Management Accounting Techniques Flashcards

Which budgeting approach requires every line item to be justified from scratch each period, regardless of prior spending?

Answer: Zero-based budgeting

Zero-based budgeting requires managers to justify all expenditures anew each period, eliminating the assumption that prior budgets are a valid baseline.

A company produces 10,000 units and absorbs overheads at $5 per unit. Actual overheads are $48,000. What is the over/under absorption?

Answer: $2,000 over-absorbed

Absorbed overheads = 10,000 × $5 = $50,000; actual = $48,000; so overheads are over-absorbed by $2,000.

When comparing marginal and absorption costing profit, if inventory levels increase during the period:

Answer: Absorption costing reports higher profit than marginal costing

When inventory rises, absorption costing defers more fixed costs in closing inventory, resulting in a higher profit than marginal costing.

The margin of safety percentage is calculated as:

Answer: (Actual sales − Breakeven sales) ÷ Actual sales × 100

Margin of safety % = (Actual or budgeted sales − Breakeven sales) ÷ Actual or budgeted sales × 100, showing the cushion before losses begin.

In an ABC system, which of the following is a batch-level cost?

Answer: Machine set-up costs incurred each time a new batch runs

Batch-level costs, like machine set-up, are incurred once per batch regardless of the number of units in that batch.

A division has controllable profit of $200,000 and controllable investment of $1,000,000. Its controllable Return on Investment (ROI) is:

Answer: 20%

ROI = Controllable profit ÷ Controllable investment = $200,000 ÷ $1,000,000 = 20%.

Residual Income (RI) differs from ROI in that RI:

Answer: Deducts an imputed interest charge on investment from divisional profit

RI = Controllable profit − (Cost of capital × Controllable investment), providing an absolute dollar measure after charging for the cost of capital.