ICMA Pakistan Fundamentals of Cost & Management Accounting Flashcards

24 sample cards from the Fundamentals of Cost & Management Accounting deck

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

1. What is the repeated distribution (reciprocal) method?

   A reapportionment method used when service cost centres serve each other; their costs are repeatedly reapportioned back and forth until the amounts left are negligible, fully clearing service centres.

2. Give the general formula for an overhead absorption rate (OAR).

   OAR = Budgeted (estimated) production overheads ÷ Budgeted level of the absorption base (e.g. labour hours, machine hours, units).

3. Name common bases for absorbing overheads.

   Direct labour hours, machine hours, units produced, percentage of direct labour cost, percentage of direct material cost, and percentage of prime cost. The base should reflect what drives the overheads.

4. Why is a predetermined overhead absorption rate used?

   It is calculated in advance from budgeted figures so that product costs and prices can be set throughout the period without waiting for actual overheads to be known at period end.

5. How do you identify over- or under-absorption of overheads?

   Compare absorbed overhead (actual activity × OAR) with actual overhead incurred. Absorbed > actual = over-absorption (credited to P&L). Absorbed < actual = under-absorption (debited to P&L).

6. What two factors cause over/under-absorption of overhead?

   1) Actual overhead expenditure differing from budget. 2) Actual activity level differing from the budgeted activity used to set the OAR.

7. What is job costing and when is it used?

   A costing method where costs are collected for each separately identifiable job or order made to a customer's specification. Used when output consists of distinct, non-repetitive jobs (e.g. printing, construction).

8. How does batch costing differ from job costing?

   Batch costing collects costs for a batch of identical units produced together; the cost per unit = total batch cost ÷ number of units in the batch. Job costing treats each job as a single cost unit.

9. What is process costing and where is it applied?

   A method used for continuous mass production where output is homogeneous and passes through successive processes. The total process cost is averaged over units produced to get cost per unit.

10. What are equivalent units in process costing?

    A way of expressing partly completed (WIP) units as a number of fully completed equivalent units, so that costs can be fairly shared between finished output and closing work-in-progress.

11. What is the cost per equivalent unit formula in process costing?

    Cost per equivalent unit = (Costs incurred for the element) ÷ (Total equivalent units for that element), calculated separately for materials and conversion costs.

12. What are joint products and by-products?

    Joint products are two or more main products of significant value arising together from a common process. A by-product is incidental output of minor value arising alongside the main products.

13. What is service (operation) costing and give an example cost unit.

    Costing applied to services rather than goods, using composite cost units. Examples: cost per passenger-kilometre (transport), cost per patient-day (hospital), cost per kilowatt-hour (electricity).

14. What is a composite cost unit?

    A cost unit made up of two factors combined, used in service costing because a single measure is inadequate, e.g. tonne-kilometre, passenger-mile, patient-day.

15. Define contribution and give its formula.

    Contribution = Sales revenue − Variable costs. It is the amount each unit/period contributes first to covering fixed costs and then to profit. Per unit: Selling price − Variable cost per unit.

16. Distinguish marginal (variable) costing from absorption costing.

    Marginal costing charges only variable production cost to units and treats fixed production overhead as a period cost. Absorption costing includes fixed production overhead in unit cost (inventory).

17. Why do marginal and absorption costing profits differ, and reconcile them.

    They differ because of fixed overhead carried in inventory. Reconciliation: Absorption profit = Marginal profit + (Closing stock − Opening stock) × Fixed overhead absorption rate per unit. When stock rises, absorption profit is higher.

18. What is the contribution-to-sales (C/S) or P/V ratio and its formula?

    It measures contribution earned per rupee of sales. C/S (P/V) ratio = (Contribution ÷ Sales) × 100, or (Contribution per unit ÷ Selling price per unit) × 100.

19. State the key assumptions of cost-volume-profit (CVP) analysis.

    Selling price, variable cost per unit and total fixed costs are constant; production equals sales; a single product or constant sales mix; and costs are accurately split into fixed and variable.

20. Give the break-even point formula in units and in sales value.

    Break-even units = Fixed costs ÷ Contribution per unit. Break-even sales value = Fixed costs ÷ C/S (P/V) ratio.

21. How do you calculate the sales volume needed to earn a target profit?

    Required units = (Fixed costs + Target profit) ÷ Contribution per unit. Required sales value = (Fixed costs + Target profit) ÷ C/S ratio.

22. Define margin of safety and give its formulas.

    The amount by which actual/budgeted sales exceed the break-even point. Margin of safety = Budgeted sales − Break-even sales; as a percentage = (Budgeted sales − Break-even sales) ÷ Budgeted sales × 100.

23. What does a break-even chart show and where is the break-even point on it?

    It plots total costs and total revenue against output. The break-even point is where the total revenue line crosses the total cost line; beyond it the gap is profit, before it the gap is loss.

24. What is a profit-volume (P/V) chart?

    A graph plotting profit/loss against sales volume or value. It starts below zero (loss equal to fixed costs at nil sales), crosses the x-axis at break-even, and the slope equals the C/S ratio.

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