MA: CVP/ TAC/ MC/ ABC

HideShow resource information
  • Created by: charlie
  • Created on: 26-05-17 11:20
relevant costing accept/ reject behavioural factors (6)
(1) Company (prestige/ reputation) (2) Company strategy (LT vs ST) (3) Company business (affect on other products/ spare capacity) (4) Staff (redundancy costs/ motivation) (5) Supplier (relationship/ reliability) (6) Customer (quality/ relationship)
1 of 29
CVP assumptions (6)
(1) all other variables cst (only volume changes) (2) single product/ cst. sales mix (3) TC+TR linear functions (4) profits MC (5) costs separable (6) analysis only ST relevant range
2 of 29
margin of safety + equation
% sales can fall before loss is occurred
3 of 29
profit-volume ratio (contribution ratio) + equation
proportion of £1 of sales able to cover FC and provide for profit
4 of 29
Mark up
relationship between profit and cost (market driven + doesn't take into account fixed costs)
5 of 29
Margin
relationship between profit and selling price (takes into account all costs)
6 of 29
MC vs TAC: manufacturing costs (direct and indirect)
MC: VC (direct) FC (period)/ TAC: VC (direct) FC (direct = FOAR)
7 of 29
FOAR equation
.
8 of 29
MC vs TAC: overheads
MC: Fixed + variable/ TAC: production, administrative, selling + distribution
9 of 29
MC vs TAC: profitability
MC: function of sales vol change/ TAC: function of sales + production (inventory) vol change
10 of 29
MC (3) +ves
(1) useful for decision making (ST projections) (2) smoothes profits when stable sales + fluctuating inventory (doesn't increase profit with increased inventory) (3) avoids FC being capitalised in unsaleable inventories (not being deducted in period)
11 of 29
TAC (4) +ves
(1) consistent with IFRS (2) ensures decisions based on full cost (3) fixed OH essential for production (4) avoids reporting false losses (FC only expensed when sold)
12 of 29
MC layout
Sales/ less: COS (opening stock + VC - closing stock)/ less: FC
13 of 29
TAC layout
Sales/ less: COS (opening stock + production costs (VC+FOAR) - closing stock)/ over/(under) abs
14 of 29
MC vs TAC: profit reconciliation
MC --> TAC (inc/(dec) stock x FOAR)
15 of 29
TAC: over/ (under) abs equation
less/ (more) overheads incurred than expected
16 of 29
Relevant costing: include/ ignore costs
INCLUDE: revenues/ mat+lab. incremental costs/ opportunity costs IGNORE: sunk costs/ non-cash flows/ committed costs (contracts)/ common costs (facility sustaining)
17 of 29
Relevant costing: when needed (5)
(1) special selling price (ST/ outside main market) (2) product mix decisions when limiting factor (3) replacement decisions (4) subcontracting decisions (5) discontinuation decisions
18 of 29
Investment appraisal: NPV (equation, definition, +ves/ -ves)
total present value of a time series of future cash flows/ +ves = time value for money/ used CF/ -ves: not comparable (%)/ need to determine CoC/ doesn't consider CF timings
19 of 29
Investment appraisal: IRR (equation, definition, +ves/ -ves)
cost of capital when NPV=0/ +ves: time value of money/ comparable (%)/ -ves: assume linearity/ assume only 1 sign change/ need to estimate CoC
20 of 29
Investment appraisal: ARR (equation, definition, +ves/ -ves)
compares profit with money invested/ +ves: comparable (%)/ shoes project profitability/ -ves: uses profits/ ignores time value of money
21 of 29
Investment appraisal: payback period (equation, definition, +ves/ -ves)
time taken to repay initial investment/ +ves: good in rapidly changing market/ easy to calculate/ -ves: ignores time value of money/ ST approach (ignores past payback)
22 of 29
ABC: (4) reasons for it
(1) information processing costs cheaper (c-b analysis) (2) mechanisation producing wider product range (OH in differing proportions - high non-vol) (3) direct lab. hrs lower (results in OH per lab hr being overstated) (4) intensive competition
23 of 29
ABC: 2 types of OH
(1) Volume (OH vary with production level in ST) (2) Non-volume (OH vary with some other activity)
24 of 29
ABC: 4 steps
(1) identify activities (c-b analysis) (2) cost drivers (factors influencing activity, cause-and-effect, not arbitrary) (3) cost pool (measurable no. of drivers --> total across all products) (4) assign cost per driver to individual product OH cost
25 of 29
ABC: (5) advantages
(1) simple after step 1 (2) recognises complexity (range/ ST/ products) (3) realistic decision making (in CVP) (4) takes MA past traditional 'factory floor' boundary (OH cost concern --> quality + control) (5) used in service org (mostly indirect $)
26 of 29
ABC: (4) disadvantages
(1) degree of arbitrary cost apportionment (cost pool stage) (2) Drivers can't be specific (3) only quantitative/ related to production (4) needs to be effectively used (c-b analysis)
27 of 29
ABC: (4) activity hierarchies
(1) unit-level (volume/ per unit - lab.) (2) batch-level (per batch - setups) (3) product-sustaining (incurred irrespective - maintenance) (4) facility-sustaining (common - admin)
28 of 29
splitting semi-varible costs: High low method equation
comparing changes in cost that result from highest and lowest activity levels
29 of 29

Other cards in this set

Card 2

Front

CVP assumptions (6)

Back

(1) all other variables cst (only volume changes) (2) single product/ cst. sales mix (3) TC+TR linear functions (4) profits MC (5) costs separable (6) analysis only ST relevant range

Card 3

Front

margin of safety + equation

Back

Preview of the front of card 3

Card 4

Front

profit-volume ratio (contribution ratio) + equation

Back

Preview of the front of card 4

Card 5

Front

Mark up

Back

Preview of the front of card 5
View more cards

Comments

No comments have yet been made

Similar Accounting resources:

See all Accounting resources »See all management resources »