CPA Advanced Level
Advanced Management Accounting flashcards
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Where does strategic management accounting information come from?
Internal accounting and operational systems. Competitor and industry data. Customer and market intelligence. Economic and regulatory data. The last three are what take it beyond traditional, inward-looking management accounting.
What does an 80% learning curve mean, and how does the arithmetic run?
Each time cumulative output doubles, average time per unit falls to 80% of the previous average. First unit 100 hours: 2 units average 80 hours (total 160); 4 units average 64 hours (total 256). Total time = average time per unit x cumulative units. The curve flattens as output grows, so the effect matters most early in a product's life.
What is the expected value of perfect information (EVPI), and how is it worked out?
The most it is worth paying for perfect advance knowledge of which state of nature will occur. EVPI = expected payoff with perfect information - the best EMV achievable without it. With perfect information, take the best payoff in each state, then weight those payoffs by the state probabilities.
Which costs are relevant to a decision, and which are excluded?
Relevant: future, incremental cash flows that differ between the alternatives. Excluded, however large: sunk costs (already incurred, unchangeable by any future decision) and costs common to all the alternatives.
What is the minimum transfer price a supplying division should accept?
Minimum transfer price = variable cost + opportunity cost of the lost external sale. No spare capacity: each internal unit displaces an external sale, so the minimum is the external market price. Spare capacity: nothing is displaced, the opportunity cost is zero, and the minimum falls to variable cost.
How do target costing and Kaizen costing differ?
Target costing: before or during design. Market-determined target price - required profit margin = allowable target cost, and the product is designed to meet it, the reverse of cost-plus pricing. Kaizen costing: during production, once the product is on the market. Small, continuous cost reductions. The examiner tests the difference by timing.
How can ROI lead a divisional manager to the wrong decision, and how does RI fix it?
A division earning 20% ROI, in a company requiring 12%, is offered a project returning 15%. The company wants it (15% beats 12%), but it would dilute the division's ROI from 20%, so a manager judged on ROI may reject it. RI charges capital at the required 12%, so the project shows a positive residual income and is correctly accepted.
What is the EOQ formula, and what is true of costs at the EOQ?
EOQ = sqrt(2DCo / Ch): D annual demand, Co cost per order, Ch annual holding cost per unit. It minimises total ordering plus holding cost under certain, constant demand. At the EOQ, annual ordering cost equals annual holding cost. D = 10,000, Co = KES 200, Ch = KES 4 gives EOQ = 1,000 units, with KES 2,000 of each cost.
What do planning and operational variances separate, and how is each worked out?
Planning variance: original (ex-ante) standard against a revised (ex-post) standard reflecting conditions that could not have been foreseen. Not a performance failure. Operational variance: revised ex-post standard against actual, the true measure of operational efficiency. For price: planning = (original - revised) x actual quantity; operational = (revised - actual) x actual quantity. Together they make the total variance.
What does inflow/outflow analysis show about the cost of waste?
It tracks material flowing into a process against product output and waste output. Waste is then costed as lost material value, not just as the cost of disposing of it. It is the simplest of the environmental costing techniques, the starting point the others build on.
How does strategic management accounting differ from traditional management accounting?
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Why does strategic management accounting information need governance, and what does it involve?
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Why does a management accountant's personal ethical standard matter so much?
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What is the difference between simple and multiple regression in cost estimation?
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Which tests are used to judge an OLS cost regression?
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What is an economic plausibility test, and give an example of a failure.
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What are serial correlation and multicollinearity in an OLS regression?
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What is the difference between a technical and a managerial interpretation of regression output?
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Where is the learning curve applied in management accounting?
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How does CVP analysis under uncertainty differ from ordinary CVP analysis?
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What do a conditional payoff table and a decision tree each do?
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With one scarce resource, how should production be planned?
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What is throughput accounting, and how does it differ from marginal costing?
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What is compared in make or buy, discontinue and special order decisions?
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What are the three external pricing methods?
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What is a transfer price meant to achieve, and on what bases can it be set?
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What is product life cycle costing?
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What is each type of responsibility centre accountable for?
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How does organisational structure shape performance measurement?
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How is return on investment (ROI) calculated, and what are its components?
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How is residual income (RI) calculated?
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What is economic value added (EVA)?
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What are the four perspectives of the balanced scorecard?
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What do the performance pyramid and Fitzgerald and Moon's building block model each do?
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Give four kinds of non-financial performance indicator.
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How does the economic batch quantity (EBQ) differ from the EOQ?
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What changes when inventory demand is stochastic rather than constant?
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Why is EOQ the wrong model for perishable stock, and what replaces it?
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When is simulation used for inventory, and what is the difference between with and without backorders?
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What do JIT purchasing, ABC analysis and MRP each do?
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How do top-down, bottom-up, rolling and activity-based budgets differ?
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How does zero-based budgeting differ from incremental budgeting?
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What is the difference between feedback and feedforward control?
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Why should a planning variance not be used to judge a purchasing manager?
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How is it decided whether a variance is worth investigating?
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Why has traditional cost accounting obscured environmental costs?
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How do flow cost accounting, environmental lifecycle costing and environmental ABC build on inflow/outflow analysis?
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What can environmental activity-based costing reveal that volume-based costing cannot?
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