ACCOUNTING FOR NON-ACCOUNTANTS MARGINAL COSTING

Save this PDF as:
Size: px
Start display at page:

Download "ACCOUNTING FOR NON-ACCOUNTANTS MARGINAL COSTING"

Transcription

1 ACCOUNTING FOR NON-ACCOUNTANTS MARGINAL COSTING

2 MARGINAL COSTING OBJECTIVE To be able to: Explain the relevance to management decisions of: Fixed costs Variable costs Contribution Prepare an operating (profit) statement using a marginal cost approach Calculate Breakeven point Margin of safety Establish manufacturing priorities where there is limited resource. Evaluate proposals for changes to operating strategy, including make or buy opportunities. Establish appropriate prices for special contracts.

3 COST BEHAVIOUR In order to forecast how costs will behave, they are separated into FIXED and VARIABLE The term Variable Cost has a specific meaning in management accounting; variable costs change as the level of activity (output) changes. It does not relate to price changes over time; this affects all costs. Fixed costs may only be constant over a limited range of activity. Cost FIXED COST Cost VARIABLE COST Output Output Cost TOTAL (SEMI-VARIABLE) COST Output

4 CONTRIBUTION CONTRIBUTION = SALES REVENUE VARIABLE COST Eg. For a single item: Sell for 1.00, variable costs 0.40, Contribution per unit = = 0.60 For total output over a period: Sales revenue is 100, variable costs are 40 Total contribution = = 60 PROFIT PROFIT = TOTAL CONTRIBUTION FIXED COSTS Eg. Example as above, fixed costs in period are 25 Profit = = 35

5 OPERATING (PROFIT) STATEMENT Conventional presentation: Sales Cost of goods sold Gross profit Overheads Operating profit 9200 Marginal costing presentation Sales Variable costs Contribution Fixed costs Operating profit 9200

6 BREAKEVEN ANALYSIS: GRAPHICAL METHOD Revenue Cost/ Revenue Total cost Output Breakeven Point BREAKEVEN POINT (CALCULATED) Breakeven point = Fixed Cost Unit Contribution (answer in units) Eg. Selling price 15, variable cost 6, fixed costs 630,000 p.a. Breakeven point = 630,000 = 70,000 units 15 6 MARGIN OF SAFETY This is the difference between the planned sales level and the breakeven point. Eg. Planned sales are 100,000 units, breakeven point is 70,000 units, so: Margin of safety = 100,000 70,000 = 30,000 units

7 LIMITING FACTOR If there is a choice of products to make, in the absence of other factors, priority is given to the product with greatest unit contribution. If a resource has only a limited supply, optimise use of this resource by giving priority to the product with the greatest Eg. Contribution per unit of scarce resource Product A Product B Contribution per unit 4 9 Labour hours 1 3 Contribution per labour hour 4 3 MAKE OR BUY Eg. Planned production of Component X is 80,000 units, variable costs 204,000, proportion of fixed costs charged to Component X is 24,000, so standard cost is 2.85 per unit (204, ,000 / 80,000). If an opportunity arises to purchase this component for 2.65 each, instead of manufacturing it in-house, is this an acceptable price? Solution If there is no significant change to the business, fixed costs are unlikely to change, so they are ignored Variable cost to make = 2.55 per unit (204,000/80,000) Variable cost to buy = 2.65 Not acceptable.

8 SPECIAL CONTRACT PRICING Eg. Horsham Products Ltd. had budgeted to sell 100,000 units of Product Y this year. Selling price is 8 per unit, variable costs 5 per unit, fixed costs 150,000 for the year. During the year a unique opportunity arises to sell 1000 units to an overseas market but they are not prepared to pay more than 6 per unit. Is the price acceptable? Solution If there is no significant change to the rest of the business, a marginal costing approach is required and the aim should be to maximise contribution. Contribution per unit under special contract = Sales price - Variable cost = 6 5 = 1 This would therefore increase total contribution and is acceptable.

9 SUMMARY: MARGINAL COSTING In order to forecast how costs will behave, they are separated into fixed and variable costs. Variable costs change as the level of activity (output) changes. Fixed costs may only be constant over a limited range of activity. Contribution = Sales Revenue Variable Cost Profit = Total Contribution Fixed Costs Operating (profit) statements presented using marginal costing show the calculation of total contribution first, then the calculation of profit. Breakeven point = Fixed Cost (answer in units) Unit Contribution The margin of safety is the difference between the planned sales level and the breakeven point. If a resource has only a limited supply, optimise use of this resource by giving priority to the product with the greatest contribution per unit of scarce resource. Marginal costing is used for make or buy decisions and special contract pricing.

10 QUESTIONS

11 QUESTIONS 1. If Product X is sold for 10 per unit, the variable costs amount to 6 per unit and the fixed costs are 60,000 a year, a) What is the breakeven point? b) How many units need to be sold to make a profit of 20,000 c) If the variable costs increase to 6.50 and fixed costs increase to 80,000, how many units must be sold to keep profits at 20,000 p.a.? 2. Arun Products Ltd. has produced the following budget: Sales: 30, per unit FIXED VARIABLE COST COST TOTAL Production Administration Distribution REQUIRED: a) The breakeven point b) The profit or loss if only 20,000 units are sold c) The new breakeven point if and extra 80,000 is spent on advertising. d) Which of these proposals would you recommend: i) Improve product, adding 2 to variable production cost and increasing sales to 40,000 units. ii) Pay 1 per unit sales commission, increasing sales to 38,500 units. iii) Accept an additional order for 8,000 units at per unit for export, incurring additional administrative cost of 10,000.

12 ANSWERS

13 ANSWERS 1. a) Breakeven = 60,000 = 15,000 units 10 6 b) Sales required = 60, ,000 = 20,000 4 c) Sales required = 80, ,000 = 28, Variable cost per unit = /30000 = 10 Contribution per unit = = 5 a) Breakeven = /5 = 23,500 units b) Total contribution( 5 x 20,000) Fixed costs Loss c) Breakeven = /5 = 39,500 units d) ORIGINAL (I) (ii) (iii) Revenue Variable costs Contribution Fixed costs Profit Original profit Total profit

14

Accounting Building Business Skills. Learning Objectives: Learning Objectives: Paul D. Kimmel. Chapter Fourteen: Cost-volume-profit Relationships

Accounting Building Business Skills. Learning Objectives: Learning Objectives: Paul D. Kimmel. Chapter Fourteen: Cost-volume-profit Relationships Accounting Building Business Skills Paul D. Kimmel Chapter Fourteen: Cost-volume-profit Relationships PowerPoint presentation by Kate Wynn-Williams University of Otago, Dunedin 2003 John Wiley & Sons Australia,

More information

Chapter. Break-even analysis (CVP analysis)

Chapter. Break-even analysis (CVP analysis) Chapter 5 Break-even analysis (CVP analysis) 1 5.1 Introduction Cost-volume-profit (CVP) analysis looks at how profit changes when there are changes in variable costs, sales price, fixed costs and quantity.

More information

Summary. Chapter Five. Cost Volume Relations & Break Even Analysis

Summary. Chapter Five. Cost Volume Relations & Break Even Analysis Summary Chapter Five Cost Volume Relations & Break Even Analysis 1. Introduction : The main aim of an undertaking is to earn profit. The cost volume profit (CVP) analysis helps management in finding out

More information

Costing and Break-Even Analysis

Costing and Break-Even Analysis W J E C B U S I N E S S S T U D I E S A L E V E L R E S O U R C E S. 28 Spec. Issue 2 Sept 212 Page 1 Costing and Break-Even Analysis Specification Requirements- Classify costs: fixed, variable and semi-variable.

More information

December 2013 exam. (4CW) SME cash and working capital. Instructions to students. reading time.

December 2013 exam. (4CW) SME cash and working capital. Instructions to students. reading time. 1 December 2013 exam (4CW) SME cash and working capital Instructions to students 1. Time allowed is 3 hours and 10 minutes, which includes 10 minutes reading time. 2. This is a closed book exam. 3. Use

More information

Marginal and. this chapter covers...

Marginal and. this chapter covers... 7 Marginal and absorption costing this chapter covers... This chapter focuses on the costing methods of marginal and absorption costing and compares the profit made by a business under each method. The

More information

Flexible budgeting and cost behaviours

Flexible budgeting and cost behaviours Flexible ing and cost behaviours flexible makes a comparison between an original and actual results. Variances are then calculated to measure how the business has performed in a period. group of friends

More information

Cost VOLUME RELATIONS & BREAK EVEN ANALYSIS

Cost VOLUME RELATIONS & BREAK EVEN ANALYSIS 1. Introduction The cost volume profit (CVP) analysis helps management in finding out the relationship of costs and revenues to profit. Cost depends on various factors like Volume of production Product

More information

It is important to know the following assumptions in CVP analysis before we can use it effectively.

It is important to know the following assumptions in CVP analysis before we can use it effectively. Cost-Volume-Profit analysis (Relevant to AAT Examination Paper 3 Management Accounting) Li Tak Ming, Andy, Deputy Head, Department of Business Administration, Hong Kong Institute of Vocational Education

More information

Costing For Decision-Making Break Even Analysis. Break-even even Analysis

Costing For Decision-Making Break Even Analysis. Break-even even Analysis Costing For Decision-Making Break Even Analysis CHAPTER 18 Introduction CVP Analysis Behaviour of Fixed and Variable Costs CVP Analysis and Break-even even Analysis Break-even even Analysis Break-even

More information

Paper 7 Management Accounting

Paper 7 Management Accounting Technician Level Paper 7 Management Accounting Extended Syllabus INTRODUCTION Extended Syllabuses are part of a comprehensive package of support materials offered by SIAT. This package includes past question

More information

volume-profit relationships

volume-profit relationships Slide 1.3.1 1. Accounting for decision making 1.3 Cost-volume volume-profit relationships Slide 1.3.2 Introduction This chapter examines one of the most basic planning tools available to managers: cost

More information

Marginal Costing and Absorption Costing

Marginal Costing and Absorption Costing Marginal Costing and Absorption Costing Learning Objectives To understand the meanings of marginal cost and marginal costing To distinguish between marginal costing and absorption costing To ascertain

More information

The term marginal cost refers to the additional costs incurred in providing a unit of

The term marginal cost refers to the additional costs incurred in providing a unit of Chapter 4 Solutions Question 4.1 A) Explain the following The term marginal cost refers to the additional costs incurred in providing a unit of product or service. The term contribution refers to the amount

More information

NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY FACULTY OF COMMERCE GRADUATE SCHOOL OF BUSINESS GENERAL MASTER OF BUSINESS ADMINISTRATION

NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY FACULTY OF COMMERCE GRADUATE SCHOOL OF BUSINESS GENERAL MASTER OF BUSINESS ADMINISTRATION NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY FACULTY OF COMMERCE GRADUATE SCHOOL OF BUSINESS GENERAL MASTER OF BUSINESS ADMINISTRATION MANAGERIAL ACCOUNTING [GMB 5162] FINAL EXAMINATION: DECEMBER 2013

More information

House Published on www.jps-dir.com

House Published on www.jps-dir.com I. Cost - Volume - Profit (Break - Even) Analysis A. Definitions 1. Cost - Volume - Profit (CVP) Analysis: is a means of predicting the relationships among revenues, variable costs, and fixed costs at

More information

BAFS Elective Part Accounting Module Cost Accounting

BAFS Elective Part Accounting Module Cost Accounting Accounting Module Cost Accounting : Cost-Volume-Profit Analysis Technology Education Section Curriculum Development Institute Education Bureau, HKSARG April 2009 Lesson One Cost-Volume-Profit Analysis

More information

Workbook 2 Overheads

Workbook 2 Overheads Contents Highlights... 2 Quick Practice Session on Overheads... 2 Financial Quiz 2 - Overheads... 3 Learning Zone Overheads... 3 Fixed and Variable costs and Break-even analysis explained... 3 Fixed Costs...

More information

10.SHORT-TERM DECISIONS & CAPITAL INVESTMENT APPRAISAL

10.SHORT-TERM DECISIONS & CAPITAL INVESTMENT APPRAISAL INDUSTRIAL UNIVERSITY OF HO CHI MINH CITY AUDITING ACCOUNTING FACULTY 10.SHORT-TERM DECISIONS & CAPITAL INVESTMENT APPRAISAL 4 Topic List INDUSTRIAL UNIVERSITY OF HO CHI MINH CITY AUDITING ACCOUNTING FACULTY

More information

3.3 THE SALES PLAN. Prices And The Market. Pricing Strategies. Marketing Segmentation And The Marketing Mix. The Marketing Process

3.3 THE SALES PLAN. Prices And The Market. Pricing Strategies. Marketing Segmentation And The Marketing Mix. The Marketing Process 33 MARKET RESEARCH 3 THE SALES PLAN Prices And The Market Pricing Strategies Marketing Segmentation And The Marketing Mix The Marketing Process Sales And Finance In Marketing The Sales Plan Exercise -

More information

Session 07. Cost-Volume-Profit Analysis

Session 07. Cost-Volume-Profit Analysis Session 07 Cost-Volume-Profit Analysis Programme : Executive Diploma in Business & Accounting (EDBA 2014) Course : Cost Analysis in Business Lecturer : Mr. Asanka Ranasinghe BBA (Finance), ACMA, CGMA Contact

More information

Chapter 10 Revenue, costs and break-even analysis

Chapter 10 Revenue, costs and break-even analysis Chapter 10, costs and break-even analysis, costs and break-even analysis is the money a business makes from sales. In other words, it is the value of the sales and is also referred to as turnover. The

More information

Financial Objectives

Financial Objectives Business Plan Financial Objectives The business plan financial objectives involve measuring financial performance to reflect the total operational performance. The aim in managing this performance should

More information

Cost-Volume-Profit Analysis

Cost-Volume-Profit Analysis Cost-Volume-Profit Analysis Cost-Volume-Profit Assumptions and Terminology 1 Changes in the level of revenues and costs arise only because of changes in the number of product (or service) units produced

More information

Your business plan. helping you with your business planning and forecasting. Name of business. Date when completed

Your business plan. helping you with your business planning and forecasting. Name of business. Date when completed Your business plan helping you with your business planning and forecasting Name of business Date when completed Please read the following notes before completing the form. (You may wish to talk to an accountant

More information

Fundamentals Level Skills Module, Paper F5

Fundamentals Level Skills Module, Paper F5 Answers Fundamentals Level Skills Module, Paper F5 Performance Management June 2014 Answers 1 (a) Full budgeted production cost per unit using absorption costing Product X Y Z Total Budgeted annual production

More information

Accounting. Draft GCE AS and A level subject content

Accounting. Draft GCE AS and A level subject content Accounting Draft GCE AS and A level subject content September 2015 Contents The content for AS and A level accounting 3 Introduction 3 Aims and objectives 3 Subject content 4 Knowledge and understanding

More information

Marginal and absorption costing

Marginal and absorption costing Marginal and absorption costing Topic list Syllabus reference 1 Marginal cost and marginal costing D4 2 The principles of marginal costing D4 3 Marginal costing and absorption costing and the calculation

More information

Tutorial 3a Cost-Volume-Profit Analysis

Tutorial 3a Cost-Volume-Profit Analysis Tutorial 3a Cost-Volume-Profit Analysis J. E. Cairnes School of Business and Economics NUI Galway Cost-Volume-Profit (CVP) Analysis This is a method used to examine the relationship between changes in

More information

Financial Planning. Presented by Emma's Garden

Financial Planning. Presented by Emma's Garden + Financial Planning Presented by Emma's Garden Financial Planning A comprehensive financial plan helps you to forecast and set your financial goals and milestones. Your financial forecasts are an essential

More information

Quiz Chapter 7 - Solution

Quiz Chapter 7 - Solution Quiz Chapter 7 - Solution 1. In an income statement prepared as an internal report using the variable costing method, variable selling and administrative expenses would: A) not be used. B) be treated the

More information

Chapter 25 Cost-Volume-Profit Analysis Questions

Chapter 25 Cost-Volume-Profit Analysis Questions Chapter 25 Cost-Volume-Profit Analysis Questions 1. Cost-volume-profit analysis is used to accomplish the first step in the planning phase for a business, which involves predicting the volume of activity,

More information

CORK INSTITUTE OF TECHNOLOGY INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ. Semester 1 Examinations 20014/15

CORK INSTITUTE OF TECHNOLOGY INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ. Semester 1 Examinations 20014/15 CORK INSTITUTE OF TECHNOLOGY INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ Semester 1 Examinations 20014/15 Module Title: Business Finance. Module Code: ACCT 7007 School: Programme Title: Programme Code: School of

More information

ACG 3024 Accounting for Non-Financial Majors Homework Portfolio Study Guide

ACG 3024 Accounting for Non-Financial Majors Homework Portfolio Study Guide ACG 3024 Accounting for Non-Financial Majors Homework Portfolio Study Guide These are similar questions with the answers to help guide you when preparing the Homework Portfolio that you will upload to

More information

Institute of Certified Management Accountants of Sri Lanka. Operational Level November 2012 Examination

Institute of Certified Management Accountants of Sri Lanka. Operational Level November 2012 Examination Copyright Reserved Serial No Operational Level November 2012 Examination Examination Date : 11 th November 2012 Number of Pages : 08 Examination Time: 9.30 a:m. 12.30 p:m. Number of Questions: 07 Instructions

More information

29.1 COST SHEET : MEANING AND ITS IMPORTANCE

29.1 COST SHEET : MEANING AND ITS IMPORTANCE 29 COST SHEET You are running a factory which manufactures electronic toys. You incur expenses on raw material, labour and other expenses which can be directly attibuted to cost and which cannot be directly

More information

Chapter 6 Cost-Volume-Profit Relationships

Chapter 6 Cost-Volume-Profit Relationships Chapter 6 Cost-Volume-Profit Relationships Solutions to Questions 6-1 The contribution margin (CM) ratio is the ratio of the total contribution margin to total sales revenue. It can be used in a variety

More information

1. a. and b. Absorption Costing

1. a. and b. Absorption Costing Problem 7-13 1. a. and b. Absorption Costing Variable Costing Direct materials... $48 $48 Variable manufacturing overhead... 2 2 Fixed manufacturing overhead ($360,000 12,000 units)... 30 Unit product

More information

PRODUCTIVITY & GROWTH

PRODUCTIVITY & GROWTH Productivity Financial Tools There are a number of financial tools that can be used to measure the financial performance and potential contribution of improvement projects to the productivity of a business.

More information

COST AND MANAGEMENT ACCOUNTING

COST AND MANAGEMENT ACCOUNTING EXECUTIVE PROGRAMME COST AND MANAGEMENT ACCOUNTING SAMPLE TEST PAPER (This test paper is for practice and self study only and not to be sent to the institute) Time allowed: 3 hours Maximum marks : 100

More information

Revision point: Fixed costs are those that do not change with changes in production levels, e.g. rent.

Revision point: Fixed costs are those that do not change with changes in production levels, e.g. rent. SECTION ONE BREAK-EVEN ANALYSIS Break-even point What is meant by the term break even? A firm breaks even when income is sufficiently high to exactly cover total costs therefore neither a profit nor a

More information

elements of costs like material, labour and expenses can be classified into direct and indirect. They are mentioned below. i. Direct and Indirect

elements of costs like material, labour and expenses can be classified into direct and indirect. They are mentioned below. i. Direct and Indirect 3. Costing: [12] Importance and basic principles, a brief introduction to methods of costing and elements of cost. Marginal costing, nature, scope and importance, Break-even analysis, its use and limitations,

More information

Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum

Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum Course 1 : Contemporary Perspectives on Accounting Unit 7 : Marginal and Absorption

More information

BASIC CONCEPTS AND FORMULAE

BASIC CONCEPTS AND FORMULAE 12 Marginal Costing BASIC CONCEPTS AND FORMULAE Basic Concepts 1. Absorption Costing: a method of costing by which all direct cost and applicable overheads are charged to products or cost centers for finding

More information

The 8 Elements of a Successful Sales

The 8 Elements of a Successful Sales The 8 Elements of a Successful Sales Effectiveness Program Introduction: There is lot more to sales effectiveness programs then what meets the eye initially. Some companies focus their efforts of sales

More information

Course Title: Cost Accounting for Decision Making

Course Title: Cost Accounting for Decision Making Course Title: Cost Accounting for Decision Making Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum 1 Learning

More information

ABSORPTION AND MARGINAL COSTING

ABSORPTION AND MARGINAL COSTING STUDENT NOTES ABSORPTION AND MARGINAL COSTING Accountants and managers require financial information for many different purposes. To help make such decisions, costs can be classified in different ways:

More information

The main points are: The Business Plan How To Write It. History of your Business

The main points are: The Business Plan How To Write It. History of your Business The Business Plan How To Write It A business plan has nine key sections. Within each of the following sections there is a list of points that should be covered fully backed up with detailed information

More information

1. Which one of the following is the format of a CVP income statement? A. Sales Variable costs = Fixed costs + Net income.

1. Which one of the following is the format of a CVP income statement? A. Sales Variable costs = Fixed costs + Net income. 1. Which one of the following is the format of a CVP income statement? A. Sales Variable costs = Fixed costs + Net income. B. Sales Fixed costs Variable costs Operating expenses = Net income. C. Sales

More information

6. Financial Planning. Break-even. Operating and Financial Leverage.

6. Financial Planning. Break-even. Operating and Financial Leverage. 6. Financial Planning. Break-even. Operating and Financial Leverage. Financial planning primarily involves anticipating the impact of operating, investment and financial decisions on the firm s future

More information

Business location Expected start-up date Form of ownership

Business location Expected start-up date Form of ownership Disclaimer The material is provided for information purposes only. It does not represent complete business planning, legal, accounting and other business advise. It is recommended that appropriate business

More information

Pricing decisions and profitability analysis

Pricing decisions and profitability analysis Pricing decisions and profitability analysis Solutions to Chapter 11 questions Question 11.24 (a) (b) Computation of full costs and budgeted cost-plus selling price EXE WYE Stores Maintenance Admin ( m)

More information

UNIVERSITY OF BOLTON BUSINESS SCHOOL ACCOUNTANCY SEMESTER 1 EXAMINATION 2015/2016 MANAGEMENT ACCOUNTING AND DECISION MAKING MODULE NO: ACC5002

UNIVERSITY OF BOLTON BUSINESS SCHOOL ACCOUNTANCY SEMESTER 1 EXAMINATION 2015/2016 MANAGEMENT ACCOUNTING AND DECISION MAKING MODULE NO: ACC5002 BBS009 UNIVERSITY OF BOLTON BUSINESS SCHOOL ACCOUNTANCY SEMESTER 1 EXAMINATION 2015/2016 MANAGEMENT ACCOUNTING AND DECISION MAKING MODULE NO: ACC5002 Date: Tuesday 12 th January 2016 Time: 2:00pm to 5:00pm

More information

Blended Value Business Plan Pro Forma Income Statement User Guide

Blended Value Business Plan Pro Forma Income Statement User Guide Blended Value Business Plan Pro Forma Income Statement User Guide OVERVIEW A business plan goes beyond the forecasting of a Feasibility Study. It provides details on the multiple factors required to develop

More information

START YOUR OWN BUSINESS WORK BOOK 4 BUSINESS VIABILITY

START YOUR OWN BUSINESS WORK BOOK 4 BUSINESS VIABILITY START YOUR OWN BUSINESS WORK BOOK 4 BUSINESS VIABILITY BUSINESS VIABILITY What costs do I need to consider and what s the difference between startup, fixed and variable costs? How much do I need to sell

More information

PART TWO. management accounting

PART TWO. management accounting PART TWO management accounting CHAPTER TWELVE Management accounting, cost volume profit examined and applied Learning objectives After studying this chapter you should be able to: 1. Explain the need

More information

Society of Certified Management Accountants of Sri Lanka

Society of Certified Management Accountants of Sri Lanka Copyright Reserved Serial No Technician Stage March 2009 Examination Examination Date : 28 th March 2009 Number of Pages : 06 Examination Time: 9.30a:m.- 12.30p:m. Number of Questions: 05 Instructions

More information

Paper F5. Performance Management. March/June 2016 Sample Questions. Fundamentals Level Skills Module

Paper F5. Performance Management. March/June 2016 Sample Questions. Fundamentals Level Skills Module Fundamentals Level Skills Module Performance Management March/June 2016 Sample Questions Time allowed Reading and planning: 15 minutes Writing: 3 hours This question paper is divided into two sections:

More information

CPA Mock Evaluation Management Accounting Module (Core 2) Page 1

CPA Mock Evaluation Management Accounting Module (Core 2) Page 1 CPA Mock Evaluation Management Accounting Module (Core 2) Page 1 Overview The Core 1 and 2 examinations are a mix of objective format and case questions. The maximum length for an individual case will

More information

Management Accounting 2 nd Year Examination

Management Accounting 2 nd Year Examination Management Accounting 2 nd Year Examination August 2010 Paper, Solutions & Examiner s Report NOTES TO USERS ABOUT THESE SOLUTIONS The solutions in this document are published by Accounting Technicians

More information

COSTS AND COSTING 6 6.2 COST CENTRE ANALYSIS AND CONTROLLING FINANCES. Cost Centre Analysis. Cost Centre Analysis Exercises P 207

COSTS AND COSTING 6 6.2 COST CENTRE ANALYSIS AND CONTROLLING FINANCES. Cost Centre Analysis. Cost Centre Analysis Exercises P 207 62 COSTS AND COSTING 6 COST CENTRE ANALYSIS AND CONTROLLING FINANCES Cost Centre Analysis Cost Centre Analysis Exercises P 207 COST CENTRE ANALYSIS Any activity can be analysed by its costs and the output

More information

Variable Costs. Breakeven Analysis. Examples of Variable Costs. Variable Costs. Mixed

Variable Costs. Breakeven Analysis. Examples of Variable Costs. Variable Costs. Mixed Breakeven Analysis Variable Vary directly in proportion to activity: Example: if sales increase by 5%, then the Variable will increase by 5% Remain the same, regardless of the activity level Mixed Combines

More information

UNIT Management Accounting: An Introduction (SCQF level 6)

UNIT Management Accounting: An Introduction (SCQF level 6) National Unit Specification: general information CODE F395 12 SUMMARY This Unit is designed to introduce candidates to the some of the basic concepts of Management Accounting. Therefore, it is not necessary

More information

Management Accounting

Management Accounting Unit 7: Management Accounting Unit code: QCF Level 3: Credit value: 10 Guided learning hours: 60 Aim and purpose J/502/5419 BTEC National The aim of this unit is to enable learners to understand how important

More information

Need to know finance

Need to know finance Need to know finance You can t hide from it Every decision has financial implications Estimating sales and cost of sales (aka direct costs) Gross Profit and Gross Profit Margin (GPM) Sales cost of sales

More information

Small Business Entrepreneurship Lesson Objectives

Small Business Entrepreneurship Lesson Objectives Small Business Entrepreneurship Lesson Unit 1: OVERVIEW OF SMALL BUSINESS ENTREPRENEURSHIP What Is Entrepreneurship? Define and list examples of entrepreneurs. Explain the difference between a product-based

More information

Decision Making using Cost Concepts and CVP Analysis

Decision Making using Cost Concepts and CVP Analysis CHAPTER 2 Decision Making using Cost Concepts and CVP Analysis Basic Concepts Absorption Costing * Assigns direct costs and all or part of overhead to cost units using one or more overhead absorption rates.

More information

Understanding Variance Analysis By: Helen O Brien Gately B Comm; MAcc; FCA. Examiner: Formation 2 Management Accounting

Understanding Variance Analysis By: Helen O Brien Gately B Comm; MAcc; FCA. Examiner: Formation 2 Management Accounting Understanding Variance Analysis By: Helen O Brien Gately B Comm; MAcc; FCA. Examiner: Formation 2 Management Accounting It often appears that students who experience difficulties with variance analysis

More information

THE IMPORTANCE OF THE CALCULATION METHODS BASED ON DIRECT COSTING IN MANAGERIAL DECISIONS

THE IMPORTANCE OF THE CALCULATION METHODS BASED ON DIRECT COSTING IN MANAGERIAL DECISIONS Scientific Bulletin Economic Sciences, Vol. 9 (15) - Accounting, Statistics and Financial Analysis - THE IMPORTANCE OF THE CALCULATION METHODS BASED ON DIRECT COSTING IN MANAGERIAL DECISIONS Associate

More information

Paper F5. Performance Management. Monday 11 June 2012. Fundamentals Level Skills Module. The Association of Chartered Certified Accountants

Paper F5. Performance Management. Monday 11 June 2012. Fundamentals Level Skills Module. The Association of Chartered Certified Accountants Fundamentals Level Skills Module Performance Management Monday 11 June 2012 Time allowed Reading and planning: Writing: 15 minutes 3 hours ALL FIVE questions are compulsory and MUST be attempted. Formulae

More information

mienterprise. More detailed Business Plan

mienterprise. More detailed Business Plan mienterprise. More detailed Business Plan For:!!!!!!!!! Date: SUMMARY What is your business going to be? What are your goals? Short term (one year) 1. 2. 3. Longer term (over one year) 1. 2. 3. ABOUT YOU

More information

Cloud Accounting For Professional Services. The questions to ask when selecting Accounting Software for your firm

Cloud Accounting For Professional Services. The questions to ask when selecting Accounting Software for your firm Cloud Accounting For Professional Services The questions to ask when selecting Accounting Software for your firm Introduction: Most services firms such as architects, consulting engineers, IT consultants,

More information

Unit 2: Finance for Business

Unit 2: Finance for Business Unit 2: Finance for Business Level: 1 and 2 Unit type: Core Guided learning hours: 30 Assessment type: External Unit introduction All businesses have to spend money before they can make a profit, and when

More information

Finance Self Study Guide for Staff of Micro Finance Institutions BREAK-EVEN ANALYSIS

Finance Self Study Guide for Staff of Micro Finance Institutions BREAK-EVEN ANALYSIS Finance Self Study Guide for Staff of Micro Finance Institutions LESSON 3 BREAK-EVEN ANALYSIS Objectives: This session will provide the tools necessary to determine the break-even point for a borrower

More information

3. Contribution is a) sales total cost, b) sales variable cost, c) sales fixed cost, d) none of these.

3. Contribution is a) sales total cost, b) sales variable cost, c) sales fixed cost, d) none of these. 1. The term budget is derived from the French word -------- (a) Boget (b) Bougette (c ) Bogeget (d) None of these 2. Profit will be the same under absorption costing and marginal costing only when a) there

More information

Copyright 2015 Pearson Canada Inc. 1

Copyright 2015 Pearson Canada Inc. 1 1 Building Blocks of Managerial Accounting CHAPTER 2 2 Distinguish among service, merchandising, and manufacturing companies OBJECTIVE 1 3 Service Companies Provide an intangible service only Largest sector

More information

Adviser alert - IFRS Viewpoint Inventory discounts and rebates

Adviser alert - IFRS Viewpoint Inventory discounts and rebates Adviser alert - IFRS Viewpoint Inventory discounts and rebates November 2015 Overview The Grant Thornton International IFRS team has published IFRS Viewpoint Inventory discounts and rebates. The IFRS Viewpoint

More information

Cost-Volume-Profit Analysis

Cost-Volume-Profit Analysis CHAPTER 3 Overview Cost-Volume-Profit Analysis This chapter explains a planning tool called costvolume-profit (CVP) analysis. CVP analysis examines the behavior of total revenues, total costs, and operating

More information

Understanding, Allocating, and Controlling Overhead Costs

Understanding, Allocating, and Controlling Overhead Costs Understanding, Allocating, and Controlling Overhead Costs Oklahoma Cooperative Extension Service Division of Agricultural Sciences and Natural Resources F-217 Phil Kenkel Extension Economist O verhead

More information

- 1 - Cost Drivers. Product Diversity - Difference in product size, product complexity, size of batches and set-up times cause product diversity.

- 1 - Cost Drivers. Product Diversity - Difference in product size, product complexity, size of batches and set-up times cause product diversity. - 1 - Traditional Cost Accounting It arbitrarily allocates overheads to the cost objects. Total Company s overhead is allocated based on volume based measure e.g. labour hours, machine hours. Here the

More information

MANAGEMENT ACCOUNTING

MANAGEMENT ACCOUNTING MANAGEMENT ACCOUNTING 2 nd Year Examination August 2014 Exam Paper, Solutions & Examiner s Comments 1 NOTES TO USERS ABOUT THESE SOLUTIONS The solutions in this document are published by Accounting Technicians

More information

Monopolistic Competition

Monopolistic Competition Monopolistic Chapter 17 Copyright 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department, Harcourt College

More information

12 Marginal Costing. 12.1 Definitions

12 Marginal Costing. 12.1 Definitions 12 Marginal Costing Learning Objectives When you have finished studying this chapter, you should be able to Understand the difference between absorption costing and marginal costing Understand the concept

More information

Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price

Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price Three functions of importance in business are cost functions, revenue functions and profit functions. Cost functions

More information

Module Title: Management Accounting 2

Module Title: Management Accounting 2 CORK INSTITUTE OF TECHNOLOGY INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ Semester 2 Examinations 2008/09 Module Title: Management Accounting 2 Module Code: ACCT 6004 School: Business Programme Title: Bachelor of

More information

Course- Financial Management.

Course- Financial Management. Course- Financial Management. PHAR 4233 Semester/Year: Spring 2013 Course dates2/2/2013-2/27/2013 Lecture Objective Template Lecture #1/2 Date/time: 10:00 AM 1/3/2013 Lecture/Name Topic: Introduction to

More information

Course- Financial Management.

Course- Financial Management. Course- Financial Management. PHAR 4233 Semester/Year: Spring 2015 Lecture Objective Template Lecture #1/2 Date/time: 10:00 AM 1/6-7/2015 Lecture/Name Topic: Introduction to Financial Management and Accounting

More information

Paper F2. Management Accounting. Fundamentals Pilot Paper Knowledge module. The Association of Chartered Certified Accountants. Time allowed: 2 hours

Paper F2. Management Accounting. Fundamentals Pilot Paper Knowledge module. The Association of Chartered Certified Accountants. Time allowed: 2 hours Fundamentals Pilot Paper Knowledge module Management ccounting Time allowed: 2 hours LL FIFTY questions are compulsory and MUST be attempted. Paper F2 o NOT open this paper until instructed by the supervisor.

More information

CASH BUDGETS AND RELATED TOPICS

CASH BUDGETS AND RELATED TOPICS CASH BUDGETS AND RELATED TOPICS Article relevant to Formation 2 Management Accounting Author: Neil Hayden, current Examiner. In projected cash flow statements the information can be presented in a variety

More information

FINANCIAL INTRODUCTION

FINANCIAL INTRODUCTION FINANCIAL INTRODUCTION In earlier sections you calculated your cost of goods sold, overhead expenses and capital cost in order to help you determine the sales price of your product. In your business plan,

More information

Level 3 Certificate in Management Accounting

Level 3 Certificate in Management Accounting LCCI International Qualifications Level 3 Certificate in Management Accounting Syllabus Effective from October 2008 For further information contact us: Tel. +44 (0) 8707 202909 Email. enquiries@ediplc.com

More information

Part II Management Accounting Decision-Making Tools

Part II Management Accounting Decision-Making Tools Part II Management Accounting Decision-Making Tools Chapter 7 Chapter 8 Chapter 9 Cost-Volume-Profit Analysis Comprehensive Business Budgeting Incremental Analysis and Decision-making Costs Chapter 10

More information

Chapter 5 Revenue & Cost Analysis

Chapter 5 Revenue & Cost Analysis Chapter 5 Revenue & Cost Analysis 1. General Cost data are subject to great misunderstanding than are value data. The main reason: although the various categories of costs have precise meaning to the accountant,

More information

6.3 PROFIT AND LOSS AND BALANCE SHEETS. Simple Financial Calculations. Analysing Performance - The Balance Sheet. Analysing Performance

6.3 PROFIT AND LOSS AND BALANCE SHEETS. Simple Financial Calculations. Analysing Performance - The Balance Sheet. Analysing Performance 63 COSTS AND COSTING 6 PROFIT AND LOSS AND BALANCE SHEETS Simple Financial Calculations Analysing Performance - The Balance Sheet Analysing Performance Analysing Financial Performance Profit And Loss Forecast

More information

Managerial Accounting Prof. Dr. Vardaraj Bapat Department of School of Management Indian Institute of Technology, Bombay

Managerial Accounting Prof. Dr. Vardaraj Bapat Department of School of Management Indian Institute of Technology, Bombay Managerial Accounting Prof. Dr. Vardaraj Bapat Department of School of Management Indian Institute of Technology, Bombay Lecture - 26 Cost Volume Profit Analysis Dear participations in our early session,

More information

P2 Performance Management March 2014 examination

P2 Performance Management March 2014 examination Management Level Paper P2 Performance Management March 2014 examination Examiner s Answers Note: Some of the answers that follow are fuller and more comprehensive than would be expected from a well-prepared

More information

Management Accounting 2 nd Year Examination

Management Accounting 2 nd Year Examination Management Accounting 2 nd Year Examination August 2012 Exam Paper, Solutions & Examiner s Report NOTES TO USERS ABOUT THESE SOLUTIONS The solutions in this document are published by Accounting Technicians

More information