FIA MA2
FIA Managing Costs and Finance (MA2) Flashcards
For which three broad purposes do managers use management information?
Why do managers at different levels need different information?
Distinguish data from information.
List the qualities of good information summarised by the mnemonic ACCURATE.
In ACCURATE, what does cost-beneficial mean?
How does a computerised accounting system typically improve the information produced?
Give the main sources and categories into which information can be classified.
Why is non-financial information important, and why are financial measures called lagging indicators?
What is a cost centre, and what information does its manager need?
Distinguish a profit centre from an investment centre.
State the main limitations of cost and management accounting information.
What is the typical role of a trainee accountant in a cost and management accounting system?
What are the three broad types of communication for management information?
Give two strengths and two weaknesses of oral communication.
Name the common written formats for management information and the letter sign-off rule.
What is the usual structure of a formal report?
Which chart suits (i) proportions of a whole, (ii) a trend over time, (iii) the relationship between two variables?
Give one strength and one weakness of presenting information graphically.
How can an organisation ensure reports are distributed reliably and that confidential information is protected?
Why do timing and frequency matter when reporting management information?
Give four differences between cost & management accounting and external financial reporting.
Distinguish an integrated from an interlocking accounting system.
State the correct sequence of documents in the purchases part of the material control cycle.
Before a purchase invoice is approved for payment, which two documents is it matched to, and why?
What document authorises the release of materials from stores to production, and what does it show?
What is a bin card used for?
Why is it vital that all despatched goods are invoiced, and how is this controlled?
How is labour time recorded for direct and indirect labour?
Why are codes used in accounting systems? Give the four main reasons.
List the desirable attributes of a coding system.
What is a sequential (sequence) code and its main drawback?
What is a hierarchical (significant digit) code? Give its key advantage.
Distinguish a block code from a faceted code.
What is a mnemonic code?
What is a cost unit? Give examples.
Distinguish direct from indirect materials, and how each is authorised/recorded.
Name common computer input methods and one property of each.
Name common computer file storage options in a modern accounting system.
Name six bases on which costs can be classified.
Define a variable cost and give an example.
Define a fixed cost. What happens to the fixed cost per unit as output rises?
What is a semi-variable (mixed) cost? Give an example.
What is a stepped fixed cost? Give an example.
How does the high-low method split a semi-variable cost into fixed and variable parts?
Costs: 10,000 units → $220,000; 25,000 units → $370,000 (highest and lowest). Find the variable cost per unit and the fixed cost.
When applying high-low, how do you deal with a step in fixed costs or a change in the variable rate at high volumes?
As activity changes, what happens to total and per-unit variable and fixed costs?
At 5,000 units the total absorption cost is $20/unit, of which $12 is variable. What is the cost per unit at 8,000 units?
Distinguish direct and indirect costs across the three cost elements.
What are non-production overheads?
Distinguish capital from revenue expenditure.
What is depreciation, and what four methods can calculate it?
Calculate straight-line depreciation: cost $24,000, residual value $4,000, useful life 5 years.
Calculate the first two years' reducing balance depreciation: cost $24,000 at 25% per year.
Calculate machine-hour depreciation: cost $24,000, residual $4,000, total estimated 60,000 hours, 10,000 hours used this year.
Calculate product-unit depreciation: cost $24,000, residual $4,000, total estimated 200,000 units, 25,000 units made this year.
Distinguish raw materials, work-in-progress and finished goods.
Distinguish direct from indirect materials, with examples.
What is the double entry as material moves from raw materials into work-in-progress?
At what value are finished goods and closing WIP carried in the cost accounts?
Give the formula linking material purchased to material used.
Give the formula for units to be produced from a sales and inventory plan.
How do you find the material input needed when there is wastage (a yield below 100%)?
Define free inventory and give its formula.
How do companies keep the recorded inventory (bin cards) accurate?
How does FIFO price issues and value closing inventory?
How does LIFO price issues and value closing inventory, and is it permitted?
How does the cumulative weighted average method work?
How does the periodic weighted average differ from the cumulative method?
In a period of rising prices, how do FIFO and LIFO affect closing inventory and issue cost?
Why do businesses hold inventory?
What is just-in-time (JIT) inventory management, and what are its risks?
What makes up the cost of holding inventory and the cost of being without it?
Give the formula for the reorder level when usage and lead time are (i) constant and (ii) variable.
Give the formulas for the minimum and maximum stock control levels.
Compute the control levels: max/min/avg usage 20/12/15 per day; max/min/avg lead 11/4/6 days; reorder quantity 1,000.
What is the economic order quantity (EOQ) and its formula?
Compute the EOQ: annual demand 20,000 units, order cost $50, holding cost $5/unit/year.
If the cost of placing an order rises, what happens to the EOQ and the total annual stockholding cost?
What is the relationship between the materials costing system and the inventory control system?
From what elements can labour costs arise?
An employee works 52 hours; basic week 40 hours at $10; overtime at time-and-a-half. Calculate the total pay.
How does piecework with a guaranteed minimum wage work?
Basic $9/hour for a 40-hour week; standard output 120 units; bonus = 50% of time saved paid at time-and-a-third. 150 units are made in 40 hours. Find total pay.
Distinguish gross pay, net pay and total labour cost to the employer.
$10/hour, 38 hours worked. Deductions 25% of income above $100; employer payroll tax 10% of gross. Find gross, net and total employer cost.
How are labour costs split into direct and indirect?
Outline the double entry to account for labour through the wages control account.
How is the labour cost per unit found, and when are detailed time records needed?
Give the formula for the efficiency ratio and interpret a result above 100%.
Give the formula for the capacity utilisation ratio and interpret 108%.
Give the formula for the production volume ratio and what it tells you.
Give the formula for the idle time ratio.
Why should labour turnover be kept low, and what is the formula?
1,000 staff at the start; the firm wanted to downsize to 800 but 300 left and the shortfall was recruited. Find the labour turnover ratio.
Define marginal cost, total absorption cost and the fixed overhead absorption rate.
Distinguish contribution per unit from profit per unit.
In a marginal costing profit statement, how is closing inventory valued and how are fixed costs treated?
In an absorption costing profit statement, how is closing inventory valued?
Selling price $20, marginal cost $8, fixed overheads $4,000; 500 units made and sold. Find contribution and profit.
1,000 units made, 900 sold; fixed OAR $25/unit. Why do absorption and marginal profit differ, and by how much?
When does absorption profit exceed marginal profit, and when is it lower?
Why is marginal costing better for decisions but absorption costing required for external reporting?
Distinguish cost allocation from cost apportionment.
Give suitable bases of apportionment for rent, machine insurance/depreciation, and canteen costs.
What is secondary apportionment (re-apportionment) of service cost centres?
Distinguish the direct and step-down methods of re-apportioning reciprocal service department costs.
Why are overhead absorption rates based on labour hours or machine hours?
Department overheads $61,494; budgeted machine hours = 10,000×2 + 6,000×3 = 38,000. Find the machine-hour rate and the overhead on a unit taking 2 machine hours.
Why is a predetermined absorption rate used rather than an actual rate, and what is the consequence?
How do over-absorption and under-absorption of overhead arise and how are they treated?
Budgeted overheads $12,000 for 2,000 units; actual overheads $13,000, actual output 1,900 units. Find the over/under absorption.
Budgeted overheads $50,000 for 20,000 units; actual overheads $46,000, actual output 19,000 units. Find the over/under absorption.
How are non-production overheads attributed to cost units, and what is the rationale for absorption costing?
Set out the steps to find a product cost under absorption costing.
When is job costing used, and how are costs gathered?
A job uses $450 of material, 30 direct labour hours at $9, and overhead absorbed at $4/labour hour. Find the job cost.
What is batch costing and how is the cost per unit found?
A batch costs $22,000 material + $1,480 labour + $390 overhead and yields 900 units. Find the cost per unit.
How is cost-plus pricing applied in job costing, and how are job costs controlled?
When is process costing appropriate, and how is the cost per unit found?
How is a normal loss treated in process costing?
How does a scrap value on the normal loss change the cost per unit of good output?
How are abnormal losses and gains valued, and do they change the cost per good unit?
Input cost $120,000; expected good output 1,000 units; normal loss 200 units sold at $5; only 900 good units result. Find the cost per unit and inventory value.
Distinguish joint products from by-products.
How are joint costs apportioned, and how are by-products treated?
Joint costs $12,000, output 1,000kg: Product A 600kg, Product B 400kg. Apportion by weight.
Joint costs $12,000. A: 600 units @ $25, separate costs $4,000. B: 400 units @ $40, separate costs $7,000. Apportion by net realisable value.
How do you decide whether to process a joint product further after split-off?
Product A: sales at split-off $6,000; final sales $23,000; further processing cost $16,000. Should it be processed further?
What is a defining feature of service costing, and give example cost units.
Fleet cost $80,000; total activity 16,000,000 kg-km. Find the cost per kg-km, and note a practical problem of service costing.
Define contribution per unit and the contribution/sales (C/S) ratio.
Define the break-even point and give the formula in units.
Fixed costs $30,000, selling price $100, marginal cost $40. Find the break-even point in units and revenue.
How do you find break-even sales revenue directly from the C/S ratio?
What is the margin of safety and how is it calculated?
Fixed costs $240,000, budgeted output 50,000 units, contribution $8/unit. Find the break-even point and margin of safety.
How many units are needed to achieve a target profit?
Fixed costs $220,000, contribution $80/unit. How many units give a profit of $100,000?
Use the C/S ratio to find target-profit sales revenue.
When selling prices or costs change, how should you analyse the effect on the required volume?
MC $40, SP $60, fixed $120,000, 10,000 units (profit $80,000). Inflation raises MC and fixed by 10%; SP rises 5%. What volume keeps profit the same?
How do you read a break-even chart?
What does a profit/volume (P/V) chart show?
C/S ratio 30% and contribution $75/unit — find the selling price and variable cost. Break-even 1,000 units, SP $60, C/S 60% — find fixed costs.
What is a limiting factor (key factor)?
Set out the steps to find the optimal production plan when there is a single limiting factor.
Why rank by contribution per unit of limiting factor rather than by contribution per unit?
Products R and S share material limited to 3,900kg. R: contribution $15, uses 6kg (demand 500). S: contribution $12, uses 3kg (demand 1,200). Find the plan.
With a scarce resource, how do you decide which products to make in-house and which to buy in?
Making 10,000 components costs $25,000 and uses all 6,000 machine hours; buying them costs $55,000. Freed hours earn at most $4/hour (Q) or $3/hour (P). Make or buy?
How do you decide whether to discontinue a product or division?
A division: sales $500,000, variable costs $320,000, fixed costs $200,000 (all avoidable if closed), loss $20,000. Should it close?
What makes a cost relevant to a decision?
Which costs are irrelevant to a decision?
What is an opportunity cost?
How do you find the relevant cost of materials already held in inventory?
Material G (used daily): 6kg/unit, replacement $4.00, resale $2.00. Material H (no other use): 9kg/unit, replacement $3.50, resale $0.60. Find the relevant material cost per unit.
How do you find the relevant cost of labour?
Programmers (idle, retained) 2,000 hrs @ $30. Analysts (scarce) 900 hrs @ $50 salary, diverted from work earning $80/hr contribution (after salary). Find the relevant labour cost.
Why is contribution (not profit) the focus of most short-term decisions?
What is capital investment, and why does it need discounted cash flow techniques?
Distinguish simple from compound interest, and nominal from effective rates.
Give the formula for the present value of a single future cash flow.
What is an annuity, and how is its present value found?
How do you value a delayed annuity (e.g. a flow in years 4–10)?
What is a perpetuity and its present value formula?
$10,000 a year in perpetuity, but starting in year 3, discount rate 5%. Find the present value.
What is the net present value (NPV) and the decision rule?
Machine costs $25,000 now; inflows Y1 $8,000, Y2 $15,000, Y3 $10,000, plus $2,000 scrap at Y3. Factors at 8%: 0.926, 0.857, 0.794. Find the NPV.
Which cash flows are relevant in an NPV calculation?
Land could be sold now for $1m (cost $800k two years ago). Building apartments costs $5m now and yields $550k rent in perpetuity from year 1 at 10%. Find the NPV.
Define the internal rate of return (IRR) and its decision rule.
Give the interpolation formula for estimating the IRR.
NPV at 10% = +$1,200; NPV at 20% = −$500. Estimate the IRR.
A project's IRR is 12% and the cost of capital is 9%. Accept or reject, and is the NPV positive?
What is the payback period, and how is it calculated with even in-year cash flows?
How does discounted payback differ from ordinary payback?
Give the main advantages and drawbacks of payback.
Why must cash flow, not accounting profit, be used in investment appraisal?
Why can a profitable business still fail, and why is cash flow so important?
Give examples of cash movements that are not profit-and-loss items.
What is a cash budget and what is the key to preparing it?
How is a cash budget used for control, and what actions can ease a forecast cash shortage?
Spinoza: opening cash $20,000, receivables $42,000, payables $65,000. Sales $120,000 (50% collected this month); purchases paid next month; expenses $90,000 paid now. Find the closing bank balance.
What is the working capital cycle and how is its length calculated?
Why do a supermarket and an engineering firm have very different cash-flow patterns?
What is treasury management, and distinguish the money market from the capital market?
Name the three motives for holding cash.
Outline the ways a business can raise finance from a bank, and the matching principle.
Distinguish secured vs unsecured loans and a fixed vs floating charge.
List short-term investments for surplus cash and comment on risk/return and liquidity.
How is the market value of government stock (gilts) affected by interest rates? $100 nominal 4.2% stock when market rates are 6%?
Distinguish the four main ways of making payments from a bank account.
On a cheque, who are the drawer, drawee and payee, and what does 'refer to drawer' mean?
How is a price index calculated, and what did goods costing $5,000 now cost in the base year if the index is 125?
Distinguish trend, seasonal, cyclical and random variation in a time series.
How are moving averages used to separate the trend and seasonal variation?
How do you forecast a future figure from a trend and seasonal factor? Trend rises $1,000/quarter; Yr4 Q2 trend $12,000; Q4 factor 110% — predict Yr5 Q4.
Calculate a compound deposit and an effective annual rate. $5,000 at 5% for 6 years; and a 9% nominal rate compounded quarterly.
What are the basic treasury/cash-handling controls and public-sector considerations?
How can trends in the economic and financial environment affect the management of cash balances?
Why is comparison essential when presenting management information?
Name the main bases of comparison and a pro/con of each.
Distinguish incremental from zero-based budgeting.
Distinguish feedback from feed-forward control.
What is a flexible budget, and how does it differ from a fixed budget?
What is a flexed budget, and how does it differ from a flexible budget?
Which costs are flexed with activity and which are not?
Define a variance and the terms favourable and adverse.
Budget 8,000 units, variable labour $96,000. Actual 7,000 units cost $89,000. Find the variance and its type.
Budget 10,000 units, material $150,000. Actual 10,500 units cost $155,000. Find the variance.
Budget 10,000 units with fixed overhead $200,000. Actual 11,000 units, actual fixed overhead $230,000. Find the variance.
Give typical causes of variances for material, labour and sales.
Why can an adverse variance not automatically be treated as bad performance? Give an example of interdependence.
What is exception reporting?
What factors influence whether a variance is investigated?
Card 1 of 219. Question side.