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Questions and Answers
What is the main purpose of a cash budget?
What is the main purpose of a cash budget?
Which of the following formulas correctly calculates Return on Investment (ROI)?
Which of the following formulas correctly calculates Return on Investment (ROI)?
What does positive residual income indicate for a business unit?
What does positive residual income indicate for a business unit?
Which of the following is a disadvantage of using absolute profit as an evaluation measure?
Which of the following is a disadvantage of using absolute profit as an evaluation measure?
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What negative impact can arise from short-term incentives in absolute profit evaluation?
What negative impact can arise from short-term incentives in absolute profit evaluation?
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What is the primary purpose of a profit budget?
What is the primary purpose of a profit budget?
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Which of the following best describes budgetary control?
Which of the following best describes budgetary control?
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In the context of performance evaluation, what is a responsibility center?
In the context of performance evaluation, what is a responsibility center?
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What is emphasized about budgets in the context of strategic planning?
What is emphasized about budgets in the context of strategic planning?
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Which of the following statements regarding cash forecasts is correct?
Which of the following statements regarding cash forecasts is correct?
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How is the 'return on investment' best described?
How is the 'return on investment' best described?
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What characteristic should a budget possess according to effective budgeting principles?
What characteristic should a budget possess according to effective budgeting principles?
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What aspect of budgetary control involves taking corrective actions?
What aspect of budgetary control involves taking corrective actions?
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What primarily differentiates financial accounting from management accounting?
What primarily differentiates financial accounting from management accounting?
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Which of the following best describes the income statement?
Which of the following best describes the income statement?
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In the context of strategic investment decisions, what does the payback method evaluate?
In the context of strategic investment decisions, what does the payback method evaluate?
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What aspect of management control is evaluated by feedback?
What aspect of management control is evaluated by feedback?
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Which of the following statements about balance sheets is correct?
Which of the following statements about balance sheets is correct?
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What is the primary focus of cost-accounting methods?
What is the primary focus of cost-accounting methods?
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Which of the following is a key consideration when assessing profitability?
Which of the following is a key consideration when assessing profitability?
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Which cost type is typically considered fixed?
Which cost type is typically considered fixed?
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What is the significance of assessing needs in management control?
What is the significance of assessing needs in management control?
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What role does the division of labor and responsibilities play in management control?
What role does the division of labor and responsibilities play in management control?
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Study Notes
Management Control
- Management control is a system of rules that govern a system of at least two inter-related parts to achieve a desired outcome.
- It assures that resources are obtained and used effectively.
Financial Accounting vs. Management Accounting
- Financial accounting focuses on monetary transactions;
- Management accounting focuses on actions to improve performance, considers past, present and future data, and internal and external financial and non-financial information.
Value Creation
- Value creation is concerned with how companies create value for customers, by focusing on customer satisfaction. This is done considering the goals and objectives of the company, the skills of employees and how the company coordinates.
- A company's success is determined by financial measurements.
Assessing Opportunities and Abilities
- A company's abilities and opportunities are assessed for performance and future decisions through a SWOT analysis that combines internal strengths and weaknesses with external opportunities and threats.
- Needs, offerings and methods are considered in order to create value.
- External effectiveness is determined by customer satisfaction, and internal efficiency by capacity utilization.
Financial Statements
- Annual report: Includes the income statement (which shows the performance over a period) and the balance sheet (which presents the financial position).
- Income statement: Shows a company's revenues, expenses, profits and losses over a period of time.
- Balance sheet: Presents a company's assets, liabilities and equity on a specific date.
- Cash flow: Shows cash inflows and outflows of the organization.
Cost
- There are different types of costs, including fixed and variable costs.
- Depreciation measures the wearing out, consumption or loss of value of a depreciable asset caused by time, technology and market.
Cost-Volume-Profit Analysis (CVP)
- CVP is a method that examines the impact of volume on profit.
- The analysis is used to make profit decisions.
- Fixed costs (such as salaries) do not change with the amount of production or revenue;
- Variable costs (such as materials) change, increasing or decreasing as production or sales change.
Strategic Investment Decisions
- Payback method: calculates how long it takes to recoup (get back) the initial investment costs.
- Discounted cash flow: This method is more sophisticated than payback. It calculates the net present value (NPV) of an investment,considering the time value of money.
- The amount of time to recoup the initial investment cost.
Performance Evaluation of Business Units
- ROI and Residual income are tools to evaluate the profitability of a business unit.
- ROI: Operating Profit / Total Assets
- Residual income = Operating profit - (Capital Investment x Cost of Capital)
Budgeting
- Budgets are plans expressed in monetary terms for a period, typically a year.
- Budgets are used to guide an organization toward its objectives and targets.
- Budgetary Control: The process of monitoring actual results against the budget, and taking corrective actions when necessary.
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Description
This quiz explores the concepts of management control and the distinctions between financial and management accounting. It examines value creation, customer satisfaction, and the significance of SWOT analysis in assessing a company's capabilities and opportunities. Test your understanding of these fundamental management principles.
