Variance Analysis in Management Accounting
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Questions and Answers

What is the primary focus when calculating mix and yield variances?

  • Assessing market demand fluctuations
  • Analyzing the cost implications of inventory
  • Identifying the discrepancy between actual and standard material usage (correct)
  • Understanding labor productivity

Which factor significantly affects the relationship between material usage variance and mix/yield variances?

  • Shifts in production methods
  • Alterations in material quality (correct)
  • Variations in production volume
  • Changes in labor costs

Which of the following is a consideration when changing material mix in production?

  • Focusing solely on cost reduction
  • Underestimating the lead time for new materials
  • Ignoring quality implications
  • Assessing performance measurement challenges (correct)

In terms of sales mix variance, what primarily affects the calculation of this variance?

<p>The actual sales volume of combined products (D)</p> Signup and view all the answers

When revising an original budget, which factor is typically not allowed to influence the revision process?

<p>Managerial overconfidence in forecasts (B)</p> Signup and view all the answers

What is a potential consequence of dysfunctional variances in a Just-In-Time (JIT) environment?

<p>Delayed decision-making processes (B)</p> Signup and view all the answers

Which method is most effective for controlling production processes?

<p>Utilizing real-time performance data (A)</p> Signup and view all the answers

What is the primary goal of using variance analysis in performance evaluation?

<p>To improve the organization's future performance (B)</p> Signup and view all the answers

What is one significant problem associated with using standard costs in rapidly changing environments?

<p>They can lead to inaccurate profit assessment. (B)</p> Signup and view all the answers

Which financial performance indicator focuses on a company's ability to meet its short-term debts?

<p>Liquidity ratios (A)</p> Signup and view all the answers

What major issue arises from short-termism in financial performance management?

<p>Neglect of sustainable growth. (B)</p> Signup and view all the answers

Which aspect is essential when interpreting performance metrics within an organization?

<p>External considerations such as market conditions. (B)</p> Signup and view all the answers

How do transfer prices affect the performance assessment of divisions?

<p>They can lead to misalignment of profit margins within divisions. (B)</p> Signup and view all the answers

What is a common drawback of using Return on Investment (ROI) as a performance measure?

<p>It disregards the time value of money. (C)</p> Signup and view all the answers

What is the primary function of the Balanced Scorecard in performance management?

<p>To align business activities to the vision and strategy. (B)</p> Signup and view all the answers

What difficulty is commonly associated with target setting in qualitative areas of performance?

<p>Qualitative measures often lack clear benchmarks. (A)</p> Signup and view all the answers

What is the contribution per unit at any level of activity?

<p>$8 (C)</p> Signup and view all the answers

At a level of 10,000 units, what is the total revenue?

<p>$200,000 (C)</p> Signup and view all the answers

What is the total variable cost at 5,000 units?

<p>$30,000 (C)</p> Signup and view all the answers

What is the fixed cost for any given level of activity in this scenario?

<p>$25,000 (C)</p> Signup and view all the answers

What is the profit per unit when the activity level is at 7,500 units?

<p>$4.67 (D)</p> Signup and view all the answers

At an activity level of 2,500 units, what is the total profit or loss?

<p>$5,000 loss (B)</p> Signup and view all the answers

Which statement correctly describes the contribution per unit as output increases?

<p>It remains constant at all levels of activity. (A)</p> Signup and view all the answers

How does the total contribution change as the activity level increases from 2,500 to 10,000 units?

<p>It increases linearly. (B)</p> Signup and view all the answers

Which of the following is NOT classified as an Essential performance objective?

<p>Evaluate management accounting systems (B)</p> Signup and view all the answers

What is a key aspect of progression that can be measured?

<p>The speed at which students move through topics (D)</p> Signup and view all the answers

Which statement is true regarding student qualification progression?

<p>Qualification is cumulative and builds upon earlier papers. (C)</p> Signup and view all the answers

Which performance objective focuses on managing and assessing outcomes?

<p>Monitor performance (D)</p> Signup and view all the answers

What does Ebbinghaus's Forgetting Curve primarily address?

<p>The tendency to forget information over time. (D)</p> Signup and view all the answers

What is the recommended time allocation per mark for Section A of the PM exam?

<p>1.8 minutes per mark (A)</p> Signup and view all the answers

To maintain effective progression, how should study timelines be structured?

<p>Establish clear deadlines for topic completion. (D)</p> Signup and view all the answers

Which of the following elements can hinder overall student progression?

<p>Too long a gap between studying subjects. (B)</p> Signup and view all the answers

What should you do if you are unsure of the correct answer after eliminating some options?

<p>Guess the answer (D)</p> Signup and view all the answers

Which type of question requires students to select more than one correct answer?

<p>Multiple response questions (A)</p> Signup and view all the answers

Which statement correctly describes the relationship between exams and learning?

<p>Exams may promote short-term retention techniques. (C)</p> Signup and view all the answers

In Section A with 30 marks, how long should a student ideally spend if following the timing principle?

<p>54 minutes (B)</p> Signup and view all the answers

What is a potential consequence of rushing through the Section A questions?

<p>Careless mistakes (B)</p> Signup and view all the answers

Which type of question requires students to manipulate answers by dragging them into place?

<p>Drag and drop questions (A)</p> Signup and view all the answers

What happens if a student selects more answers than required in a multiple response question?

<p>They will still receive credit for correct answers (D)</p> Signup and view all the answers

What is a characteristic of fill in the blank questions in the PM exam?

<p>They involve typing answers into a box (D)</p> Signup and view all the answers

What is the main advantage of absorption costing compared to marginal costing?

<p>It provides more accurate job costing in small organizations. (A), It allows for fixed overhead costs to be fully allocated to products. (D)</p> Signup and view all the answers

Which of the following is a disadvantage of marginal costing?

<p>It does not adhere to IAS 2 principles for inventory valuation. (B)</p> Signup and view all the answers

How does marginal costing treat fixed costs in financial reporting?

<p>It charges fixed costs in full to the current period. (C)</p> Signup and view all the answers

What is a significant implication of using absorption costing?

<p>It can lead to variations in profit per unit based on sales volume. (C)</p> Signup and view all the answers

Which characteristic accurately describes marginal costing?

<p>It does not require adjustments for under or over absorption. (D)</p> Signup and view all the answers

Which scenario best illustrates a benefit of using absorption costing?

<p>A firm achieves better compliance with national accounting standards. (B)</p> Signup and view all the answers

In what way is marginal costing particularly advantageous during decision making?

<p>It allows for straightforward contribution margin calculations. (C)</p> Signup and view all the answers

What is a fundamental difference between how marginal and absorption costing treat inventory?

<p>Marginal costing includes variable costs only, while absorption includes all costs. (A)</p> Signup and view all the answers

Flashcards

Performance Objectives

Specific goals that describe what a learner should be able to achieve after completing a course.

Essential Performance Objectives

Core skills and knowledge considered vital for success in a field, usually required for all students.

Technical Performance Objectives

Specific skills and knowledge related to a particular area or specialization within a field, often chosen by students.

Progression

The rate and path of a learner's advancement through educational material, encompassing both individual topic mastery and moving on to new subjects.

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Optimum Progression

The most effective pace for a learner's progress, balancing speed with thorough understanding, which can vary between subjects and individuals.

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Ebbinghaus Forgetting Curve

A scientific principle showing that we forget information rapidly if we don't regularly review and reinforce it.

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Cumulative Qualification

An educational system where knowledge learned in earlier courses builds upon itself forming a foundation for later studies.

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Maintain Momentum

The importance of keeping a steady pace in studying to avoid forgetting previous material and build momentum towards further learning.

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Material Mix Variance

Measures the difference in cost between the actual mix of materials used and the standard mix, assuming the total quantity of materials used is the same.

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Material Yield Variance

Measures the difference in cost between the actual yield of finished goods produced and the standard yield, assuming the quantity of materials used is the same.

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Sales Mix Variance

Measures the difference in revenue between the actual mix of products sold and the planned mix, assuming the total sales volume is the same.

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Sales Quantity Variance

Measures the difference in revenue between the actual quantity of products sold and the planned quantity, assuming the sales mix is the same.

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Planning Variance

Measures the difference between the original budget and the revised budget.

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Operational Variance

Measures the difference between actual performance and the revised budget.

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Learning Curve Effect

As workers become more experienced, production time per unit decreases, reducing labor costs.

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Dysfunctional variances in JIT and TQM

Variances can create unintended consequences in systems that emphasize efficiency and continuous improvement, such as JIT and TQM.

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Performance Indicators

Metrics used to evaluate how well an organization is achieving its goals. They can be financial (FPIs) or non-financial (NFPIs).

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Financial Performance Indicators (FPIs)

Financial metrics that assess an organization's profitability, liquidity, efficiency, and gearing. Examples include profit margin, current ratio, and debt-to-equity ratio.

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Non-Financial Performance Indicators (NFPIs)

Metrics that evaluate aspects beyond financial performance, like customer satisfaction, employee morale, and environmental impact.

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Short-Termism

Focusing on immediate financial gains at the expense of long-term sustainability, often leading to detrimental decisions.

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Balanced Scorecard

A framework that measures performance across multiple perspectives: financial, customer, internal processes, and learning & growth.

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Transfer Price

The internal price charged by one division to another for goods or services exchanged within the same company.

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Return on Investment (ROI)

A profitability measure calculated by dividing net income by total assets invested. Shows how effectively assets are generating returns.

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Residual Income (RI)

A profitability measure that calculates the difference between operating income and a minimum acceptable return on investment.

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OT Question Timing

For the Performance Management (PM) exam, allocate 1.8 minutes per mark for Section A questions. This means 54 minutes for the 30 marks in Section A.

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Section A: Any Syllabus Topic

Section A questions in the PM exam can cover any area of the syllabus, so you need to be prepared for a wide range of topics.

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Multiple Choice Questions

Students must choose one correct answer from a list of options.

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Multiple Response Questions

Similar to multiple choice, but students need to select multiple correct answers from a list of options.

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Fill in the Blank

Students type an answer into a box with the unit of measurement and any rounding requirements provided.

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Drag and Drop Questions

Students drag and drop answers into the correct places. Some questions might have more answer choices than slots.

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Drop Down List Questions

Students select one answer from a drop-down menu. Some questions may have multiple drop-down menus.

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Don't Fear Guessing

There's no penalty for incorrect answers in the PM exam. If you've eliminated wrong options, guess to maximize your chances.

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Absorption Costing

A costing method that includes both fixed and variable production costs in the cost of goods sold. It allocates fixed overheads to each unit produced based on a predetermined rate.

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Marginal Costing

A costing method that only includes variable production costs in the cost of goods sold. Fixed costs are treated as period costs and are expensed in the period incurred.

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Contribution per unit

The difference between the selling price per unit and the variable cost per unit. It represents the amount each unit contributes towards covering fixed costs and generating profit.

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IAS 2

An International Accounting Standard that sets out the principles for inventory valuation. It requires that inventory be valued at the lower of cost and net realizable value.

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Under/Over Absorption

Occurs when the actual overheads incurred are higher or lower than the overheads absorbed based on the predetermined rate.

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Decision Making

The process of choosing among alternative courses of action based on relevant information. Marginal costing provides useful information for decision making.

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Fixed Costs

Costs that remain constant regardless of the level of production or sales. They are treated as period costs in marginal costing.

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Variable Costs

Costs that vary directly with the level of production or sales. They form part of the cost of goods sold in both absorption and marginal costing.

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Contribution margin per unit

The amount of money each unit sold contributes to covering fixed costs and generating profit. It's calculated as selling price per unit minus variable cost per unit.

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What is Total Contribution?

The total amount of money contributed by all units sold towards covering fixed costs and generating profit. It's calculated as the sum of individual contributions from each unit sold.

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Total profit or loss

The financial outcome of a business operation, calculated as the difference between total revenue and total expenses. It can be positive (profit) or negative (loss).

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How does contribution per unit impact profit?

Contribution per unit remains constant at all levels of activity, but profit per unit changes. This is because fixed costs are spread over a larger number of units as production increases, leading to a higher profit per unit.

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When is marginal costing useful?

Marginal costing is more useful than absorption costing when considering decision-making, such as analyzing and managing costs, as it focuses on the change in profit from selling an additional unit.

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What is the difference between contribution and profit?

Contribution is the amount of money each unit contributes to covering fixed costs, while profit is the actual amount of money remaining after all costs are covered. Contribution is always per unit, while profit can be calculated for the whole period or per unit.

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Study Notes

ACCA Performance Management (PM) Study Text

  • Valid for September 2024, December 2024, March 2025, and June 2025
  • Published by Kaplan Publishing UK
  • ISBN 978-1-83996-666-8

Contents

  • Chapter 1: A revision of Management Accounting (MA) topics
  • Chapter 2: Management information systems
  • Chapter 3: Information systems and data analytics
  • Chapter 4: Specialist cost and management accounting techniques
  • Chapter 5: Cost volume profit analysis
  • Chapter 6: Planning with limiting factors
  • Chapter 7: Pricing
  • Chapter 8: Relevant costing
  • Chapter 9: Risk and uncertainty
  • Chapter 10: Budgeting
  • Chapter 11: Quantitative techniques
  • Chapter 12: Advanced variances
  • Chapter 13: Performance measurement and control
  • Chapter 14: Divisional performance measurement and transfer pricing
  • Chapter 15: Performance measurement in not-for-profit organisations and the public sector
  • Chapter 16: Employability and technology skills
  • Index

How to Use the Materials

  • Detailed study guide and syllabus objectives
  • Description of the examination
  • Study skills and revision guidance
  • Study text
  • Question practice
  • Key topics are introduced with context through diagrams/illustrations, and examples
  • Test your understanding sections to check for comprehension
  • Summaries and diagrams to consolidate understanding and show connections between topics
  • Question practice to test application and deeper learning.

Quality and Accuracy

  • Contact [email protected] for errors in materials
  • Feedback forms are available on MyKaplan
  • Quality Coordinator and technical team verify errors for future editions.

Icon Explanations

  • Definition: Key definitions for core concepts
  • Test your understanding: Exercises for checking comprehension
  • Illustration: Worked examples to clarify concepts.
  • Supplementary reading: Additional resources for deeper understanding.

On-line resources (for subscribers)

  • Online access to Study Text
  • Online objective testing
  • Online performance management, including results, and peer comparison.

ACCA Performance Objectives

  • Nine performance objectives for trainees
  • Five essential and fifteen technical objectives related to the syllabus.
  • https://www.accaglobal.com/content/dam/ACCA_Global/Students/per/PER-

Performance-objectives-achieve.pdf provides details of performance objectives

Progression

  • Two areas to measure progress: speed through topics and movement between courses.
  • Study should be cumulative for effective learning and retention.
  • Refer to the Ebbinghaus Forgetting Curve.
  • Time management is essential for timely qualification.

Syllabus Introduction

  • ACCA's syllabus broken down into digestible content objectives
    • information, technologies and systems for organizational performance
    • Big data and data analytics
    • Specialist Cost and Management Accounting Techniques

Examination Format and Tips

  • CBE exam (3 hours + 10 minutes)
  • Prioritize questions that don't require calculations.
  • Allocate time proportionately to the marks awarded for each question.
  • Review answers and make corrections.

Section A and B

  • Section A: multiple-choice / fill-in questions, based on the syllabus.
  • Section B: case studies comprised of multiple questions, based on the syllabus.

Section C

  • Constructed-response questions that require a detailed written response.

Additional Advice

  • Plan answers before starting thoroughly
  • Include workings for computational questions
  • Structure answers with a separate paragraph for each key point
  • Utilize standard formats in computational answers.
  • Revise material regularly to avoid forgetting.

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Related Documents

PM Study Text 2024-25 ACCA PDF

Description

This quiz explores key concepts in variance analysis, focusing on mix and yield variances, sales mix variance, and the impact of standard costs in dynamic environments. It offers insights into performance evaluation and production process controls suited for accounting professionals. Test your knowledge on the implications of variances and their management in a Just-In-Time environment.

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