CIMA BA2 flashcards

Good information should be:

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

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.

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

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

What is meant by ‘indirect costs (or overheads)’?

Indirect costs are those costs which cannot be specifically identified with a specific cost unit or cost centre.

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

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

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 semi-variable cost is a combination of variable and fixed costs.

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

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

What is meant by the word ‘contribution’?

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

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

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

Planning Control Co-ordination Authorisation Communication Motivation Evaluation

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

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

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

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

The IRR is the rate of interest at which the Net Present Value of the project is zero.

Top-down budgeting is where the budgets are prepared by high-level management and then communicated to lower levels. Lower level management do not participate in the budget process.

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.

The sales volume variance measures the effect on the budgeted profit of the difference between the actual sales volume and the budgeted sales volume.

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

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

The four perspectives are:

• Financial
• Customer
• Internal
• Innovation and learning

Capital reserves are the share premium account and the revaluation reserve. They represent amounts owing to shareholders, but this amount cannot be paid out as dividend.

The number of units sold at which the profit is zero (i.e. no profit / no loss)

The sales revenue at which the profit is zero (i.e. no profit / no loss)

The vertical axis shows the costs and revenues in $’s. The horizontal axis shows the volume in units.

The vertical axis shows the profit (or loss) in $’s. The horizontal axis either shows the volume in units, or the sales revenue in $’s

The margin of safety is the difference between the budgeted sales volume and the breakeven sales volume. It can be expressed in units, or in $’s of revenue. or as a percentage of the budgeted sales volume.

The CS ratio = contribution / sales

* Planning * Control * Communication * Co-ordination * Evaluation * Motivation * Authorisation and delegation

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

The purpose of a flexed budget is control - the actual results can be compared with the flexed budget results.