CIMA BA2 flashcards
CIMA BA2 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Absorption costing
- Absorption costing assigns all manufacturing overheads to products using predetermined overhead absorption rates based on activity levels such as labour hours or machine hours.
- Overhead absorption rate
- The overhead absorption rate equals budgeted overhead divided by budgeted activity, and is used to absorb overhead into product costs.
- Under-absorption
- Under-absorption occurs when overhead absorbed into production is less than actual overhead incurred, so additional expense is charged to the income statement.
- Marginal cost-plus pricing
- Marginal cost-plus pricing sets price by adding a contribution markup to variable cost per unit, ignoring fixed costs allocated to the product.
- Target cost
- Target cost is the target selling price minus target profit; the cost gap is estimated current cost minus target cost.
- Markup versus margin
- Markup is a percentage of cost, while margin is a percentage of selling price; price equals cost divided by one minus margin.
- Life-cycle costing
- Life-cycle costing accumulates costs over a product's entire life, including design, development, production, marketing, distribution, and disposal, to support whole-life pricing decisions.
- Throughput accounting ratio
- Throughput accounting ratio equals return per bottleneck hour divided by cost per bottleneck hour; products with higher ratios are prioritised when a bottleneck restricts output.
- Production budget
- Production budget units equal sales budget units plus required closing inventory units minus opening inventory units, ensuring production meets sales and inventory needs.
- Cash budget
- A cash budget forecasts cash receipts and payments by timing, including capital and financing flows, rather than recognising revenue and expenses when earned or incurred.
- Rolling budget
- A rolling budget is continually updated by adding a new accounting period and removing the expired period, keeping the planning horizon constant.
- Zero-based budgeting
- Zero-based budgeting requires each activity and cost to be justified from zero each period, rather than using the previous budget as a starting point.
- Flexed budget
- A flexed budget adjusts budgeted revenue and variable costs to actual activity, enabling comparison with actual results at the same activity level.
- High-low method
- The high-low method estimates variable cost per unit from the change in cost divided by change in activity, then derives fixed cost by subtraction.
- Seasonal index
- A seasonal index measures average seasonal variation for a period; additive indices sum to zero, while multiplicative indices average one.
- Regression line
- The regression line y equals a plus bx estimates cost, where b is the variable rate and a is the fixed element; R-squared measures explained variation.
- Equivalent units
- Equivalent units express partly completed output in terms of fully completed units, using output completed plus closing work in progress multiplied by degree of completion.
- FIFO equivalent units
- Under FIFO, equivalent units include remaining work on opening work in progress, units started and completed, and closing work in progress work done this period.
- Normal loss
- Normal loss is the expected unavoidable loss in a process; it is usually valued at scrap value, and its cost is absorbed by good output.
- Abnormal gain
- Abnormal gain arises when actual loss is less than normal loss; it is valued at full cost per good unit and credited to the process account.
- Material price variance
- Material price variance equals standard price minus actual price, multiplied by actual quantity purchased or used, depending on the variance analysis convention.
- Labour efficiency variance
- Labour efficiency variance equals standard hours for actual output minus actual hours worked, multiplied by the standard labour rate per hour.
- Fixed overhead volume variance
- Fixed overhead volume variance equals standard hours for actual output minus budgeted hours, multiplied by the standard fixed overhead absorption rate.
- Activity-based costing
- Activity-based costing assigns overheads to activity cost pools and then to products using cost drivers, improving accuracy when overheads are high and products diverse.
- Relevant cost
- A relevant cost is a future incremental cash flow that differs between alternatives; sunk costs and committed costs are not relevant to short-term decisions.
- Contribution per unit
- Contribution per unit equals selling price minus variable cost per unit; total contribution equals revenue minus variable costs and covers fixed costs first.
- Break-even units
- Break-even units equal total fixed costs divided by contribution per unit; at this output level profit is zero.
- Margin of safety
- Margin of safety is budgeted or actual sales minus break-even sales, expressed in units, revenue, or as a percentage of budgeted sales.
- Limiting factor ranking
- When a scarce resource limits output, rank products by contribution per unit of the scarce resource and produce in rank order subject to demand.
- Make-or-buy decision
- Make-or-buy compares relevant variable making costs plus avoidable fixed costs and opportunity costs with the relevant external purchase price.
- Residual income
- Residual income equals divisional profit minus an imputed interest charge on divisional investment, encouraging managers to accept returns above the required rate.
- Balanced scorecard
- The balanced scorecard measures performance from financial, customer, internal business process, and learning and growth perspectives, linking operational measures to strategy.