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Questions and Answers
What is a key differentiator between financial accounting and managerial accounting?
What is a key differentiator between financial accounting and managerial accounting?
Which of the following factors is NOT emphasized in the modern business environment for competitive success?
Which of the following factors is NOT emphasized in the modern business environment for competitive success?
How does managerial accounting adapt in response to recent business changes?
How does managerial accounting adapt in response to recent business changes?
Which change in the business environment is least associated with the shift towards managerial accounting?
Which change in the business environment is least associated with the shift towards managerial accounting?
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What role does benchmarking play in management accounting?
What role does benchmarking play in management accounting?
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What type of costs are not affected by a decision and are thus considered irrelevant?
What type of costs are not affected by a decision and are thus considered irrelevant?
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Which of the following describes opportunity cost?
Which of the following describes opportunity cost?
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Which of the following best describes the purpose of segmenting a business?
Which of the following best describes the purpose of segmenting a business?
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What do incremental costs refer to in a business context?
What do incremental costs refer to in a business context?
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In cost-volume-profit analysis, what is the primary objective regarding unit sales?
In cost-volume-profit analysis, what is the primary objective regarding unit sales?
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Which of the following is NOT considered a relevant cost in decision-making?
Which of the following is NOT considered a relevant cost in decision-making?
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What is the role of marginal cost in production decisions?
What is the role of marginal cost in production decisions?
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What is the unit contribution margin given a unit sales price of €10 and a unit variable cost of €6?
What is the unit contribution margin given a unit sales price of €10 and a unit variable cost of €6?
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To achieve a targeted EBIT of €20,000, how many units must be sold given fixed costs of €40,000 and a contribution margin of €4 per unit?
To achieve a targeted EBIT of €20,000, how many units must be sold given fixed costs of €40,000 and a contribution margin of €4 per unit?
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What is the required level of sales in € to achieve a EBIT equal to 20% of sales with fixed costs of €40,000?
What is the required level of sales in € to achieve a EBIT equal to 20% of sales with fixed costs of €40,000?
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What is the margin of safety in € if projected sales are €100,000 and the break-even sales are €75,000?
What is the margin of safety in € if projected sales are €100,000 and the break-even sales are €75,000?
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What is the degree of operating leverage if the total contribution margin is €40,000 and the operating profit is €10,000?
What is the degree of operating leverage if the total contribution margin is €40,000 and the operating profit is €10,000?
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What is the total fixed cost including interest if fixed expenses are €40,000 and interest expense is €10,000?
What is the total fixed cost including interest if fixed expenses are €40,000 and interest expense is €10,000?
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If the sales increase by 25%, what impact does this have on profits, assuming a contribution margin remains the same?
If the sales increase by 25%, what impact does this have on profits, assuming a contribution margin remains the same?
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What percentage of the sales is the contribution margin if the total sales are €100,000 and variable expenses are €60,000?
What percentage of the sales is the contribution margin if the total sales are €100,000 and variable expenses are €60,000?
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What would be the sales needed to achieve a net profit of €24,000 after accounting for a 40% tax rate and interest expense of €10,000?
What would be the sales needed to achieve a net profit of €24,000 after accounting for a 40% tax rate and interest expense of €10,000?
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What is the formula used to calculate the percentage variance in profits?
What is the formula used to calculate the percentage variance in profits?
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When evaluating a special selling price decision, which of the following factors should be considered?
When evaluating a special selling price decision, which of the following factors should be considered?
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What assumptions are made when determining whether to accept an order at a special selling price?
What assumptions are made when determining whether to accept an order at a special selling price?
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In the context of product-mix decisions, what is meant by 'limiting factors'?
In the context of product-mix decisions, what is meant by 'limiting factors'?
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What is the significance of opportunity costs when considering the acceptance of a new contract?
What is the significance of opportunity costs when considering the acceptance of a new contract?
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If a company has excess capacity of 50,000 units and demand for 35,000 units, what does this indicate regarding relevant revenues?
If a company has excess capacity of 50,000 units and demand for 35,000 units, what does this indicate regarding relevant revenues?
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How much will the company be financially better off per month if it reduces capacity based on the given scenario?
How much will the company be financially better off per month if it reduces capacity based on the given scenario?
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What type of analysis focuses on incremental or differential cash flows for various alternatives?
What type of analysis focuses on incremental or differential cash flows for various alternatives?
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Study Notes
Managerial Accounting
- Definition: The process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by users of the information.
- Users: Divided into two categories:
- External parties (financial accounting)
- Internal parties (management accounting)
- Differences between Financial and Managerial Accounting:
- Financial accounting is mandated for public companies to produce annual financial accounts; management accounting has no legal requirement.
- Financial reports cover the entire organization; management accounting focuses on specific parts of the business.
- Financial reports conform to generally accepted accounting principles (GAAP).
- Financial reports are historical; management accounting emphasizes estimated future costs and revenues.
- Management accounting reports are more frequent than financial reports.
The Changing Business
- Businesses face dramatic changes in their environment.
- Shift from protected markets to competitive global markets
- Declining product life cycles
- Rise in service industries
- Advancements in manufacturing technology
- Environmental concerns
- To compete effectively, companies:
- Prioritize customer satisfaction
- Adopt new management approaches
- Change their manufacturing systems
- Invest in advanced manufacturing technologies (AMTs)
Impact on Management Accounting Systems (MAS)
- Significant impact from above business changes
Focus on Customer Satisfaction and New Management Approaches
- Key success factors:
- Cost efficiency (accurate product costs and cost management)
- Quality (Total Quality Management - TQM)
- Time (reduced cycle time, focus on non-value-added activities)
- Innovation (responding to customer needs)
- Feedback on customer satisfaction
- Continuous Improvement
- Historical standards are outdated
- Benchmarking against competitors.
- Employee empowerment
- Empowering those closest to operations and customers
- Social responsibility and corporate ethics
International Convergence of Managerial Accounting
- Practices observed on macro and micro levels
- Macro refers to the concepts and techniques.
- Micro involves how the techniques are used.
- Factors promoting convergence include global competition, information technology, standardization by transnational companies.
Primary Functions of a Cost Accounting System
- Inventory valuation
- Decision making (profitability analysis, pricing, make-or-buy decisions, product mix)
- Planning, control, and performance measurement (budgeting, performance reports)
Operational Control and Performance Measurement
- Costs allocated to responsibilities/cost centres, not products
- Cost centres track accountability
Cost Objects
- Anything needing separate cost measurement (e.g., product, service)
- Cost collection systems involve two stages:
- Accumulating costs into categories (materials, labor, overheads)
- Assigning costs to cost objects.
- Direct costs are specifically identifiable; indirect costs (overheads) are assigned through allocations.
- Product costs are included in inventory valuation; period costs aren't.
Cost-Volume-Profit (CVP) Analysis
- Essential for predicting costs and revenues at different activity levels
- Variable costs change directly with activity; Fixed costs remain constant within ranges.
- Semi-fixed costs remain constant then change in increments; semi-variable costs have both fixed and variable components.
- Key benefits: pricing, analyzing volume impact on profits, analysis on costs (variable and fixed), mix of products
Margin of Safety and Degree of Operating Leverage
- Margin of safety is the difference between actual/projected sales and the break-even point.
- Degree of operating Leverage = Total Contribution Margin/Profit
Non-Graphical CVP Analysis
- Analyze the effect of various factors on profits (such as price changes, advertising).
- Profit before taxes affected by fixed costs, variable costs and the selling price.
Relevant Costs and Revenues
- Focuses on future cash flows that differ between options.
- Costs and revenues to be considered depend on the decision.
- Relevant costs and revenues include those that change due to a particular decision.
- Irrelevant costs (sunk costs) are not affected by the decision.
- Includes opportunity costs, special orders, outsourcing, and product mix decisions
Product Mix Decisions
- Maximising profits by allocating scarce resources (e.g. machine hours) to products with the highest contribution per limiting factor, not just total contribution.
Outsourcing
- Obtaining goods/services from outside suppliers, not producing them internally
- Focuses on differential costs and revenues: costs/revenues that differ between making and outsourcing.
- Internal opportunity cost should be considered if outsourcing frees up resources for other uses.
Discontinuation Decisions
- Assessing the profitability of a business segment, product line, or service.
- Relevant costs/revenues include differential amounts.
- Unrecoverable fixed costs are irrelevant; avoidable costs are relevant.
Cost Behavior
- Classifies costs based on how they react to changes in volume.
- Costs can be variable, fixed, semi-variable or semi-fixed.
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Description
Explore the fundamentals of Managerial Accounting, including its definition, key users, and differences from Financial Accounting. Understand how management accounting provides vital information for internal decision-making. This quiz covers the essential concepts that shape the changing business environment.
