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Index
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Index

Abnormal losses/gains, process costing, 250–1 reports, 324


Absorption costing, 54 variances, 323
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predetermination issues, 59–61 Budgetary planning:
under/over absorption issues, 59–61 cash budgets, 311
see also Overhead costs complete exercise, 315–17
Activity Based Costing (ABC), 66 co-ordination, 306
Administration costs, 11, 54 definition, 305
Allocation, overhead costs, 53, 54, 212 interrelationships, 307, 311
Architect’s certificates, 220 manuals, 307
Assessment: master budgets, 308
mock questions/solutions, 426–39, 440–50, non-operating functions, 322–3
454–66, 467–77 purposes, 303–5
multiple-choice questions, 355 rolling budgets, 322
planning, 353–4 spreadsheets, 308
preparations, 353–421 time periods, 304
questions, 357–88 Building contracts see Contract costing
tips, 354–5
Attribution concepts, 54, 212 C/S ratio see Contribution to sales (C/S) ratio
Average cost (AVCO), 38 Capacity utilization:
comparisons, 36–7 limiting factors, 98
services, 292
Bad debts, 312 Cash budgets:
Batch costing, 218–19 concepts, 311–15
Bonus schemes, 153 interpretations, 313–14
Bottom-up budgeting, 306 preparation processes, 305–8, 309
Breakeven analysis: Charts:
calculations, 87 breakeven analysis, 90–2
charts, 92 contribution breakeven charts, 92
concepts, 87 economist’s breakeven charts, 95
definition, 87 profit-volume, 92, 93
economist’s breakeven charts, 95 Codes:
limitations, 94–5 costs, 282–3
Budget centres, 324 definition, 282
Budgetary controls: Composite codes, 282–3
concepts, 323–4 Composite cost units, 5
flexible/fixed budgets, 325–32 Continuous budgets see Rolling budgets

481
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482 INDEX
FUNDAMENTALS OF MANAGEMENT ACCOUNTING
Contract costing: Equivalent units, process costing, 252–6
accounts, 220–1 Examination see Assessment
architect’s certificates, 220 Exception reporting, 324
balance sheets, 222 Expenses, costs, 10–11
concepts, 220–31, 260
depreciation, 221, 312 Feedback controls, 304
materials, 221, 224 Feedforward controls, 311
plant usage, 221 First in, first out (FIFO)
profits/losses, 220, 222, 224, 226 comparisons, 36
progress payments, 220 concepts, 34–5, 36
retention money, 220 Fixed budgets, 325, 327
work in progress, 220 Fixed costs:
worked examples, 222 breakeven analysis, 87, 95
Contribution breakeven charts, 92 concepts, 12–14
Contribution concepts, 88 contribution concepts, 88
Contribution to sales (C/S) ratio, 89 definition, 12
Controls: semi-variable costs, 15–16
concepts, 304 Flexible budgets:
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feedforward controls, 311 concepts , 325–8
Co-ordination, planning, 306 example , 325, 328, 331
Cost centres, 6 planning, 328
Cost object, 6–7 Full cost-plus pricing, 67
Cost units, 4–5
Cost-volume-profit (CVP) analysis, 87–8 Gains, abnormal, 250
see also Breakeven analysis Gross revenue, 285
Curvilinear variable costs, 15 Group incentive schemes, 156
CVP see Cost-volume-profit (CVP) analysis Guaranteed minimum wages, 155

High–low analysis method, 17


Depreciation:
Historical data, usage problems, 18
cash budgets, 311
contract costing, 220–31 Idle time, 148
plant, 221, 226 Incentive schemes, 153–7
Differential piece rate systems, 155–6 Incremental budgeting, 323
Direct costs, 8, 210 Incremental costs, 12, 66
Direct expenses, 10, 211–12 Indirect costs, 8, 10, 54, 67
Direct labour: see also Overhead costs
cost variances, 127–8 Inflation, 12, 37, 323
costs, 8, 10, 11 Intangible cost units, 5, 287
Direct materials: Interrelationships, budgetary planning, 307–8,
cost variances, 125–6 311
Economic cost, 37 Job costing, 209–18
Economic value, 37
Economies of scale, 95 Labour:
Economist’s breakeven charts, 95 accounting treatment, 171
Efficiency variance: costs, 7, 8, 127, 173
direct labour, 128 remuneration systems, 154
variable overheads, 129 standard rates, 123
Employers: standard times, 123
employment-related costs, 172 Last in, first out (LIFO)
National Insurance Contributions, 7, 172 comparisons, 36
see also Labour concepts, 35
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INDEX 483

FUNDAMENTALS OF MANAGEMENT ACCOUNTING


Ledger accounts, 184, 214 Period costs, 12
LIFO see Last in, first out (LIFO) Periodic weighted average, 38
Limiting factors: Perpetual inventory systems, 39
capacity utilisation, 288 Piecework remuneration systems, 154–5
decision-making, 98 Previous process costs, 256
see also Principal budget factors Prices:
Linear variable costs, 14 direct materials variance, 125–6
Losses: standards materials, 122, 123
abnormal losses, 250 Prime costs, 10, 59
contract costing, 226 Principal budget factors, 307
normal losses, 249 see also Limiting factors
process costing, 247–61 Process costing, 247, 258, 260
profit-volume charts, 92, 93 abnormal losses/gains, 250–2
accounts, 247–9
Margin: concepts, 247, 258, 260
concepts, 12, 88, 286 equivalent units, 252
of safety, 88–9 input/output reconciliations, 253, 254
Marginal cost pricing, 66–7 losses, 249–50
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Mark-up concepts, 12 opening work in progress, 256–8
Master budgets, 308 previous costs, 256
Materials: Production:
costs, 7 cost centres, 54, 65
requisitions, 210 costs, 8
returned notes, 210 Profit-volume (P/V) ratio, 89
standard prices, 122 see also Contribution to sales (C/S) ratio
standard usage, 123 Profit-volume charts, 92, 93
Mixed costs see Semi-variable costs Progress payments, 220
Prudence concepts, 222
National Insurance Contributions, 172
Nature classification, costs, 7 Quantification, budgetary planning, 304
Non-operating functions, budgets, 322–3
Normal losses concepts, 249 Reciprocal servicing, 64, 65
Recovery, overhead costs, 56
Objective classification, 282 Repeated distribution method, 65
Opening work in progress, costing, 256–8 Replacement costs, 37
Operational planning, 305 Reports, budgetary controls, 323
Opportunity costs, 37 Requisitions, materials, 210
Overhead costs, 53–4, 123, 128, 212 Responsibility centre, 282
absorption costing, 54 Retention money, contract costing, 220
allocation, 54 Return on investment pricing, 67
apportionment, 54–6 Return on sales pricing, 67
definition, 53 Reward strategies, 333
reciprocal servicing, 64, 65 Rolling budgets, 322
recovery, 56
repeated distribution method, 65 Scattergraph analysis, 17–18
under/over absorption issues, 59–61 Selling and distribution costs, 11
Overtime premiums, 172 Semi-variable costs, 15–16
Standard costing, 119–30, 184
P/V ratio see Profit-volume (P/V) ratio bookkeeping, 184, 185
Participative budgeting, 306 budgetary controls, 323
Pay-as-you-earn (PAYE), 172 concepts, 119–30, 145–57
Performance levels, standard costing, 121–2 definition, 119
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484 INDEX
FUNDAMENTALS OF MANAGEMENT ACCOUNTING
Standard costing, (Continued ) Variable overheads:
modern environment, 124 cost variances, 128
setting, 122–3 efficiency variance, 129
see also Variances expenditure variance, 128
Standard hours, 152–3 Variances:
Standards: analysis, 124
concepts, 122–4 budgetary control, 323, 324
definition, 120 causes, 149–50
Stepped fixed costs, 13, 19 concepts, 124, 148–9
Strategic planning, 305 idle time, 148–9
Subjective classification, 281 ledger accounts, 184
significance issues, 150, 151
Tangible cost units, 5, 288 see also Standard costing
Taxation:
PAYE, 172 Weighted average costs, 35, 38
Timesheets, 210 Work in progress:
contract costing, 220–2, 227, 230
Under/over absorption issues, 59–61 opening work in progress, 256–8
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Usage variance, direct materials, 126 process costing, 247, 258, 260

Value added, 284–5 Zero-base budgeting (ZBB), 323


Variable costs:
breakeven analysis, 87, 95
concepts, 14, 124
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