ATD Level III
Fundamentals of Management Accounting flashcards
Read the question, say the answer to yourself, then turn the card to check. The first 10 of 50 cards are free; the rest come with the subject.
Card 1 of 50
Jump to a card
Complete Flashcard Reference
Review every card in this deck. Open any card to reveal its answer. The first 10 are free; the other 40 come with the subject.
How does management accounting differ from financial accounting?
Users: internal managers, against external stakeholders such as investors, lenders and tax authorities. Law: not required by law, against required by the Companies Act and tax law. Time: forward-looking as well as historical, against historical. Format: tailored to management's need, against prescribed by IFRS. Precision: timely estimates are acceptable, against greater accuracy and verifiability.
How does the high-low method split a semi-variable cost?
Variable cost per unit = (cost at highest activity - cost at lowest activity) / (highest activity - lowest activity). Fixed cost = total cost at either level - (variable cost per unit x units at that level). Example: 1,000 units cost KES 450,000 and 600 units KES 310,000, so variable cost is 140,000 / 400 = KES 350 and fixed cost 450,000 - 350,000 = KES 100,000.
How do FIFO, LIFO and the weighted average method value issues of material?
FIFO: the oldest units are issued first, so issues carry the earliest prices and closing stock the latest. LIFO: the newest units are issued first, so issues carry the latest prices and closing stock the oldest. Not permitted under IAS 2 for financial reporting. Weighted average: a new average cost (total value / total units) is worked out after every purchase, and issues are valued at it.
What is the economic order quantity, and how is it calculated?
The order quantity that minimises the combined total of ordering cost and holding cost for a given annual demand. EOQ = sqrt(2 x D x Co / Ch), where D is annual demand in units, Co the cost of placing one order and Ch the holding cost per unit per year. Example: D = 24,000, Co = KES 150, Ch = KES 4 gives sqrt(1,800,000), about 1,342 units.
How is an overhead absorption rate set and used?
OAR = budgeted production overheads / budgeted activity (machine hours, labour hours, labour cost, material cost or units). Example: KES 900,000 / 30,000 machine hours = KES 30 per machine hour, so a job using 8 machine hours absorbs KES 240. Machine hours suit a highly mechanised department, labour hours a labour-intensive one.
In process costing, how are normal loss and abnormal loss treated?
Normal loss: expected under efficient conditions and built into the expected yield; any scrap value is credited to the process account. Abnormal loss: loss above the normal level, valued at the same cost per unit as good output and charged to the statement of profit or loss as inefficiency. Abnormal gain: loss below the normal level, valued the same way but credited.
How do marginal costing and absorption costing treat fixed production overhead?
Marginal costing: only variable production cost goes into a unit; fixed overhead is a period cost charged in full against the period's profit. Absorption costing: a share of fixed production overhead goes into each unit, so it is carried in inventory and reaches profit or loss only when the unit is sold. IAS 2 requires absorption costing for external financial statements.
How is the break-even point found in units and in shillings?
Contribution per unit = selling price - variable cost per unit. Break-even (units) = fixed costs / contribution per unit. Break-even (KES) = fixed costs / P/V ratio. Example: fixed costs KES 300,000, price KES 500, variable cost KES 300 gives 300,000 / 200 = 1,500 units, or 300,000 / 0.40 = KES 750,000.
What is the difference between a forecast and a budget?
Forecast: a prediction of what is likely to happen, given current trends and assumptions. Budget: a formal plan of what management wants and intends to happen, and commits to work toward. A forecast is one of the inputs used to build it.
How does cost control differ from cost reduction?
Cost control: continuous regulation of actual costs against a predetermined standard or budget, assuming that standard is acceptable. Cost reduction: a deliberate, planned effort to permanently lower the cost itself without impairing quality or suitability, challenging whether the current cost level is the lowest achievable.
What is the difference between a cost centre, a profit centre and a responsibility centre?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How is cost accounting related to management accounting?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What roles does management accounting play in an organisation?
This answer comes with Fundamentals of Management Accounting. Buy the subject
Who uses management accounting information, and for what?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What are the limitations of management accounting?
This answer comes with Fundamentals of Management Accounting. Buy the subject
Which four ethical principles bind a management accountant?
This answer comes with Fundamentals of Management Accounting. Buy the subject
On what bases can costs be classified?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How do fixed, variable and semi-variable costs behave as activity changes?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What makes a cost relevant to a decision?
This answer comes with Fundamentals of Management Accounting. Buy the subject
Which cost estimation methods are non-mathematical, and which are mathematical?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What is the main weakness of the high-low method?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How does simple linear regression estimate a cost function?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How does a periodic inventory system differ from a perpetual one?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What are the advantages and disadvantages of centralised purchasing?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What are the maximum, minimum and reorder levels of stock?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How do ordering costs and holding costs behave as order size changes?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What does the EOQ model assume?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What are the main methods of paying labour, and their drawbacks?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How is the labour turnover rate calculated, and why does it matter?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What is the difference between allocating, apportioning and reapportioning overheads?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What are primary and secondary distribution of overheads?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How is over- or under-absorption of overheads worked out?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What is job costing, and what goes on a job cost sheet?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How does batch costing find a cost per unit?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How does process costing differ from job costing?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How is the cost per unit found in a process account with normal loss?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What are the features of service costing?
This answer comes with Fundamentals of Management Accounting. Buy the subject
When do marginal and absorption costing report different profits, and which is higher?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How are marginal and absorption costing profits reconciled?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What is the main merit and demerit of each of marginal and absorption costing?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What is the P/V ratio, and what does a P/V chart show?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How are the margin of safety and the sales needed for a target profit calculated?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What assumptions lie behind CVP analysis?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How are products ranked when one resource is scarce?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What contribution test applies to make or buy, dropping a product and a special order?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What are the objectives and limitations of budgets?
This answer comes with Fundamentals of Management Accounting. Buy the subject
In what order are the functional budgets prepared?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How is budgeted production derived from the sales budget?
This answer comes with Fundamentals of Management Accounting. Buy the subject
Why compare actual results with a flexed budget rather than the fixed budget?
This answer comes with Fundamentals of Management Accounting. Buy the subject
What does a cash budget do?
This answer comes with Fundamentals of Management Accounting. Buy the subject
How to revise with these cards
- Answer out loud or on paper before you turn the card: recalling is what fixes it.
- Go through the deck in short sessions of ten to fifteen minutes, every day.
- Shuffle once you know the order, so you are not answering from memory of the sequence.
- When a card catches you out, read the chapter it links to, then try the topic in a past paper.