ICAEW MI flashcards
ICAEW MI · 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.
- Data versus information
- Data are raw, unprocessed facts. Information is data processed and presented so it is meaningful to a user for a specific purpose, such as planning or control.
- Characteristics of good information
- Relevance, accuracy, completeness, timeliness, cost-effectiveness, understandability, comparability and reliability. Information lacking any of these loses value for decision-making.
- Strategic information
- Long-term, aggregated, largely external information used by senior management for direction setting and planning, often ad hoc and forward-looking rather than routine.
- Operational information
- Detailed, frequent, internal information used for day-to-day control of transactions and activities, such as daily sales or stock levels, typically highly structured and repetitive.
- Relevant range
- The activity band over which the assumed cost behaviour holds. Fixed costs stay constant in total and variable cost per unit stays constant only within this range.
- High-low method
- Splits semi-variable cost: variable rate equals the change in total cost divided by the change in activity; fixed cost equals total cost minus variable rate times activity.
- Prime cost
- The sum of direct materials, direct labour and direct expenses. It excludes all production and non-production overheads, which are added later to reach total cost.
- Predetermined overhead absorption rate
- Budgeted production overhead divided by the budgeted absorption base such as labour hours or machine hours. Applied overhead equals rate times actual activity.
- Over-absorption of overhead
- Occurs when overhead absorbed into production exceeds overhead actually incurred, typically because actual activity exceeded budget or actual overhead was below budget.
- Activity-based costing
- Assigns overheads to cost pools by activity and charges products using driver consumption such as set-ups or orders, improving accuracy where product complexity varies.
- Marginal costing profit
- Profit under marginal costing values inventory at variable production cost only, treating fixed production overhead as a period cost, so profit differs from absorption costing.
- Sunk cost
- A cost already incurred and unavoidable regardless of the decision. It is excluded from relevant costing because it is not affected by the choice.
- Opportunity cost
- The contribution foregone from the next best alternative use of a scarce resource. It is a relevant cost in decision-making even though no cash payment occurs.
- Zero-based budgeting
- Builds each budget from zero by requiring justification of every activity and cost in decision packages, rather than adjusting last year's figures incrementally.
- Rolling budget
- A budget continually updated by adding a new period as the current one ends, so it always covers a fixed future horizon and responds to changing conditions.
- Flexed budget
- A budget restated for the actual activity level using standard variable cost per unit, allowing comparison with actual results at the same volume.
- Material price variance
- Standard price minus actual price, multiplied by actual quantity purchased. A positive result is favourable because material cost less than standard.
- Material usage variance
- Standard quantity for actual output minus actual quantity used, multiplied by standard price. Measures efficiency in using materials against the standard.
- Labour efficiency variance
- Standard hours for actual output minus actual hours worked, multiplied by standard rate. A positive figure is favourable, showing fewer hours than standard.
- Fixed overhead volume variance
- Actual units minus budgeted units, multiplied by standard fixed overhead per unit. It arises from producing at a different volume than budgeted.
- Learning curve
- Cumulative average time per unit falls by a constant percentage each time cumulative output doubles. Formula: y equals a times x to the power b.
- Break-even units
- Fixed costs divided by contribution per unit. Contribution per unit equals selling price minus variable cost per unit, ignoring fixed costs.
- Contribution to sales ratio
- Contribution divided by sales revenue, expressed as a percentage. Used to compute break-even revenue as fixed costs divided by the ratio.
- Margin of safety
- Budgeted or actual sales minus break-even sales, expressed in units or as a percentage of budgeted sales. Indicates the fall in sales before a loss arises.
- Payback period
- The time taken for cumulative cash inflows to recover the initial investment. It ignores cash flows after payback and the time value of money.
- Net present value
- The sum of discounted future cash flows minus the initial outlay, using the cost of capital. A positive NPV means the project adds value.
- Internal rate of return
- The discount rate at which a project's NPV is zero. Accept if it exceeds the cost of capital, but it can mislead with non-conventional cash flows.
- Return on investment
- Controllable divisional profit divided by divisional investment. It measures performance per unit invested but can discourage projects that dilute a high existing return.
- Residual income
- Controllable profit minus an imputed interest charge on the division's investment. It encourages accepting projects earning above the cost of capital.
- Balanced scorecard
- A performance framework using financial, customer, internal process, and learning and growth perspectives, linking measures to strategy rather than only lagging financial results.
- Transfer pricing
- The price charged for goods or services between divisions. Market price preserves autonomy; variable cost plus opportunity cost supports goal congruence when capacity is scarce.
- Spreadsheet integrity controls
- Input validation, locked formulas, protected cells, version control and independent review of key models, guarding against hard-coded values and undetected manual overrides.