Management Accounting: Budgeting & Evaluation Flashcards
6 cards from real AAT L4 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Management Accounting: Budgeting & Evaluation flashcards as text
Economic Value Added (EVA) is calculated as:
Answer: Net operating profit after tax (NOPAT) minus a charge for capital employed (WACC × capital employed)
EVA = NOPAT − (WACC × Capital Employed). It measures value created above the required return on all capital used; a positive EVA means the business is genuinely creating shareholder value.
The balanced scorecard links financial and non-financial performance measures across four perspectives. Which perspective asks 'How do customers see us?'
Answer: Customer perspective
The customer perspective of the balanced scorecard focuses on how the entity is perceived by its customers — measures include customer satisfaction, retention, market share, and on-time delivery.
Residual income (RI) encourages divisional managers to accept projects that:
Answer: Earn a return above the minimum required return (cost of capital)
RI = Profit − (Required return × Capital employed). Projects that earn above the required return increase RI, so RI incentivises managers to accept all positive-NPV projects — avoiding the underinvestment problem with ROI.
Sensitivity analysis in capital budgeting assesses:
Answer: How much a key variable (e.g., sales volume, price, cost) can change before the NPV becomes negative
Sensitivity analysis identifies the critical variables in a project appraisal by calculating how much each variable (e.g., initial investment, sales volume, price) can change before the investment decision changes (NPV = 0).
Which of the following is a non-financial key performance indicator (KPI)?
Answer: Employee staff turnover rate
Employee staff turnover rate is a non-financial indicator measuring operational and people management performance. Financial KPIs (profit margin, ROCE, EPS) measure financial outcomes but do not capture all drivers of future performance.
In zero-based budgeting (ZBB), managers must justify:
Answer: Every item of expenditure from scratch, as if the budget were being prepared for the first time
ZBB requires all expenditure to be justified from a zero base each period; managers must demonstrate the need for each item of spending rather than automatically receiving last year's allocation plus an increment.