ACCA PM cheat sheet

Activity-based costing assigns overhead to products via cost pools and cost drivers; a cost driver is any factor causing a change in the cost of an activity.

Target costing: target cost = competitive selling price − required profit margin; the cost gap is closed by value engineering and design improvement, not by post-design cost cutting.

Life-cycle costing accumulates all costs from design through abandonment; the majority of committed costs are locked in at the design stage.

Throughput accounting: throughput = sales revenue − material cost; throughput accounting ratio (TPAR) = throughput per bottleneck hour ÷ total factory cost per bottleneck hour.

TPAR below 1.0 indicates the product does not cover its factory costs per bottleneck hour; ranking by TPAR per bottleneck unit maximises profit.

Total quality management treats prevention and appraisal costs as conformance costs, and internal plus external failure costs as non-conformance costs.

Environmental management accounting separates environment-related costs hidden in general overheads; an environmental cost driver is a measure of the environmental impact of an activity.

Value analysis distinguishes value-added from non-value-added activities; a non-value-added activity adds cost or time without increasing customer-perceived worth.

Relevant costs are future, incremental cash flows; sunk costs, committed costs and apportioned fixed overheads are excluded from the decision.

Opportunity cost is the contribution forgone from the next best alternative use of a scarce resource and is included as a relevant cost.

Break-even units = fixed costs ÷ contribution per unit; margin of safety = (budgeted sales − break-even sales) ÷ budgeted sales.

CVP with target profit: required units = (fixed costs + target profit) ÷ contribution per unit; target revenue = required units × selling price.

When a resource is scarce, rank products by contribution per unit of the limiting factor, then allocate the scarce resource in that ranking order.

Make-or-buy: buy if the external purchase price is below the relevant internal cost of making, including avoidable fixed costs and opportunity cost of freed capacity.

Expected value = sum of (probability × outcome); it is a long-run average and ignores the decision-maker's risk attitude and the spread of outcomes.

A decision tree values a decision by rolling back expected values from outcome nodes to decision nodes, choosing the branch with the highest expected value.

Pricing: price elasticity of demand = % change in quantity demanded ÷ % change in price; demand is elastic when the absolute value exceeds 1.

Time series: trend = centred moving average; seasonal variation = actual − trend; additive model forecasts trend + seasonal variation.

High-low method: variable cost per unit = (highest cost − lowest cost) ÷ (highest activity − lowest activity); fixed cost = total cost − variable cost per unit × activity.

Learning curve: y = ax^b where y is the cumulative average time per unit for x units, a is time for the first unit, b = log(learning rate) ÷ log 2.

Flexible budget is flexed to actual activity; comparing flexed budget with actual gives operational variances, while comparing fixed and flexed budget gives planning variances.

Material price variance = (standard price − actual price) × actual quantity purchased; material usage variance = (standard quantity for actual output − actual quantity) × standard price.

Labour rate variance = (standard rate − actual rate) × actual hours paid; labour efficiency variance = (standard hours for actual output − actual hours worked) × standard rate.

Fixed overhead capacity and efficiency variances explain the volume variance; the expenditure variance compares budgeted and actual fixed overhead.

Zero-based budgeting builds each budget from a zero base and requires justification of all expenditure; incremental budgeting rolls forward prior-year figures with adjustments.

Planning and operational variance analysis separates variances caused by faulty standards from those caused by operational performance.

Return on investment = controllable profit ÷ controllable investment; residual income = controllable profit − notional interest on controllable investment.

ROI can encourage managers to reject projects profitable in absolute terms if they dilute the division's existing ROI; residual income avoids this problem.

The balanced scorecard uses four perspectives: financial, customer, internal business process, and learning and growth.

The performance prism has five facets: stakeholder satisfaction, strategies, processes, capabilities, and stakeholder contribution.

Fitzgerald and Moon's building block model uses dimensions (financial and non-financial), standards (ownership and achievability) and rewards.

Value for money in the public sector is assessed by the three Es: economy (input cost), efficiency (output per input) and effectiveness (achievement of objectives).

Transfer price at marginal cost plus opportunity cost gives goal-congruent decisions when there is a perfect intermediate market or spare capacity exists.

A minimum transfer price = marginal cost of the supplying division + opportunity cost per unit of the transferred item.