AAT Level 4: Applied Management Accounting (AMAC)

Vocabulary flashcards covering core management accounting concepts, budgeting methods, costing techniques, and performance indicators from the AAT Level 4 AMAC course.

Direct Costs

Costs that can be specifically traced to the production of a single unit; the total of these is known as the prime cost.

Indirect Costs

Also known as overheads, these are costs that cannot be traced to individual units and are shared over many units produced over time.

Variable Costs

Costs that vary in direct proportion to the volume of production; calculated as: $\text{Total variable cost} = \text{variable cost per unit} \times \text{budgeted production volume}$.

Fixed Costs

Costs that do not vary with the volume of production but stay the same regardless of activity level.

Stepped Fixed Costs

Costs that remain fixed over certain levels of activity but increase (step up) once a certain point is reached.

Semi-variable Costs

Also known as mixed costs, these contain both fixed and variable elements; calculated using: $\text{Total cost} = \text{fixed cost} + (\text{variable cost per unit} \times \text{production volume})$.

High-Low Method

A technique used to separate the fixed and variable elements of semi-variable costs by analyzing the difference between the highest and lowest activity levels.

Capital Expenditure (Capex)

Spending on items that will last for more than one year, creating a non-current asset on the statement of financial position.

Revenue Expenditure (Revex)

Spending on items that will last for less than one year, charged as an expense in the income statement.

Cost Center

A responsibility center where the manager only has control over and accountability for costs incurred.

Principal Budget Factor

The specific factor which limits the growth and activities of an organization (usually sales demand), determining which budget is prepared first.

Top-Down Budgeting

Also called enforced budgeting, where senior management sets the budget with little to no involvement from lower-level staff.

Bottom-Up Budgeting

Also called participatory budgeting, where each department sets its own budget based on local knowledge, which is then reviewed by senior management.

Incremental Budgeting

A system where the new budget is calculated by taking the current year's results and adding an allowance for changes like inflation or volume.

Zero-Based Budgeting (ZBB)

A budgeting method where every item of expenditure must be justified from scratch each year, starting from a base of zero.

Standard Costing

A system using estimated "target" costs per unit set in advance to assist with planning, pricing, and performance control via variance analysis.

Ideal Standard

A target based on perfect operating conditions with zero allowance for waste, inefficiency, or idle time.

Attainable Standard

A challenging but realistic target that assumes a normal level of wastage and inefficiency.

Variance Analysis

The process of comparing actual results against flexed budget figures to identify differences (Favourable or Adverse).

Labor Idle Time Variance

The difference between hours paid and hours worked, valued at standard rate: $(\text{Actual hours paid} - \text{Actual hours worked}) \times \text{Standard cost per hour}$.

Net Present Value (NPV)

A long-term decision technique that discounts future cash flows to their present value using the time value of money; projects are accepted if NPV is positive.

Accounting Rate of Return (ARR)

A measure of investment profitability: $\text{ARR} = \frac{\text{Average annual profit}}{\text{Total investment}} \times 100$.

Internal Rate of Return (IRR)

The discount rate that yields a zero NPV for a project, representing its actual percentage return.

Target Costing

A market-driven approach where: $\text{Target Cost} = \text{Selling Price} - \text{Desired Profit Margin}$.

Activity Based Costing (ABC)

A form of absorption costing that groups overheads into cost pools and absorbs them into units using specific cost drivers.

Product Life Cycle

The stages a product passes through: Development, Introduction, Growth, Maturity, and Decline.

Return on Capital Employed (ROCE)

A financial indicator of efficiency: $\text{ROCE} = \frac{\text{Operating Profit (PBIT)}}{\text{Capital Employed}} \times 100$.

Current Ratio

A liquidity ratio measuring the ability to cover short-term liabilities: $\frac{\text{Current Assets}}{\text{Current Liabilities}}$.

Balanced Scorecard

A performance management tool looking at four perspectives: Financial, Customer, Internal Business, and Innovation/Learning.

The 4 V's of Big Data

The characteristics defining Big Data: Volume (quantity), Velocity (speed), Variety (different formats), and Veracity (truthfulness).