Topic 6: UNIT 3 REVISION

term 2

What is the role of the accountant in managing business operations?

To provide financial information that helps management make decisions and improve business performance.

What recording function does an accountant perform?

They record financial transactions using appropriate accounting systems.

What reporting function does an accountant perform?

They prepare internal reports such as budgets and performance reports and external financial statements.

What advisory function does an accountant perform?

They analyse financial reports interpret data and advise management on decisions such as expansion budgeting investment and cost control.

What internal control function does an accountant perform?

They help protect assets through internal auditing and controls over cash inventory and non-current assets.

What is management accounting?

Accounting prepared for internal users to help with planning controlling and decision-making.

What is financial accounting?

Accounting prepared for external users to report past financial performance and position.

How is management accounting different from financial accounting?

Management accounting is internal future-focused and flexible while financial accounting is external historical and regulated.

Who are internal users of accounting information?

Owners managers and employees.

Who are external users of accounting information?

Investors lenders government agencies suppliers customers employees and the general public.

How is internal reporting regulated?

It has no legal reporting requirements and can be prepared in any format useful to management.

How is external reporting regulated?

It must follow accounting standards the Corporations Act ASIC rules ASX rules if listed and external audit requirements.

What are examples of internal reports?

Cash budgets income statement budgets variance reports cost reports CVP reports and capital budgeting reports.

What are examples of external financial statements?

Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity and Cash Flow Statement.

What is a fixed cost?

A cost that stays the same within a relevant range even when output changes.

Give examples of fixed costs

Rent rates management salaries depreciation insurance and interest on loans.

What is a variable cost?

A cost that changes directly and proportionately with output.

Give examples of variable costs

Direct materials direct labour factory wages and packaging.

What is a mixed cost?

A cost with both fixed and variable parts.

Give examples of mixed costs

Electricity telephone costs and vehicle expenses.

What are past costs?

Costs that have already occurred and cannot be changed by current decisions.

What are future costs?

Costs that will occur in the future and may be relevant to current decisions.

What is a sunk cost?

A past cost that has already been incurred and cannot be changed.

What makes a cost relevant?

It must be a future cost and differ between alternatives.

What is Cost Volume Profit analysis?

CVP analyses how sales volume selling price variable costs fixed costs and product mix affect profit.

How does CVP help with break-even decisions?

It shows the sales volume needed to cover all fixed and variable costs.

How does CVP help with profit planning?

It shows how changes in price costs volume or product mix affect profit.

How does CVP help with special decisions?

It helps with decisions such as make or buy special orders product closure and product mix.

How does CVP help with limited resources?

It helps choose the most profitable product mix when resources such as labour hours or machine hours are limited.

What is contribution margin?

Sales revenue minus variable costs.

Why is contribution margin useful?

It shows how much is available to cover fixed costs and then profit.

What is break-even point?

The point where total revenue equals total costs so there is no profit or loss.

Why is break-even useful?

It helps managers set sales targets and know the minimum sales needed to avoid a loss.

What is margin of safety?

The amount by which actual or expected sales exceed break-even sales.

Why is margin of safety useful?

It shows how far sales can fall before the business makes a loss.

What is opportunity cost?

The benefit given up when one alternative is chosen over another.

Why is opportunity cost relevant?

It is a future benefit sacrificed and should be considered in decision-making.

What is a cost?

An economic sacrifice of resources for a particular purpose.

What is a direct cost?

A cost that can be directly traced to a product or job.

Give examples of direct costs

Direct materials and direct labour.

What is an indirect cost?

A cost needed for production but not directly traceable to one product.

Give examples of indirect costs

Factory electricity factory supervisor wages maintenance and factory insurance.

What is a product cost?

A manufacturing cost involved in making a product.

What are the three product costs?

Direct materials direct labour and factory overhead.

What is a period cost?

A non-manufacturing cost that is expensed in the period incurred.

Give examples of period costs

Advertising office salaries interest expense and office stationery.

What factors affect mark-up?

Competition customer demand desired profit product quality brand position and production cost.

What is cost accounting?

Accounting that records analyses and reports production costs.

Why is cost accounting useful for pricing?

It helps calculate the cost of making a product so the business can set a suitable selling price.

Why is cost accounting useful for cost control?

It helps compare expected and actual costs to find inefficiencies.

Why is cost accounting useful for inventory valuation?

It helps determine the value of finished goods and work in progress.

Why is cost accounting useful for profit decisions?

It helps management decide which products jobs or processes are profitable.

What is job costing?

A costing method used when costs are tracked separately for each job batch or order.

When is job costing used?

When products or jobs are different or custom-made.

What is standard costing?

A costing method that uses expected costs and compares them with actual costs.

Why is standard costing useful?

It helps identify variances and control costs.

What is a favourable direct materials price variance?

Materials were bought for less than the standard price.

Why might direct materials price variance be favourable?

Bulk discounts cheaper suppliers lower market prices or good purchasing.

What is an unfavourable direct materials price variance?

Materials were bought for more than the standard price.

Why might direct materials price variance be unfavourable?

Supplier price rises urgent orders poor purchasing or higher quality materials.

What is a favourable direct materials quantity variance?

Less material was used than expected.

Why might direct materials quantity variance be favourable?

Less waste better quality materials skilled workers or improved production methods.

What is an unfavourable direct materials quantity variance?

More material was used than expected.

Why might direct materials quantity variance be unfavourable?

Waste theft poor materials worker error or machine faults.

What is a favourable labour rate variance?

Workers were paid less than the standard rate.

Why might labour rate variance be favourable?

Lower wage rates using cheaper labour or less overtime.

What is an unfavourable labour rate variance?

Workers were paid more than the standard rate.

Why might labour rate variance be unfavourable?

Overtime wage rises penalty rates or more skilled workers.

What is a favourable labour efficiency variance?

Fewer labour hours were used than expected.

Why might labour efficiency variance be favourable?

Better training skilled workers improved methods or efficient machinery.

What is an unfavourable labour efficiency variance?

More labour hours were used than expected.

Why might labour efficiency variance be unfavourable?

Poor training low motivation machine breakdowns or inexperienced workers.

What is insolvency?

When a company cannot pay debts as they fall due.

What is voluntary administration?

An external administrator investigates the company and recommends whether it should continue restructure or liquidate.

What is liquidation?

The winding up of a company by selling assets paying creditors and ending operations.

What is receivership?

A secured creditor appoints a receiver to sell secured assets and recover debt.

Who is paid first when a company is insolvent?

Liquidator or administrator costs.

Who is paid after insolvency administration costs?

Secured creditors.

Where do employees rank in insolvency priority?

Employee entitlements are paid after secured creditors and before unsecured creditors.

Who is paid last in insolvency?

Shareholders only receive money if anything remains after creditors are paid.

What are climate-related physical risks?

Risks from physical climate events such as floods fires storms heatwaves and droughts.

What are climate-related transition risks?

Risks from moving to a low-carbon economy such as regulation technology changes market changes and reputation damage.

What are climate-related opportunities?

Opportunities from energy efficiency renewable energy new green products lower costs and improved reputation.

What are Scope 1 emissions?

Direct emissions from sources owned or controlled by the business.

What are Scope 2 emissions?

Indirect emissions from purchased energy used by the business.

What are Scope 3 emissions?

Other indirect emissions across the value chain including suppliers transport waste and product use.

What is an ethical issue with unfair employee compensation?

Employees may be underpaid or expected to work excessive hours compared with the value they provide.

What is an ethical issue with confidentiality?

Private employee client investor or business information may be shared or misused without permission.

What is an ethical issue with misrepresentation of financial data?

Financial information may be presented falsely or misleadingly to influence decisions.

What is an ethical issue with conflicts of interest?

A manager may make decisions that benefit themselves instead of the business or stakeholders.

Why is asset management important for non-current assets?

The business needs enough assets to operate efficiently without tying up too much cash in unused assets.

What happens if a business over-invests in non-current assets?

Cash is tied up assets may be underused debt may increase and profitability may fall.

What happens if a business under-invests in non-current assets?

The business may be unable to meet demand and may lose sales.

What internal controls protect non-current assets?

Asset registers security authorisation documentation verification and segregation of duties.

How should accounts receivable be managed?

Use credit checks invoices statements follow-up procedures and separation of cash receipt and recording duties.

How should inventory be managed?

Use stock records security reorder points authorisation stocktakes and separation of duties.

How should cash be managed?

Use receipts banking reconciliations authorisation limited access and separation of cash handling and recording.

How should short-term debt be managed?

Plan cash flow so debts can be paid when due.

How should long-term debt be managed?

Keep debt at a sustainable level and ensure interest and repayments can be met.

Why is the level of equity capital important?

Enough equity improves stability and reduces reliance on debt.