AAT MATS flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Management accounting

The process of identifying, measuring, analysing and communicating financial and non-financial information to internal managers for planning, control, performance evaluation and decision making.

Cost object

Any item for which costs are separately measured, such as a product, job, department, customer or project; costs are traced or allocated to it.

Responsibility centre

A part of an organisation whose manager is accountable for specified activities and costs or revenues, classified as a cost, revenue, profit or investment centre.

Controllable cost

A cost that a manager can influence significantly through their decisions within a given period; uncontrollable costs should not be used to judge that manager's performance.

Semi-variable cost

A cost containing both a fixed element and a variable element, so total cost changes with activity but not in direct proportion; examples include utility bills with standing charges.

Absorption costing

A costing method that assigns direct costs and a share of production overhead to product costs, so inventory includes fixed production overhead.

Marginal costing

A costing method that assigns only variable production costs to products and treats fixed production overhead as a period cost charged against contribution.

Contribution

Sales revenue less variable costs; it contributes towards covering fixed costs and then generating profit, and is used in marginal costing decisions.

Overhead absorption rate

Budgeted production overhead divided by budgeted activity base, used to absorb overhead into product costs at a predetermined rate per labour hour, machine hour or unit.

Over-absorption

The amount by which overhead absorbed into production exceeds actual overhead incurred; it is a credit balance and reduces the cost of sales.

FIFO inventory valuation

A method assuming the earliest units purchased are used or sold first, so closing inventory is valued at the most recent purchase prices.

Net realisable value

Estimated selling price of inventory less the estimated costs of completion and the costs necessary to make the sale; inventory is valued at the lower of cost and NRV.

High-low method

A technique separating fixed and variable costs using the highest and lowest activity levels: variable cost per unit equals the change in total cost divided by the change in activity.

Principal budget factor

The limiting factor that restricts an organisation's activities and must be budgeted first, commonly sales demand, production capacity, skilled labour or materials.

Production budget

A budget of units to be produced, calculated as sales units plus required closing inventory units minus opening inventory units.

Cash budget

A forecast of cash receipts and cash payments by period; it includes only cash items and excludes non-cash items such as depreciation.

Flexible budget

A budget recast for the actual level of activity achieved, allowing actual results to be compared with realistic budgeted figures at that activity level.

Zero-based budgeting

A budgeting approach requiring each activity and its costs to be justified from a zero base rather than starting from the previous period's budget.

Budgetary control

The process of comparing actual performance with budgeted performance, analysing variances, identifying causes and taking corrective action.

Budget manual

A document setting out budgeting procedures, timetables, responsibilities and forms used in preparing and approving budgets.

Material price variance

The difference between standard and actual material price multiplied by actual quantity purchased or used; it measures the effect of paying more or less than standard.

Material usage variance

The difference between standard quantity for actual output and actual quantity used, multiplied by standard price; it measures excess or saving in material usage.

Labour efficiency variance

The difference between standard hours for actual output and actual hours worked, multiplied by standard labour rate; it measures labour productivity.

Fixed overhead volume variance

The difference between actual output and budgeted output multiplied by standard fixed overhead per unit; it measures the effect of producing more or less than budgeted.

Sales volume contribution variance

The difference between actual units sold and budgeted units sold, multiplied by standard contribution per unit; it measures the profit effect of selling a different volume.

Standard hours

The time allowed for actual output, calculated as actual output units multiplied by standard hours per unit; used in labour and overhead efficiency variances.

Favourable variance

A variance that increases profit compared with budget, such as actual cost being below standard cost or actual revenue being above standard revenue.

Relevant cost

A future incremental cash cost that differs between alternatives; sunk costs, committed costs and non-cash items are excluded from decision making.

Breakeven point

The level of sales at which total contribution equals fixed costs and profit is zero; breakeven units equal fixed costs divided by contribution per unit.

Margin of safety

The excess of budgeted or actual sales over breakeven sales, expressed in units, revenue or as a percentage of budgeted or actual sales.

Limiting factor ranking

Ranking products by contribution per unit of the scarce resource so that the resource is allocated to the product generating the highest contribution per limiting factor.

Sunk cost

A cost already incurred that cannot be changed by a future decision; it is irrelevant to decision making and should be excluded from relevant cost analysis.