CPA Australia SMA flashcards

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

Strategic management accounting

A branch of management accounting that incorporates external data on competitors, customers, suppliers and markets, linking internal cost information to competitive strategy rather than reporting historical cost alone.

Value chain analysis

A method that decomposes the firm into primary and support activities to identify where cost is incurred and where customer value is created, including upstream supplier and downstream customer costs.

Cost driver hierarchy

Cooper and Kaplan's four-level classification of unit-level, batch-level, product-sustaining and facility-sustaining costs, showing that only unit-level costs vary proportionally with production volume.

Activity-based costing

A costing method that assigns overhead to products via activity cost pools and cost drivers, improving accuracy where products differ in complexity and overhead is large relative to direct cost.

Target costing formula

Allowable cost equals target selling price minus required profit margin. The cost gap is current estimated cost minus allowable cost, and must be closed before production begins.

Throughput accounting ranking

Throughput equals sales revenue minus truly variable material cost. Products are ranked by throughput per unit of the bottleneck resource, not by gross margin or contribution per unit.

High-low cost estimation

Variable cost per unit equals the change in total cost divided by the change in activity between the highest and lowest activity levels. Fixed cost is then derived by substitution.

Production budget formula

Budgeted production units equal budgeted sales units plus required closing finished goods units minus opening finished goods units. The sales budget is prepared first because it drives all others.

Flexible budget variance

The difference between actual results and the flexible budget, which restates costs for actual output at standard rates. It excludes sales-volume effects, which the static-to-flexible comparison captures.

Material price variance

Standard price minus actual price, multiplied by actual quantity purchased. A positive result is favourable. Responsibility usually rests with purchasing, though quality trade-offs may shift it elsewhere.

Material usage variance

Standard quantity for actual output minus actual quantity used, multiplied by standard price. It isolates inefficient or excessive material consumption from price effects and is usually a production responsibility.

Labour efficiency variance

Standard hours for actual output minus actual hours worked, multiplied by the standard labour rate. It measures productivity against the standard allowance and is normally attributed to production management.

Zero-based budgeting

A budgeting approach that builds each period's budget from decision packages with no reference to prior spending. It suits discretionary support costs but is costly and time-consuming to administer.

Rolling budget

A continuous budget re-forecast each period by adding a new period and dropping the expired one, keeping the planning horizon constant and reducing end-of-year spending distortions.

Budget slack

Deliberate padding of budgeted revenue or cost targets by managers to make targets easier to achieve. It arises where rewards depend on budget attainment and is reduced by genuine participation.

Return on investment

Divisional profit divided by divisional invested capital. ROI encourages managers to reject projects earning above the cost of capital but below the division's current ROI, creating underinvestment.

Residual income

Divisional profit minus the required rate of return multiplied by invested capital. Unlike ROI, it accepts any project earning above the required rate, supporting goal congruence with the corporate cost of capital.

Economic value added

NOPAT minus WACC multiplied by adjusted invested capital. Accounting adjustments capitalise items such as R&D and operating leases so that the measure charges for all capital employed.

Balanced Scorecard perspectives

Financial, customer, internal business process, and learning and growth. Objectives, measures, targets and initiatives are linked by cause-and-effect logic from learning and growth up to financial outcomes.

General transfer pricing rule

Minimum transfer price equals variable cost plus the opportunity cost of transferring internally. Where spare capacity exists the opportunity cost is zero, so variable cost sets the floor.

Goal congruence

The alignment of divisional managers' self-interested decisions with overall corporate objectives. Transfer pricing disputes and ROI-driven project rejection are common sources of divergence.

Relevant cost criteria

A cost is relevant only if it is a future cost that differs between the alternatives considered. Sunk costs, committed costs and allocated common fixed costs fail at least one criterion.

Opportunity cost in decisions

The contribution forgone from the next-best use of a scarce resource. It is included in decision analysis even though it never appears in accounting records.

Special order decision rule

Accept only where incremental revenue exceeds incremental variable cost plus any incremental fixed and opportunity cost, spare capacity exists, and existing market prices will not be eroded.

Make-or-buy analysis

Compare avoidable internal cost, including avoidable fixed cost and opportunity cost of freed capacity, with the external purchase price plus incremental buying costs. Unavoidable fixed costs are irrelevant.

Limiting factor ranking

Where a scarce resource constrains output, rank products by contribution per unit of that resource and produce in rank order to maximise total contribution subject to the constraint.

Shadow price

The increase in total contribution from one additional unit of a binding constraint. It equals the marginal value of relaxing that constraint and is zero for non-binding constraints.

Expected value decision rule

The probability-weighted sum of all possible outcomes. It suits repeatable decisions but ignores risk attitude and outcome dispersion, so one-off decisions require additional qualitative assessment.

Porter generic strategies

Cost leadership, differentiation, and focus on either cost or differentiation. Firms failing to achieve one clear strategy are stuck in the middle and typically earn compressed margins.

Porter Five Forces

Industry rivalry, new entrants, substitutes, buyer power and supplier power. The combined intensity of these forces determines the structural profitability available to firms in an industry.

VRIN criteria

A resource sustains competitive advantage only if it is valuable, rare, inimitable and non-substitutable. The extended VRIO model adds organisational support as a requirement to exploit the resource.

Integrated reporting capitals

Financial, manufactured, intellectual, human, social and relationship, and natural capital. Organisational activity creates, preserves or erodes each capital over time, shaping long-term value creation.

Carbon accounting scopes

Scope 1 covers direct emissions from owned sources, Scope 2 covers purchased energy, and Scope 3 covers value chain emissions including suppliers and product use. All three inform cost and risk decisions.