MA 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.

A sampling frame is a numbered list of all items in a population

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

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

The population is stratified and a sample of each strata is restricted to a fixed number.

The line that most nearly goes through all the points when the data is plotted on a graph.

A pie chart is a circle that is divided into segments representing each type of observation. The size of each segment is proportional to the proportion of the total that are within each type of observation.

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.

If we have an equation relating the total sales revenue to the total advertising spend, which would be the dependent variable?

The dependent variable would be the sales revenue (it depends on the amount of advertising expenditure.)

The dependent variable is y

In the linear equation y = a + bx, where y is the total cost and x is the total production, what is the variable cost per unit?

The variable cost per unit is ‘b’ in the equation

If the linear equation y = a + bx, were to be drawn on a graph, what would be the gradient of the line?

The gradient of the line would be ‘b’.

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.

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

A delivery note is included by the supplier with the goods, and lists the quantity of goods that are being delivered.

What is meant by the FIFO method of valuing inventory?

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.

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)

Employees are paid a fixed amount for each unit produced.

Define the labour turnover ratio.

Labour turnover ratio = number of leavers who require replacing / average number of employees x 100%

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

Idle time ratio = idle hours / total hours x 100%

Labour capacity ratio = Number of hours spent working / total hours available x 100%

The labour production volume ratio = expected hours to produce actual output / total hours available (budgeted) x 100%

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.

A mark-up is when the profit is calculated as a percentage of cost; a margin is when the profit is calculated as a percentage of selling price.

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

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

An abnormal gain is the amount by which the actual loss is less than the normal (or expected) loss.

Abnormal gains and losses are valued at full cost per unit.

A by-product is output from a process which has a low value relative to the main product(s) being produced in the process.

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

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.

The cost gap is the excess of the estimated actual cost over the target cost.

‘Get it right first time’ - i.e. good quality production - no re-working, no rejects Continuous improvement Customer focus

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)

r is the coefficient of correlation

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

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)

The coefficient of determination is the square of the coefficient of correlation.

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

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

A Paasche index number uses current year quantities.

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).

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)

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

What is meant by an ‘incremental cost’?

An incremental cost is an extra cost (and is 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 current ratio = current assets / current liabilities

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

The interest cover = profit before interest and tax / interest

The dividend cover = profit after tax / dividends

ROI = profit / capital invested

The four perspectives are:

• Financial
• Customer
• Internal
• Innovation and learning

Benchmarking is the comparison with best practice.

The three ‘E’s’ are:  

• Economy
• Efficiency
• Effectiveness