What is Planning and Control Cycle?
Ans : The flow of management activities through planning, directing and motivating, and controlling, and then back to planning again. Planning and control cycle are as follows :
The work of management, which is known as the planning and control cycle, can be depicted as shown.The controlling process starts with measuring actual performance and then comparing those results with planned performance.
2. Compare financial accounting with management Accounting?
Financial
1. Users are creditors / investors who are external to the company
2. Reporting is governed by GAAP
3. Focus on historical information
4. Emphasizes the whole organization
Managerial
1. Users are managers / employees who are internal in the company
2. No GAAP but information is demanded on a more timely basis.
3. Focus is a mix of historical and projected (future)
4. Emphasis on parts of the organization
3.What is the relationship between line and staff position in a organization?
Ans : Line and Staff Relationships : Line positions are directly related to achievement of the basic objectives of an organization. Example: Production supervisors in a manufacturing plant. Staff positions support and assist line positions. Example: Cost accountants in the manufacturing plant.
An organization chart also shows line and staff positions in an organization. A person in a line position is directly involved in achieving the basic objectives of the organization. A person in a staff position is indirectly involved in achieving those basic objectives. Staff positions support line positions, but they do not have direct authority over line positions.
4.What is the business value chain? Please describe.
A business process is a series of steps that are followed in order to carry out some task in a business.
R&DProduct DesignProduct DesignManufacturing MarketingDistributionCustomer Service
Fig: Business functions making up the value chain
Part I. A business process is a series of steps that are followed in order to carry out some task in a business.
Part II. A value chain consists of the major business functions that add value to a company’s products and services.
5.What is theory of Constraints?
Theory of constraints (TOC) is a management approach that emphasizes the importance of managing constraints. A constraint or bottleneck is any thing that prevents you from getting more of what you want. Study of constraints or bottlenecks, keeping their record and taking necessary steps to improve them is also known as bottleneck accounting.
The essential concept of TOC is that every organization must have at least one constraint. A constraint is any factor that limits the organization from getting more of whatever it strives for, which is usually profit.
A management approach that focuses on identifying and relaxing the constraints that limit an organization's ability to reach a higher level of goal attainment.
06. What is just –In-Time (JIT) inventory system?
Just In Time (JIT) is a production and inventory control system in which materials are purchased and units are produced only as needed to meet actual customer demand. When Companies use Just in Time (JIT) manufacturing and inventory control system, they purchase materials and produce units only as needed to meet actual customers demand. In just in time manufacturing system inventories are reduced to the minimum and in some cases are zero.
Just-in-time (JIT) is an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs. To meet JIT objectives, the process relies on signals between different points in the process, which tell production when to make the next part.
7.What are the components of manufacturing cost?
Ans: Manufacturing costs are usually grouped into three main categories: direct materials, direct labor, and manufacturing overhead. These costs are incurred to make a product. The components of manufacturing cost are : a. Direct Materials b. Direct Labor c. Manufacturing Overhead
8.What do you understand by product cost and period cost?
Product costs : Product costs are costs which are necessary and integral to the finished product. They include: 1.Direct Material 2.Direct Labour 3.Factory Overhead
Period costs : Period costs are costs more directly associated with the passage of time than with the production process. Generally it is selling and administrative expenses. Examples include IT department costs, Accounting department costs, sales department costs.
9.Please explain with example? a) Variable cost, b) Fixed cost, c) Mixed cost.
Variable Cost: A variable cost varies in direct proportion to changes in the level of activity. For example, your long distance telephone bill may be based on how many minutes your talk—the total bill varies with the number of minutes used.
Fixed Cost: A fixed cost is constant within the relevant range. In other words, fixed costs do not change for changes in activity that fall within the “relevant range.” For example, your monthly basic telephone bill probably is a set amount and does not change based on the number of calls you make.
Mixed Cost: A mixed cost has both a fixed and variable element. Some costs cannot be classified as either variable or fixed. Example of mixed cost: 1.Telephone 2.Electricity 3.Gas
10.What is differential cost and revenue?
Ans: Differential costs (or incremental costs) is a difference in cost between any two alternatives. Differential costs can be either fixed or variable. A difference in revenue between two alternatives is called differential revenue.
For example, assume you have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month. In this example, the differential revenue is $500 and the differential cost is $300.
11.What is opportunity cost and sunk cost?
Opportunity Cost: Opportunity cost is the potential benefit that is given up when one alternative is selected over another. These costs are not usually entered into the accounting records of an organization, but must be explicitly considered in all decisions.
Sunk Cost: A sunk cost is a cost that has already been incurred and that cannot be changed by any decision made now or in the future.
12. What is the quality of conformance?
The term quality has many meanings. Quality can mean that a product has many features not found in other products; it can mean that it is well-designed; or it can mean that it is defect-free. In this appendix, the focus is on the presence or absence of defects. Quality of conformance is the degree to which the actual product or service meets its design specifications. Anything that does not meet design specifications is a defect and is indicative of low quality of conformance. There are four broad categories of quality costs: prevention costs, appraisal costs, internal failure costs, and external failure costs.
13.Explain following terms: a) Prevention and Appraisal costs, b) Internal and External Failure costs.
Prevention And Appraisal Costs: Prevention costs are incurred to support activities whose purpose is to reduce the number of defects. Appraisal costs are incurred to identify defective products before the products are shipped to customers.
Internal And External Failure: Internal failure costs are incurred as a result of identifying defects before they are shipped to customers. External failure costs are incurred as a result of defective products being delivered to customers.
14.What is the activity base?
An activity base is a measure of what causes the incurrence of variable costs. A measure of whatever causes the incurrence of a variable cost. For example, the total cost of X-ray film in a hospital will increase as the number of X-rays taken increases. Therefore, the number of X-rays is an activity base that explains the total cost of X-ray film.
15.Discuss true variable cost and step variable costs?
True Variable Cost: Direct materials are a true or proportionately variable cost because the amount used during a period will vary in direct proportion to the level of production activity.
Step Variable Costs: A resource that is obtainable only in large chunks and whose costs increase or decrease only in response to fairly wide changes in activity is known as a step-variable cost.
16. What is fixed cost? What are types of fixed cost?
Ans: FIXED COST: A fixed cost is a cost whose total dollar amount remains constant as the activity level changes. Your monthly basic telephone bill is probably fixed and does not change when you make more local calls. Types of Fid Costs :Committed :Long-term, cannot be significantly reduced in the short term. Examples-Depreciation on Equipment and Real Estate Taxes. Discretionary: May be altered in the short-term by current managerial decisions. Examples-Advertising and Research and Development.
17. What is mixed cost? Briefly explain the equation method and high low method of mixed cost?
18.What is contribution margin? Give an example?
Ans: CONTRIBUTIN MARGIN: Contribution margin is the amount remaining from sales revenue after variable expenses have been deducted.
19. What is Cost – Volume-Profit?
Cost-volume-profit (CVP) is one of the most powerful tools that managers have at their command. It helps them understand the relationships among cost, volume, and profit by focusing on interactions among the following five elements: 1. Prices of products. 2.Volum or level of activity. 3. Per unit variable costs. 4. Total fixed costs. 5. Mix of products sold.
20.What is break-even point? Explain with an example?
In economics & business, specifically cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". A profit or a loss has not been made, although opportunity costs have been paid, and capital has received the risk-adjusted, expected return.
For example, if a business sells less than 200 tables each month, it will make a loss, if it sells more, it will be a profit. With this information, the business managers will then need to see if they expect to be able to make and sell 200 tables per month.
If they think they cannot sell that much, to ensure viability they could: 1) Try to reduce the fixed costs 2) Try to reduce variable costs (the price it pays for the tables by finding a new supplier) 3) Increase the selling price of their tables.
Any of these would reduce the break even point. In other words, the business would not need to make so many tables to make sure it could pay its fixed costs
21.Draw the CVP graph?
2.What is the CVP equation method ?
Ans : Sales = Variable expenses + Fixed expenses + Profits
$500Q = $300Q + $80,000 + $100,000 $200Q = $180,000 Q = 900 bikes
Instead of setting profit to zero like we do in a break-even analysis, we set the profit level to $100,000. Solving for Q, we see that the company will have to sell 900 bikes to achieve the desired profit level.
23.What is the margin of Safety?
The margin of safety is the excess of budgeted (or actual) sales over the break-even volume of sales.
Margin of safety = Total sales - Break-even sales
The margin of safety helps management assess how far above or below the break-even point the company is currently operating.
24.What is operating leverage?
A measure of how sensitive net operating income is to percentage changes in sales.
Degree of operating leverage = Contribution margin / Net operating income
computed by dividing contribution margin by net operating income.
Ans : The flow of management activities through planning, directing and motivating, and controlling, and then back to planning again. Planning and control cycle are as follows :
The work of management, which is known as the planning and control cycle, can be depicted as shown.The controlling process starts with measuring actual performance and then comparing those results with planned performance.
2. Compare financial accounting with management Accounting?
Financial
1. Users are creditors / investors who are external to the company
2. Reporting is governed by GAAP
3. Focus on historical information
4. Emphasizes the whole organization
Managerial
1. Users are managers / employees who are internal in the company
2. No GAAP but information is demanded on a more timely basis.
3. Focus is a mix of historical and projected (future)
4. Emphasis on parts of the organization
3.What is the relationship between line and staff position in a organization?
Ans : Line and Staff Relationships : Line positions are directly related to achievement of the basic objectives of an organization. Example: Production supervisors in a manufacturing plant. Staff positions support and assist line positions. Example: Cost accountants in the manufacturing plant.
An organization chart also shows line and staff positions in an organization. A person in a line position is directly involved in achieving the basic objectives of the organization. A person in a staff position is indirectly involved in achieving those basic objectives. Staff positions support line positions, but they do not have direct authority over line positions.
4.What is the business value chain? Please describe.
A business process is a series of steps that are followed in order to carry out some task in a business.
R&DProduct DesignProduct DesignManufacturing MarketingDistributionCustomer Service
Fig: Business functions making up the value chain
Part I. A business process is a series of steps that are followed in order to carry out some task in a business.
Part II. A value chain consists of the major business functions that add value to a company’s products and services.
5.What is theory of Constraints?
Theory of constraints (TOC) is a management approach that emphasizes the importance of managing constraints. A constraint or bottleneck is any thing that prevents you from getting more of what you want. Study of constraints or bottlenecks, keeping their record and taking necessary steps to improve them is also known as bottleneck accounting.
The essential concept of TOC is that every organization must have at least one constraint. A constraint is any factor that limits the organization from getting more of whatever it strives for, which is usually profit.
A management approach that focuses on identifying and relaxing the constraints that limit an organization's ability to reach a higher level of goal attainment.
06. What is just –In-Time (JIT) inventory system?
Just In Time (JIT) is a production and inventory control system in which materials are purchased and units are produced only as needed to meet actual customer demand. When Companies use Just in Time (JIT) manufacturing and inventory control system, they purchase materials and produce units only as needed to meet actual customers demand. In just in time manufacturing system inventories are reduced to the minimum and in some cases are zero.
Just-in-time (JIT) is an inventory strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs. To meet JIT objectives, the process relies on signals between different points in the process, which tell production when to make the next part.
7.What are the components of manufacturing cost?
Ans: Manufacturing costs are usually grouped into three main categories: direct materials, direct labor, and manufacturing overhead. These costs are incurred to make a product. The components of manufacturing cost are : a. Direct Materials b. Direct Labor c. Manufacturing Overhead
8.What do you understand by product cost and period cost?
Product costs : Product costs are costs which are necessary and integral to the finished product. They include: 1.Direct Material 2.Direct Labour 3.Factory Overhead
Period costs : Period costs are costs more directly associated with the passage of time than with the production process. Generally it is selling and administrative expenses. Examples include IT department costs, Accounting department costs, sales department costs.
9.Please explain with example? a) Variable cost, b) Fixed cost, c) Mixed cost.
Variable Cost: A variable cost varies in direct proportion to changes in the level of activity. For example, your long distance telephone bill may be based on how many minutes your talk—the total bill varies with the number of minutes used.
Fixed Cost: A fixed cost is constant within the relevant range. In other words, fixed costs do not change for changes in activity that fall within the “relevant range.” For example, your monthly basic telephone bill probably is a set amount and does not change based on the number of calls you make.
Mixed Cost: A mixed cost has both a fixed and variable element. Some costs cannot be classified as either variable or fixed. Example of mixed cost: 1.Telephone 2.Electricity 3.Gas
10.What is differential cost and revenue?
Ans: Differential costs (or incremental costs) is a difference in cost between any two alternatives. Differential costs can be either fixed or variable. A difference in revenue between two alternatives is called differential revenue.
For example, assume you have a job paying $1,500 per month in your hometown. You have a job offer in a neighboring city that pays $2,000 per month. The commuting cost to the city is $300 per month. In this example, the differential revenue is $500 and the differential cost is $300.
11.What is opportunity cost and sunk cost?
Opportunity Cost: Opportunity cost is the potential benefit that is given up when one alternative is selected over another. These costs are not usually entered into the accounting records of an organization, but must be explicitly considered in all decisions.
Sunk Cost: A sunk cost is a cost that has already been incurred and that cannot be changed by any decision made now or in the future.
12. What is the quality of conformance?
The term quality has many meanings. Quality can mean that a product has many features not found in other products; it can mean that it is well-designed; or it can mean that it is defect-free. In this appendix, the focus is on the presence or absence of defects. Quality of conformance is the degree to which the actual product or service meets its design specifications. Anything that does not meet design specifications is a defect and is indicative of low quality of conformance. There are four broad categories of quality costs: prevention costs, appraisal costs, internal failure costs, and external failure costs.
13.Explain following terms: a) Prevention and Appraisal costs, b) Internal and External Failure costs.
Prevention And Appraisal Costs: Prevention costs are incurred to support activities whose purpose is to reduce the number of defects. Appraisal costs are incurred to identify defective products before the products are shipped to customers.
Internal And External Failure: Internal failure costs are incurred as a result of identifying defects before they are shipped to customers. External failure costs are incurred as a result of defective products being delivered to customers.
14.What is the activity base?
An activity base is a measure of what causes the incurrence of variable costs. A measure of whatever causes the incurrence of a variable cost. For example, the total cost of X-ray film in a hospital will increase as the number of X-rays taken increases. Therefore, the number of X-rays is an activity base that explains the total cost of X-ray film.
15.Discuss true variable cost and step variable costs?
True Variable Cost: Direct materials are a true or proportionately variable cost because the amount used during a period will vary in direct proportion to the level of production activity.
Step Variable Costs: A resource that is obtainable only in large chunks and whose costs increase or decrease only in response to fairly wide changes in activity is known as a step-variable cost.
16. What is fixed cost? What are types of fixed cost?
Ans: FIXED COST: A fixed cost is a cost whose total dollar amount remains constant as the activity level changes. Your monthly basic telephone bill is probably fixed and does not change when you make more local calls. Types of Fid Costs :Committed :Long-term, cannot be significantly reduced in the short term. Examples-Depreciation on Equipment and Real Estate Taxes. Discretionary: May be altered in the short-term by current managerial decisions. Examples-Advertising and Research and Development.
17. What is mixed cost? Briefly explain the equation method and high low method of mixed cost?
18.What is contribution margin? Give an example?
Ans: CONTRIBUTIN MARGIN: Contribution margin is the amount remaining from sales revenue after variable expenses have been deducted.
19. What is Cost – Volume-Profit?
Cost-volume-profit (CVP) is one of the most powerful tools that managers have at their command. It helps them understand the relationships among cost, volume, and profit by focusing on interactions among the following five elements: 1. Prices of products. 2.Volum or level of activity. 3. Per unit variable costs. 4. Total fixed costs. 5. Mix of products sold.
20.What is break-even point? Explain with an example?
In economics & business, specifically cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". A profit or a loss has not been made, although opportunity costs have been paid, and capital has received the risk-adjusted, expected return.
For example, if a business sells less than 200 tables each month, it will make a loss, if it sells more, it will be a profit. With this information, the business managers will then need to see if they expect to be able to make and sell 200 tables per month.
If they think they cannot sell that much, to ensure viability they could: 1) Try to reduce the fixed costs 2) Try to reduce variable costs (the price it pays for the tables by finding a new supplier) 3) Increase the selling price of their tables.
Any of these would reduce the break even point. In other words, the business would not need to make so many tables to make sure it could pay its fixed costs
21.Draw the CVP graph?
2.What is the CVP equation method ?
Ans : Sales = Variable expenses + Fixed expenses + Profits
$500Q = $300Q + $80,000 + $100,000 $200Q = $180,000 Q = 900 bikes
Instead of setting profit to zero like we do in a break-even analysis, we set the profit level to $100,000. Solving for Q, we see that the company will have to sell 900 bikes to achieve the desired profit level.
23.What is the margin of Safety?
The margin of safety is the excess of budgeted (or actual) sales over the break-even volume of sales.
Margin of safety = Total sales - Break-even sales
The margin of safety helps management assess how far above or below the break-even point the company is currently operating.
24.What is operating leverage?
A measure of how sensitive net operating income is to percentage changes in sales.
Degree of operating leverage = Contribution margin / Net operating income
computed by dividing contribution margin by net operating income.
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