CMA (Cost & Management Accountancy) Intermediate: Management Accounting and Operations Flashcards

24 sample cards from the Intermediate: Management Accounting and Operations deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. State the steps in implementing Activity Based Costing.

   (1) Identify the major activities. (2) Group costs into activity cost pools. (3) Identify the cost driver for each activity. (4) Calculate the cost driver rate $= \frac{\text{Cost pool}}{\text{Total cost driver volume}}$. (5) Absorb overheads into products based on each product's consumption of cost drivers.

2. How does ABC differ from traditional absorption costing?

   Traditional costing absorbs overheads using volume-based rates (labour or machine hours), distorting costs when overheads are not volume-driven. ABC uses multiple cost drivers reflecting actual activity consumption, giving more accurate product costs—especially where overheads are high and products are diverse in volume and complexity.

3. Give the formulas for Current Ratio and Quick (Acid-Test) Ratio.

   $$\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \quad (\text{ideal } 2:1)$$ $$\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Inventory} - \text{Prepaid}}{\text{Current Liabilities}} \quad (\text{ideal } 1:1)$$

4. State the formulas for the Debt-Equity Ratio and Interest Coverage Ratio.

   $$\text{Debt-Equity Ratio} = \frac{\text{Long-term Debt}}{\text{Shareholders' Funds}}$$ $$\text{Interest Coverage Ratio} = \frac{\text{EBIT}}{\text{Interest charges}}$$

5. Give the formulas for Inventory Turnover Ratio and Debtors (Receivables) Turnover Ratio.

   $$\text{Inventory Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}$$ $$\text{Debtors Turnover} = \frac{\text{Net Credit Sales}}{\text{Average Debtors}}$$ Average collection period $= \frac{365}{\text{Debtors Turnover}}$ days.

6. State the formulas for Gross Profit Ratio, Net Profit Ratio, and Return on Capital Employed (ROCE).

   $$\text{GP Ratio} = \frac{\text{Gross Profit}}{\text{Net Sales}} \times 100, \quad \text{NP Ratio} = \frac{\text{Net Profit}}{\text{Net Sales}} \times 100$$ $$\text{ROCE} = \frac{\text{EBIT}}{\text{Capital Employed}} \times 100$$

7. What is a Fund Flow Statement and how is 'funds' defined in it?

   A Fund Flow Statement shows the sources and applications (uses) of funds and the changes in financial position between two balance-sheet dates. 'Funds' is usually defined as working capital, i.e., $\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}$.

8. How is 'Funds from Operations' computed in a fund flow statement?

   Start with net profit and add back non-fund/non-operating items (depreciation, amortisation, goodwill written off, loss on sale of assets, transfers to reserves) and deduct non-operating incomes (profit on sale of assets, dividend/interest received). The adjusted figure is funds from operations.

9. Distinguish a fund flow statement from a cash flow statement.

   A fund flow statement is based on the working-capital concept of funds and shows medium/long-term changes in financial position. A cash flow statement is based on the cash (and cash equivalents) concept and classifies flows into operating, investing, and financing activities, focusing on liquidity.

10. Define Production Planning and Control (PPC) and state its main objective.

    PPC is the management function of planning, routing, scheduling, dispatching, and following up manufacturing operations so that the right product is produced in the right quantity, of the right quality, at the right time and cost. Its objective is to coordinate resources to achieve efficient, smooth, and economical production.

11. Name the principal functions/stages of production planning and control.

    Planning functions: estimating, routing, scheduling, and loading. Control functions: dispatching, follow-up/expediting, inspection, and corrective action. Routing fixes the path of operations; scheduling fixes timing; dispatching releases work orders; follow-up ensures adherence to plan.

12. What is plant location and list key factors influencing the location decision.

    Plant location is the choice of a geographic site for establishing a facility. Key factors: proximity to raw materials and markets, availability of labour and power, transport facilities, water supply, climate, government policies/incentives, land cost, and infrastructure/community amenities.

13. Define plant layout and name its main types.

    Plant layout is the physical arrangement of machines, equipment, and facilities within a plant to ensure efficient, smooth workflow. Main types: (1) Product (line) layout, (2) Process (functional) layout, (3) Fixed-position layout, and (4) Cellular/Group (combination) layout.

14. Compare product layout and process layout.

    Product layout arranges machines in the sequence of operations for one product; suited to high-volume, standardised production with low unit cost but low flexibility. Process layout groups similar machines together; suited to job/batch production with high product variety and flexibility but higher material handling and work-in-progress.

15. Define capacity planning and distinguish design capacity from effective capacity.

    Capacity planning determines the production capacity needed to meet demand. Design capacity is the maximum theoretical output under ideal conditions. Effective capacity is the maximum output achievable given realistic constraints (maintenance, breaks, product mix). Effective capacity is always $\leq$ design capacity.

16. State the formulas for capacity utilisation and efficiency.

    $$\text{Utilisation} = \frac{\text{Actual Output}}{\text{Design Capacity}} \times 100$$ $$\text{Efficiency} = \frac{\text{Actual Output}}{\text{Effective Capacity}} \times 100$$

17. Define inventory and list the main types of inventory in materials management.

    Inventory is the stock of goods/materials held by an organisation for future use. Main types: raw materials, work-in-progress (WIP), finished goods, and stores/spares (consumables, maintenance, repair, and operating supplies—MRO).

18. State the Economic Order Quantity (EOQ) formula and define its terms.

    $$EOQ = \sqrt{\frac{2DO}{C}}$$ where $D$ = annual demand/consumption, $O$ = ordering cost per order, and $C$ = carrying (holding) cost per unit per year. EOQ minimises total of ordering plus carrying costs.

19. Give the formulas for Reorder Level, Minimum Level, and Maximum Level of stock.

    $$\text{Reorder Level} = \text{Max usage} \times \text{Max lead time}$$ $$\text{Min Level} = \text{ROL} - (\text{Avg usage} \times \text{Avg lead time})$$ $$\text{Max Level} = \text{ROL} + \text{EOQ} - (\text{Min usage} \times \text{Min lead time})$$

20. What is ABC analysis (selective inventory control) and its category criteria?

    ABC analysis classifies inventory by value of annual consumption: Category A = few high-value items (~70% value, ~10% items) needing tight control; B = moderate value (~20% value, ~20% items); C = many low-value items (~10% value, ~70% items) needing loose control. It follows the 'vital-few, trivial-many' (Pareto) principle.

21. Distinguish breakdown maintenance, preventive maintenance, and predictive maintenance.

    Breakdown maintenance repairs equipment only after failure (reactive). Preventive maintenance is scheduled servicing/inspection done at planned intervals to prevent failures. Predictive maintenance uses condition-monitoring (vibration, temperature) to forecast and act just before failure occurs.

22. In project management, differentiate PERT from CPM.

    PERT (Programme Evaluation and Review Technique) is probabilistic/event-oriented, used for research and new projects with uncertain times, using three time estimates. CPM (Critical Path Method) is deterministic/activity-oriented, used for repetitive projects with known times, and emphasises cost-time trade-offs (crashing).

23. In PERT, how is the expected time of an activity and its variance computed from three estimates?

    $$t_e = \frac{t_o + 4t_m + t_p}{6}, \qquad \sigma^2 = \left(\frac{t_p - t_o}{6}\right)^{2}$$ where $t_o$ = optimistic, $t_m$ = most likely, and $t_p$ = pessimistic time.

24. Define the critical path, total float, and free float in network analysis.

    The critical path is the longest path through the network, determining the minimum project duration; its activities have zero float. Total float $= LS - ES = LF - EF$ (slack without delaying the project). Free float is the delay possible without affecting the earliest start of the following activity.

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