is more popular in practice?
What is a transfer price?
Why have a transfer price?
How is a cost-plus transfer price set? Use Example 2.
How can cost-plus transfer pricing damage goal congruence? Use Example 3.
In Example 5, A has spare capacity and only limited external demand at $20. What is the sensible transfer price range, and why is A's minimum its cost?
In Example 6, A has limited capacity and unlimited external demand at $20. What is the sensible transfer price range?
In Example 7, B can buy the goods externally for $14 or for $18. What upper limit applies to the transfer price in each case?
When the supplying division's limited labour could make another product, how is the minimum transfer price found? Use Example 8.
In what form are sensible transfer prices usually asked for in the exam?
What are non-profit seeking organisations, and what is their objective instead of profit?
List the problems with performance measurement in the not-for-profit sector.
Why do multiple objectives cause problems in performance measurement?
Give the chapter's example of the difficulty of measuring outputs.
How do financial constraints and political, social and legal considerations affect public sector organisations?
What is value for money?
Define economy, efficiency and effectiveness.
What do information systems do for companies?
Give examples of the costs and the benefits of an information system.
What controls over information systems does the chapter list, and why are they needed?
What is the difference between internal and external information?
Describe strategic decision making and the information it needs.
Describe tactical decision making and the information it needs.
Describe operational decision making and the information it needs.
What is big data?
What are Laney's 3Vs of big data, and what is the commonest fourth V?
What is the difference between structured and unstructured data?
What does velocity require, and why do volume and variety work against it?
What is Apache Hadoop?
What types of big data analytics does the chapter describe?
What can the findings of big data analytics lead to?
What are the dangers of big data listed in the chapter?
What is the employability and technology skills section of the syllabus mainly about?
What tools are on the top bar of the CBE screen?
Is anything written on the scratch pad or rough paper marked, and can you use paper when sitting remotely?
Can you use your own calculator in the CBE?
What do 'flag for review' and the bottom bar offer?
What are Sections A and B of the PM exam?
What is Section C, and how should its calculations and discussions be done?
Card 1 of 437. Question side.