CMA Foundation Paper 4 (FBEM) cheat sheet

Law of demand: quantity demanded rises as price falls, ceteris paribus; the demand curve slopes downward.

Price elasticity of demand (Ed) = % change in quantity demanded ÷ % change in price; |Ed| > 1 elastic, < 1 inelastic, = 1 unitary.

Income elasticity: normal goods positive, inferior goods negative; cross elasticity positive for substitutes, negative for complements.

Law of supply: supply curve slopes upward; a movement along the curve is caused by own price, a shift by non-price factors (technology, input costs, taxes).

Equilibrium price clears the market; a price ceiling set below equilibrium creates shortage, a price floor above equilibrium creates surplus.

Giffen goods are a rare exception where quantity demanded rises with price, violating the standard demand law.

Opportunity cost = value of the next best alternative forgone; it underlies the production possibility frontier and its bowed-out shape.

Utility: total utility rises then falls; marginal utility diminishes, and consumer equilibrium equates MU per rupee spent across goods (MUx/Px = MUy/Py).

In perfect competition price = marginal cost at equilibrium; a monopolist equates MR = MC and prices above marginal cost, creating deadweight loss.

Functions of management: planning, organising, staffing, directing, coordinating and controlling (POSDCORB-style sequence).

Taylor's scientific management: time and motion study, differential piece-rate wages, functional foremanship, standardisation of tools.

Fayol's 14 principles include unity of command, unity of direction, scalar chain, division of work, authority and responsibility, and esprit de corps.

Span of control: narrow span yields a tall hierarchy with more levels; wide span yields a flat structure with fewer levels.

Maslow's hierarchy (physiological, safety, social, esteem, self-actualisation) is satisfied in ascending order; lower needs dominate until met.

Herzberg's two-factor theory: hygiene factors (pay, conditions) prevent dissatisfaction; motivators (achievement, recognition) create satisfaction.

McGregor Theory X assumes workers dislike work and need control; Theory Y assumes self-motivation and seeks participative management.

Control process: set standards, measure actual performance, compare, and take corrective action; management by exception reports only significant variance.

Delegation transfers authority, not accountability; accountability for a task always remains with the delegating manager.

Accounting equation: Assets = Liabilities + Capital; every transaction keeps it balanced under double entry.

Golden rules: debit the receiver and credit the giver (personal); debit what comes in, credit what goes out (real); debit expenses/losses, credit incomes/gains (nominal).

Trial balance lists debit and credit balances; equal totals prove arithmetic accuracy only, not freedom from errors of principle or omission.

Accrual concept records revenue when earned and expense when incurred, regardless of cash movement; matching follows from it.

Depreciation is a non-cash allocation of cost: straight line = (Cost − Scrap) ÷ Useful life; WDV = fixed % on reducing book value.

Bank reconciliation: balance per cash book + credits in pass book not in cash book − debits in pass book not in cash book = pass book balance.

Capital expenditure creates or improves an asset and appears in the balance sheet; revenue expenditure is charged to profit and loss.

Suspense account absorbs the difference in a trial balance until errors are located and rectified by journal entry.

Final accounts: trading account gives gross profit, profit and loss account gives net profit, balance sheet shows position on a date.

Prime cost = direct material + direct labour + direct expenses; works cost adds factory overheads and adjusts work-in-progress.

Cost of goods sold = opening stock + purchases + direct costs − closing stock; conversion cost excludes direct material.

Fixed costs stay constant in total but fall per unit as output rises; variable costs vary in total but stay constant per unit.

Break-even units = Fixed cost ÷ Contribution per unit; contribution = selling price − variable cost per unit.

Margin of safety = Actual sales − Break-even sales; P/V ratio = Contribution ÷ Sales, and profit = P/V ratio × margin of safety.

Overheads are apportioned to cost centres then reapportioned for service departments using reciprocal or step-ladder methods before absorption.

Under-absorption = absorbed overhead < actual overhead; it is disposed of by supplementary rate or transfer to costing profit and loss.

Standard costing: material price variance = (Standard price − Actual price) × Actual quantity; usage variance uses quantity difference at standard price.

Process costing uses normal loss at scrap value, abnormal loss and abnormal gain accounts; equivalent units convert partly finished work to completed units.

Simple interest = P × R × T ÷ 100; compound amount = P(1 + r)^n; effective annual rate = (1 + r/m)^m − 1.

Annuity present value = C × [1 − (1 + r)^−n] ÷ r; perpetuity value = C ÷ r.

Arithmetic mean of grouped data = Σfx ÷ Σf; median is the (n+1)/2th value, and mode is the most frequent observation.

Standard deviation = square root of variance; coefficient of variation = (SD ÷ mean) × 100, used to compare dispersion across series.

Correlation coefficient r lies between −1 and +1; r = 0 indicates no linear relationship, not necessarily independence.

Regression line y = a + bx with b = Σ(x − x̄)(y − ȳ) ÷ Σ(x − x̄)²; the line passes through (x̄, ȳ).

Permutations nPr = n! ÷ (n − r)!; combinations nCr = n! ÷ [r!(n − r)!]; for mutually exclusive events P(A or B) = P(A) + P(B).

Index numbers: Laspeyres uses base-year quantities, Paasche uses current-year quantities; Fisher's ideal index is the geometric mean of the two.

Communication process: sender, encoding, message, channel, receiver, decoding, feedback, with noise as interference at any stage.

Formal channels follow the chain of command (downward, upward, horizontal); grapevine is informal and fast but prone to distortion.

7 Cs of effective communication: clear, concise, concrete, correct, coherent, complete, courteous.

Barriers split into semantic (jargon, ambiguity), physical (noise, distance), psychological (prejudice, distrust) and organisational (hierarchy, overload).

Memo is internal and impersonal; a business letter is external and follows a formal structure (reference, date, salutation, body, complimentary close).

Active listening requires attention, paraphrasing and feedback rather than merely hearing; upward communication is often filtered.

Computer fundamentals: CPU = ALU + control unit + registers; primary memory (RAM volatile, ROM non-volatile) versus secondary storage.

Networks: LAN covers a limited area, WAN spans wide distances; topology types include star, ring, bus and mesh.

Accounting information systems use ledgers, journals and control accounts; data security relies on access controls, backups and passwords.