CIMA P2 > Chapter 1 - ABC +ABM > Flashcards

Chapter 1 - ABC +ABM Flashcards

(39 cards)

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1
Q

What are support activities?

A
  • Material handling
  • Material procurement
  • Set ups
  • Production scheduling
  • First item inspection activities
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2
Q

What is the 3 step philosophy to ABC developed by Cooper and Kaplan?

A
  • Support activities cause cost
  • Products consume these activities
  • Cost charged on basis of consumption of activities
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3
Q

What is the ABC method?

A
  • Overheads allocated to activities
  • Identify cost drivers
  • Calc cost driver rate
  • Charge overheads to products
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4
Q

What is the ABC hierachy?

A
  • Unit level activities
  • Batch related activities
  • Product sustaining activities
  • Facility sustaining activities
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5
Q

What are unit level activities?

A
  • Performed each time a unit is produced
  • Consumed in direct proportion to the number of units
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6
Q

What are the expense categories for unit level activities?

A
  • Direct labour
  • Direct materials
  • Energy costs
  • Machine maintenance
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7
Q

What are batch related activities?

A
  • Performed each time a batch is produced
  • Fixed for all units within batch
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8
Q

What are product sustaining activities?

A
  • Performed to support different products in the product line
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9
Q

What are facility sustaining activities?

A

Costs attributed to buildings and facilities

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10
Q

What are the benefits of ABC?

A
  • Better decision making
  • Assist with cost reduction
  • Can be used in non-manufacturing environments
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11
Q

What are the limitations of ABC?

A
  • High implementation and ongoing costs
  • Some arbitrary apportionments of overheads
  • More complex process
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12
Q

What areas does ABC support strategic decision making in?

A
  • Product pricing strategy
  • New product development
  • Changes to range and mix of products
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13
Q

What do advocates of using ABC for strategic decision making say the advantages are?

A
  • Greater accuracy of product costing
  • Increased reliability of cost info
  • Gives indication of long term variable costs
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14
Q

What are the actions to take whilst implementing ABC?

A
  • Get buy in from rets of the business
  • Use ABC for pricing and product prioritisation decisions
  • ABC should be implemented by management accountants
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15
Q

What are the actions to avoid whilst implementing ABC?

A
  • Don’t get caught up in too much attention to detail and control
  • Don’t fall into trap of thinking ABC relevant for all decisions
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16
Q

What is ABM?

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A

System of management which uses ABC info for a variety of purposes

17
Q

What are some of the purposes of ABM?

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A
  • Cost reduction
  • Cost modelling
  • Customer profitability analysis
18
Q

What must managers and staff co-operate in defining?

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A
  • Cost pools
  • Cost drivers
  • KPIs
19
Q

What are the 5 basic outputs of ABM info system?

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A
  • Cost of activities and business processes
  • Cost of non value-added activities
  • Activity based performance measures
  • Accurate product/service cost
  • Cost drivers
20
Q

What are the advantages of ABM?

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A
  • Nurtures good communication and team work
  • Develops quality decision making
  • Leads to quality control and continuous improvement
21
Q

Does ABM reduce costs?

22
Q

How is ABC info used in an ABM system to assist strategic decisions?

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A
  • Whether to continue with a particular activity
  • Effect on cost structure of a change in strategy
  • How changes in activities and components affect suppliers and value chain
23
Q

What are the problems with implementing ABC according to Friedman and Lyne?

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A
  • Not suitable for a single project
  • Finance department opposed implementation
  • General ledger info too poor to provide reliable ABC
24
Q

What is direct product probability?

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A

Attribution of both purchase price and other indirect costs to each product lines, identifies net profit not gross

25
What is the calc process for DPP?
Selling price (Brought in price) (Direct product costs) (Warehouse costs) ( Transport costs) (Store costs)
26
What are the benefits of DPP?
- Better costs analysis - Better pricing decisions - Better management of store and warehouse space - Rationalisation of product ranges - Better merchandising decisions
27
What indirect costs can be included in DPP?
- Overhead cost - Volume related cost - Product batch cost - Inventory financing costs
28
What are the key variables DPP software systems require?
- Buying and selling prices - Rate of sale - Inventory holding size - Product size - Pallet config - Ordering costs - Distro routes
29
What is customer profitability?
Analysis of revenue streams and service costs associated with specific customers
30
What is a customer profitability curve?
Pareto curve that shows that 20% of customers provide 80% of the profit
31
What are direct channels?
- Sales teams - Telephone - Shops - Internet
32
What are indirect channels?
- Retailers - Wholesalers - Agents - Resellers
33
What is the OAR formula?
Budgeted overheads/budgeted level of activity
34
What is the formula for full production cost per unit?
Direct costs + overhead absorbed
35
How is over/under absorption calculated?
Overhead absorbed = OAR x actuals hrs (Actual overheads) Over/(Under)
36
Where do production equipment maintenance costs fall in the ABC hierachy?
Unit level
37
What is operational ABM?
Actions based on activity driver analysis that increase efficiency, lower costs and improve asset utilisation
38
What is strategic ABM?
Actions based on ABC analysis that aim to change the demand for activities so as to improve profitability
39
When it is NOT appropriate or viable to undertake activity based costing?
A company whose overhead costs are mostly driven by labour hours worked
CIMA P2
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