BUSI2147 Management Accounting Flashcards

Comprehensive vocabulary and formula flashcards for BUSI2147 Management Accounting, covering standard costing, variances, learning curves, relevant costing, pricing, and performance measures.

AQ

Actual quantity of material actually purchased or used. Used in material price and usage variances.

AP

Actual price per unit of material. Formula: $\text{Actual material cost} \div \text{Actual quantity}$.

SQ

Standard quantity allowed for actual output. Formula: $\text{Actual output} \times \text{Standard material quantity per unit}$.

SP

Standard material price per unit.

AH

Actual labour hours or actual activity hours.

AR

Actual labour or overhead rate per hour. Formula: $\text{Actual cost} \div \text{Actual hours}$.

SH

Standard hours allowed for actual output. Formula: $\text{Actual output} \times \text{Standard hours per unit}$.

SR

Standard labour or overhead rate per hour.

BH

Budgeted hours. Formula: $\text{Budgeted output} \times \text{Standard hours per unit}$.

RSP

Revised standard material price used for planning and operational variances.

RSR

Revised standard labour rate used for planning and operational variances.

RSQ

Revised standard material quantity allowed for actual output.

RSH

Revised standard labour hours allowed for actual output.

Favourable cost variance

Standard cost is greater than actual cost, so the company spent less than expected.

Adverse cost variance

Actual cost is greater than standard cost, so the company spent more than expected.

Sales revenue

Formula: $\text{Selling price per unit} \times \text{Units sold}$. Use whenever total sales income is required.

Total variable cost

Formula: $\text{Variable cost per unit} \times \text{Number of units}$.

Contribution per unit

Formula: $\text{Selling price per unit} - \text{Variable cost per unit}$. Use for relevant costing, limiting factors, linear programming, transfer pricing and short-term decisions.

Total contribution

Formula: $\text{Contribution per unit} \times \text{Units sold}$; or $\text{Sales revenue} - \text{Total variable costs}$.

Profit

Formula: $\text{Total contribution} - \text{Fixed costs}$; or $\text{Sales revenue} - \text{Total costs}$.

Standard cost of actual output

Formula: $\text{Standard cost per unit} \times \text{Actual output}$. Use in variance analysis because the standard must be flexed to actual production.

Overhead absorption rate

Formula: $\text{Total production overhead} \div \text{Total absorption-base activity}$. The base may be labour hours, machine hours, units, labour cost or another stated measure.

ABC trigger

Use when the question gives several overhead cost pools and cost drivers such as orders, setups, inspections, deliveries or machine hours.

Cost-driver rate

Formula: $\text{Activity cost pool} \div \text{Total cost-driver volume}$. Calculate a separate rate for every activity.

ABC calculation sequence

Pool \rightarrow Driver \rightarrow Rate \rightarrow Usage \rightarrow Units. 1) List cost pools. 2) Find total driver volume. 3) Calculate rates. 4) Multiply by usage. 5) Divide by units.

Material price variance

Formula: $AQ \times (SP - AP)$. Use actual quantity. Actual price below standard price gives a favourable variance.

Material usage variance

Formula: $SP \times (SQ - AQ)$. First calculate SQ from actual output. Actual quantity below standard quantity gives a favourable variance.

Labour rate variance

Formula: $AH \times (SR - AR)$. Actual hourly rate below the standard rate gives a favourable variance.

Labour efficiency variance

Formula: $SR \times (SH - AH)$. First calculate SH. Actual hours below standard hours gives a favourable variance.

Fixed overhead volume variance

Positive = favourable convention: $\text{Absorbed fixed overhead} - \text{Budgeted fixed overhead}$; or $\text{Fixed-overhead rate} \times (SH - BH)$.

Three-stage model (Planning/Operational)

Original standard \rightarrow Revised standard \rightarrow Actual result. Original to revised = planning variance. Revised to actual = operational variance.

Learning-curve formula

Formula: $Y = aX^b$. $Y =$ cumulative average time per unit; $a =$ time for first unit or batch; $X =$ cumulative units or batches; $b =$ learning index.

Learning index

Formula: $b = \log(\text{Learning rate as a decimal}) \div \log(2)$. Use $0.80$ for an $80\%$ learning rate.

Relevant-cost rule

A relevant cost is a future, incremental cash flow that changes because of the decision.

Opportunity cost

Financial benefit sacrificed from the best alternative use. Include only when the resource is scarce and has another profitable use.

Linear demand equation

Formula: $P = a - bQ$. $P =$ selling price; $Q =$ quantity demanded; $a =$ price when demand is zero; $b =$ fall in price per additional unit of demand.

Marginal revenue formula

Formula: $MR = a - 2bQ$.

Profit-maximising condition

Formula: $MR = MC$. For constant marginal cost: $a - 2bQ = MC$.

Seller’s minimum transfer price

Formula: $\text{Variable cost per transferred unit} + \text{Opportunity cost per transferred unit}$.

Residual income

Formula: $RI = \text{Divisional profit} - (\text{Investment} \times \text{Required rate of return})$.

Balanced scorecard perspectives

The four perspectives are: 1) Financial, 2) Customers, 3) Internal Business Processes, and 4) Learning and Growth.

Shadow price

Formula: $\text{New optimum contribution} - \text{Original optimum contribution}$ for one additional unit of a binding resource.

Slack

Formula: $\text{Resource available} - \text{Resource used}$. A binding constraint has slack = 0.

Normal loss units

Formula: $\text{Actual input units} \times \text{Normal loss percentage}$.

Cost per expected good unit

Formula: $(\text{Total process costs} - \text{Normal-loss scrap proceeds}) \div \text{Expected output}$.

Abnormal loss units

Formula: $\text{Actual loss units} - \text{Normal loss units}$. Valued at the normal cost per good unit.

Weighted-average equivalent units

For each cost element: $\text{Completed units} + (\text{Closing WIP units} \times \text{Percentage completion})$.

Net realisable value (NRV)

Formula: $\text{Final sales value} - \text{Further-processing costs}$.

Process further or sell at split-off rule

Formula: $\text{Additional revenue from further processing} - \text{Additional processing cost}$. Joint costs are irrelevant.