Questions and Answers of Management Accounting Information

10.1 Explain how standard costing can be used to help control costs and manage resources more effectively.
10.2 Describe the analysis of historical data and engineering methods of setting standards.
10.3 Explain how the use of perfection standards and practical standards may impact behaviour.
10.4 Develop standard costs for direct material and direct labour.
10.5 Calculate and interpret the direct material price and quantity variances, and the direct labour rate and efficiency variances.
10.6 Explain several methods that can be used for assessing the significance of standard cost variances.
10.7 Understand how to determine the causes of variances and when to take corrective actions.
10.8 Understand how control can be achieved through assigning responsibility for certain variances to particular managers.
10.9 Describe how the use of standard costing and variance reporting may impact individuals' behaviour.
10.10 Explain how standard costs are used in product costing. 10.11 Prepare journal entries to account for direct material and direct labour cost variances. 10.12 After studying the appendix, explain
10.1 Examine the description and diagram of the beer brewing process provided at the following link: https://en.wikipedia.org/wiki/Brewing. Provide an example of how the three parts of a control
10.2 Describe the two main approaches to setting standards. Explain the advantages and disadvantages of each approach. LO 10.2
10.3 Distinguish between perfection standards and practical standards. Which type of standard is likely to produce the best motivational effects? LO 10.3
10.4 Explore the services provided by Service NSW at the following link: www.service.nsw.gov.au/services. Identify five of its services that would be well suited to the use of standard costing for
10.5 Explain how Tesla could use standard costing for control. Focus on the cost of producing batteries for its electric cars, to illustrate your answer. LO 10.1, 10.4
10.6 Describe how a Big 4 accounting firm might use standard costs. LO 10.1, 10.4
10.7 Explain how standard labour rates and times may be set using examples from the pizza-making process in an Italian restaurant. LO 10.4
10.8 Explain what is meant by the term management by exception, and how it is applied to the use of standard costs for control. LO 10.5, 10.6
10.9 What is the meaning of the direct labour efficiency variance? What are some possible causes of a favourable direct labour efficiency variance? LO 10.5
10.10 Identify plausible causes of a favourable direct material quantity variance for a solar panel manufacturer that would have a negative organisational impact. LO 10.5, 10.7
10.11 What is a statistical control chart and how can it be used? LO 10.6
10.12 Describe the factors that managers may consider when assessing the significance of a variance. How are significant variances determined? Why is it important to examine significant variances? LO
10.13 Critique the following statement: 'Investigating variances is simple. All you need to do is find all the large unfavourable variances and the rest will look after themselves!' LO 10.7, 10.8
10.14 Identify and explain which type of manager is generally in the best position to influence the reported direct material price variance in an organisation. LO 10.8
10.15 What is the meaning of the term interaction between variances? Use an example to illustrate. LO 10.8
10.16 The Real Life titled 'Cost pressures and variance analysis in hospitals' explains how labour cost variances are used in a hospital. Search the internet to find another organisation that uses
10.17 Explain how participation can have positive and negative effects in the setting of accurate standards. LO 10.9
10.18 Provide a hypothetical example that demonstrates how the use of standard costing may create incentives for managers to make decisions that have negative consequences. (See 'Standard costing and
10.19 Explain how and why standard costs are used in product costing. LO 10.10
10.20 (appendix) Explain the difference between the traditional direct labour rate variance and a pure rate variance. LO 10.12
11.1 Distinguish between static and flexible budgets.
11.2 Explain the advantages of a flexible budget for performance evaluation and control.
11.3 Prepare a flexible overhead budget, using both a formula and a report format.
11.4 Apply overheads to work in process under a standard costing system.
11.5 Calculate and Interpret the variable overhead spending and efficiency variances, and the fixed overhead budget and volume variances.
11.6 Prepare an overhead cost performance report.
11.7 Prepare journal entries to account for manufacturing overhead under standard costing.
11.8 Apply flexible budgets in a service environment.
11.9 Outline the criticisms and advantages of standard costing.
11.10 Understand how activity-based budgeting provides a more accurate form of budgeting than does traditional budgeting.
11.11 After studying the appendix, calculate and interpret the sales price and sales volume variances.
11.1 Why can comparing actual cost to a static budget be problematic for cost control purposes? LO 11.1
11.2 What is the key benefit of using a flexible budget for cost control? LO 11.2
11.3 Provide an example of an input measure that would be appropriate in: (a) a car insurance company (b) a camera manufacturer with an automated production process. LO 11.2
11.4 Describe the components of a formula flexible budget and explain how it may be used to control costs. LO 11.3
11.5 Explain why it is important that the activities used to develop a flexible overhead budget are accurate cost drivers. LO 11.4
11.6 Explain how you would interpret a variable overhead efficiency variance. LO 11.5
11.7 The only variable overhead cost at Jackson Sporting Club is electricity. Does a favourable variable overhead spending variance imply that the club paid less than the anticipated rate per
11.8 Explain the difference between the interpretation of the variable overhead efficiency variance and that of the direct labour efficiency variance. LO 11.5
11.9 Define the fixed overhead budget variance, and explain how it may assist managers to control costs. LO 11.5
11.10 What is the correct interpretation of the fixed overhead volume variance? LO 11.5
11.11 What is a common but inappropriate interpretation of the fixed overhead volume variance? Why is that Interpretation inappropriate? LO 11.5
11.12 How do two-way, three-way and four-way analyses of manufacturing overhead differ? Why would some managers prefer to use a two-way analysis or three-way analysis, instead of a four-way analysis?
11.13 Draw a graph showing both budgeted and applied variable overhead. Explain this graph. LO 11.5
11.14 Explain the difference between the control purpose and the product costing purpose of standard costing. LO 11.7
11.15 Use ledger accounts to show how manufacturing overhead is added to work in process inventory and how manufacturing overhead variances are closed to cost of goods sold, when standard costing is
11.16 When should manufacturing overhead variances be closed to cost of goods sold? Explain your answer. LO 11.7
11.17 Provide two examples of service organisations that may use flexible budgets to control overhead costs, and for each organisation suggest an activity that might form the basis for the flexible
11.18 The Real Life titled 'Standard costing systems: variations in use' in the section 'Standard costs for product costing' explains how standard costing systems may be adapted to better suit
11.19 Explain how activity-based budgeting differs from traditional budgeting. LO 11.10
11.20 (appendix) Explain how the sales price variance and the sales volume variance can assist managers to control costs. LO 11.11
12.1 Describe the purposes of performance measurement systems.
12.2 Describe the characteristics of effective performance measurement systems.
12.3 Explain the benefits and costs of decentralisation.
12.4 Define responsibility centres and provide examples: cost centres, revenue centres, profit centres and investment centres.
12.5 Understand how shared services operations and self-managed work teams can help improve organisational performance.
12.6 Prepare reports that highlight the financial performance of a range of responsibility centres.
12.7 Explain why different financial information may be used to evaluate the performance of responsibility centres and the performance of the managers of those centres.
12.8 Complete financial performance reports for responsibility centres, taking into account allocated costs. common costs and variances.
12.9 Understand how real-time reporting can enhance management decision making.
12.10 Understand why organisations use transfer pricing.
12.11 Explain the various methods that can be used to determine transfer prices.
12.12 Explain the general rule that can be used to set transfer prices.
12.13 Determine appropriate transfer prices under a variety of scenarios.
12.1 Outline the four purposes of performance measurement systems. Explain how these purposes relate to responsibility accounting. LO 12.1, 12.4
12.2 From the Real Life titled 'Principles for reporting performance outcomes' in the section 'Characteristics of effective performance measurement systems', outline what IFAC's principles say about
12.3 Why is goal congruence important to an organisation's success? How can a responsibility accounting system foster goal congruence? LO 12.3
12.4 What benefits potentially accrue to organisations that decentralise? What negative consequences can arise from decentralisation? LO 12.3
12.5 Select an organisation that you are familiar with and use this to provide an example of each of the following types of responsibility centres: cost centre, revenue centre, profit centre and
12.6 What are shared services? What benefits can result from creating shared services units? Why are transfer prices relevant in a shared services environment? LO 12.5, 12.10
12.7 How might a move to a shared services operation for payroll and accounts payable change the responsibilities of the manager who formerly managed those operations within a division? LO 12.5
12.8 Search the internet and provide two examples of Australian organisations that adopt a shared services model. LO 12.5
12.9 When developing financial performance reports in a decentralised organisation, a contribution margin format may be used. Explain the advantages of using this format for performance evaluation of
12.10 Why might some companies decide not to distinguish the performance of managers from that of their department or division? LO 12.7
12.11 Explain how the terms controllability and attributability are relevant when evaluating the performance of business unit managers and business units. LO 12.7
12.12 Explain why some management accountants choose not to allocate common costs in segmented reports. LO 12.8
12.13 Provide four examples of common costs that might occur in a fast food chain. LO 12.8
12.14 How might real-time reporting contribute to improving the competitive advantage of an organisation? LO 12.9
12.15 Explain the benefits of using transfer pricing within organisations. LO 12.10
12.16 'Transfer pricing is irrelevant for service firms because there is no product to transfer between divisions. Is this statement correct? Discuss. LO 12.10
12.17 Explain why it may not be desirable for head office management to dictate transfer prices. Can you provide an example of a situation where this may be appropriate? LO 12.11
12.18 When is it more appropriate to use market-based transfer prices rather than cost-based transfer prices, and vice versa? LO 12.11
12.19 What are the key advantages and disadvantages associated with using absorption cost rather than variable cost as a basis for setting transfer prices? LO 12.11, 12.13
12.20 Explain the significance of having spare capacity in a supplying unit when transfer prices are set using the general transfer pricing rule. LO 12.12, 12.13
13.1 Calculate an investment centre's return on investment (ROI).
13.2 Describe some advantages and limitations of ROI as a measure of performance of investment centres.
13.3 Explain how the negative behavioural incentives associated with using ROI to evaluate performance can be minimised.
13.4 Calculate residual income (RI) for an investment centre, and describe some advantages and disadvantages of using RI to evaluate performance.
13.5 Recognise the reasons for the various definitions of profit and invested capital that can be used in the calculation of return on investment and residual income.
13.6 Explain how shareholder value can be measured and used to manage performance.

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