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business
management and cost accounting
Questions and Answers of
Management And Cost Accounting
Provide illustrations of how the information derived from linear programming can be applied to a variety of management accounting problems. (pp. 684-686)
Explain how sensitivity analysis can be applied to the output of a linear programming model. (p. 686)
Intermediate. Taree Limited uses linear programming to establish the optimal production plan for the production of its two products, A and U, given that it has the objective of minimizing costs. The
Advanced: Optimal output and calculation of maximum amount to-pay for a scarce resource using the graphical approach. THS produces two products from different combinations of the same resource.
Advanced: Optimal output and calculation of shadow prices using the graphical approach. The Cosmetic Co. is a company producing a variety of cosmetic creams and lotions. The creams and lotions are
Advanced: optimum production programme and interpretation of the solution of a linear programming model.LM produces two products from different quantities of the same resources using a just-in-time
Basic. A company uses standard absorption costing to value inventory. Its fixed overhead absorption rate is $12 per labour hour and each unit of production should take four labour hours.In a recent
Basic. The following details have been extracted from KL’s budget:Selling price per unit $140 Variable production costs per unit $45 Fixed production costs per unit $32 The budgeted fixed
Basic. A newly formed company has drawn up the following budgets for its first two accounting periods:(a) In period 1, the budgeted profit will be:(}) the same under both absorption costing and
Provide examples of how cost-volume-profit analysis can be used for decision-making. (p. 172)
Explain what is meant by the term ‘relevant range’.(pp. 174-175)
Define the term ‘contribution margin’. (p. 176)
Define the term ‘profit-volume ratio’ and explain how it can be used for cost-volume-profit analysis.(pp: 177-178)
Describe and distinguish between the three different approaches to presenting cost-volume-profit relationships in graphical format. (pp. 178-182)
How can a company with multiple products use cost—volume-profit analysis? (pp. 182-184)
Explain why the break-even point changes when there is a change in sales mix. (p. 184)
Describe the assumptions underlying cost-volume-—profit analysis. (pp. 187-188)
Define the term ‘operating leverage’ and explain how the degree of operating leverage can influence future profits.(pp. 184-186)
Howcan sensitivity analysis be used in conjunction with cost-volume-profit analysis? (p. 188)
Basic. W Ltd makes leather purses. It has drawn up the following budget for its next financial period:Selling price per unit $11.60 Variable production cost per unit $3.40 Sales commission 5% of
Basic. Z plc currently sells products Aye, Bee and Cee in equal quantities and at the same selling price per unit. The contribution to sales ratio for product Aye is 40 per cent; for product Bee it
Basic. The following information is required for sub-questions(a) and (b).W Ltd makes leather purses. It has drawn up the following budget for its next financial period:Selling price per unit $11.60
Intermediate. Z plc provides a single service to its customers.An analysis of its budget for the year ending 31 December shows that in period 4, when the budgeted activity was 5220 service units with
Intermediate. RT plc sells three products.Product R has a contribution to sales ratio of 30%.Product S has a contribution to sales ratio of 20%.Product T has a contribution to sales ratio of
Intermediate. A break-even chart is shown below for Windhurst Ltd.You are required:(i) to identify the components of the break-even chart labelled DP, 9, 5S, t, u, V, Ww, xX and y; (5 marks)(ii) to
Intermediate. S plc produces and sells three products, X, Y and Z. It has contracts to supply products X and Y, which will utilize all of the specific materials that are available to make these two
Intermediate: Preparation of break-even and profit-volume graphs. ZED plc manufactures one standard product, which sells at £10. You are required to:(a) prepare from the data given below, a
What is a relevant cost? (p. 199)
Why is it important to recognize qualitative factors when presenting information for decision-making? Provide examples of qualitative factors. (pp. 199-200)
What underlying principle should be followed in determining relevant costs for decision-making? (p. 199)
Explain what is meant by special pricing decisions. (p. 200)
Describe the important factors that must be taken into account when making special pricing decisions.(pp. 201-202)
Describe the dangers involved in focusing excessively on a short-run decision-making time horizon. (pp. 203-204)
Define limiting factors. (p. 204)
How should a company determine its optimal product mix when a limiting factor exists? (p. 205)
Why is the written-down value and depreciation of an asset being considered for replacement irrelevant when making replacement decisions? (p. 207)
Explain the importance of opportunity costs for decisionmaking. (p. 204)
Explain the circumstances when the original purchase price of materials are irrelevant for decision-making.(p. 213)
Why does the relevant cost of labour differ depending on the circumstances? (p. 214)
Describe the five steps involved in applying the theory of constraints. (p. 216)
Describe throughput accounting and explain how it can be used to determine the optimum use of a bottleneck activity. (p. 219)
Basic. A company has just secured a new contract which requires 500 hours of labour.There are 400 hours of spare labour capacity. The remaining hours could be worked as overtime at time-and-a-half or
Basic. X plc intends to use relevant costs as the basis of the selling price for a special order: the printing of a brochure.The brochure requires a particular type of paper that is not regularly
Basic. All of a company's skilled labour, which is paid £8 per hour, is fully employed manufacturing a product to which the following data refer:The company is evaluating a contract which requires
Basic. A company has three shops (R, S and T) to which the following budgeted information relates:Sixty per cent of the total fixed costs are general company overheads. These are apportioned to the
Basic. A company manufactures two products A and B.The budget statement below was produced using a traditional absorption costing approach. It shows the profit per unit for each product based on the
Distinguish between a price taker and a price setter.(p. 232)
What costs are likely to be relevant for(a) a short-run pricing decision, and(b) a long-run pricing decision?(pp. 232-237)
What is meant by cost-plus pricing? (pp. 234, 241)
Distinguish between cost-plus pricing and target costing.(p. 237)
Describe the four stages involved with target costing.(p. 237)
What role does cost information play in price-taking firms?(pp. 237-238)
Describe the alternative cost bases that can be used with cost-plus pricing. (p. 234)
Whatare the limitations of cost-plus pricing? (p. 241)
Why is cost-plus pricing frequently used in practice?(pp. 241-242)
Describe the different kinds of pricing policy that an organization can apply. (pp. 242-244)
Why is customer profitability analysis important?(pp. 244-245)
What is meant by the term ‘full cost’? (p. 235)
Intermediate: Calculation of an optimal selling price.A company manufactures a single product, product Y. It has documented levels of demand at certain selling prices for this product as
Intermediate: Calculation of different cost-plus prices.Albany has recently spent some time on researching and developing a new product for which they are trying to establish a suitable price.
Advanced: Calculation of optimum price using calculus.is reviewing the selling price of one of its products. The current selling price of the product is $25 per unit and annual demand is forecast to
Advanced: Customer profitability analysis. ST is a distribution company that buys a product in bulk from manufacturers, repackages the product into smaller packs and then sells the packs to retail
Advanced: Minimum selling price based on relevant costs. DLW is a company that builds innovative, environmentally friendly housing. DLW’s houses use high quality materials and the unique patented
Advanced: Profit-maximizing pricing decision based on demand/price relationships. The Mcintyre Resort (MR), which is privately owned, is a world-famous luxury hotel and golf complex.It has been
Advanced: Calculation of optimum selling price, learning curve and pricing policies. Heat Co specialises in the production of a range of air conditioning appliances for industrial premises.If is
Advanced. A company has carried out extensive product research and as a result has just launched a new innovative product unlike anything else that is currently available on the market. The company
Intermediate: Discussion of marginal and absorption cost approaches to pricing. ML is an engineering company that specializes in providing engineering facilities to businesses that cannot justify
Explain why a cost accumulation system is required for generating relevant cost information for decision-making.(p. 258)
Describe the three different types of cost system that can be used to assign costs to cost objects. (p. 259)
Define activities and cost drivers. (p. 259)
What factors led to the emergence of ABC systems?(pp. 261-262)
Distinguish between volume-based and non-volume-based cost drivers. (pp. 262-264)
Describe the circumstances when traditional costing systems are likely to report distorted costs. (pp. 262-263)
Explain how low volume products can be undercosted and high volume products overcosted when traditional costing systems are used. (pp. 263-264)
What is meant by ‘product diversity’ and why is it important for product costing? (pp. 262-263)
Describe each of the four stages involved in designing ABC systems. (pp. 264-266)
Distinguish between resource cost drivers and activity cost drivers. (p. 265)
Distinguish between transaction and duration cost drivers.(pp. 265-266)
Describe the ABC manufacturing cost hierarchy. (pp. 266-267)
Describe the ABC profitability analysis hierarchy. (pp. 267-268)
What is an ABC resource consumption model? (p. 269)
Distinguish between the cost of resources supplied, the cost of resources used and the cost of unused capacity. (p. 269)
Explain the circumstances in which ABC is likely to be preferred to traditional costing systems. (p. 272)
Provide examples of how ABC can be used in service organizations. (pp. 272-274)
What are the fundamental differences between a traditional and an ABC system? (pp. 259-260)
Advanced. Large service organizations, such as banks and hospitals, used to be noted for their lack of standard costing systems, and their relatively unsophisticated budgeting and control systems
Advanced: Calculation of traditional and ABC product costs. A major company sells a range of electrical, clothing and homeware products through a chain of department stores. The main administration
Distinguish between risk and uncertainty. (p. 287)
What is a probability distribution? (p. 288)
Distinguish between expected value and the single most likely estimate. (p. 290)
Distinguish between the standard deviation and the coefficient of variation. (pp. 290-291)
What are the disadvantages of the standard deviation as a measure of risk? (p. 291)
What is a decision tree and what purpose does it serve? (pp. 293-294)
What is the expected value of perfect information and hc can it be determined? (pp. 294-295)
Distinguish between maximin, maximax and regret criteri When might it be appropriate to apply these criteria?(p. 296)
How does diversification impact on measuring risk?(p. 297)
How do subjective probabilities differ from objective probabilities? (p. 290)
Intermediate. Darwin uses decision tree analysis in order to evaluate potential projects. The company has been looking at the launch of a new product which it believes has a 70 per cent probability
Intermediate. A company uses decision tree analysis to evaluate potential options. The management accountant for the company has established the following:What would be the cost of the upgrade that
Intermediate. The committee of a new golf club is setting the annual membership fee: The number of members depends on the membership fee charged and economic conditions. The forecast annual cash
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