Management Information Flashcards

Which costing system assigns costs to products based on the activities that drive those costs?

Answer: Activity-based costing (ABC)

ABC identifies cost drivers for each activity and assigns overhead costs to products based on their consumption of those activities, giving more accurate product costs than traditional volume-based absorption.

Marginal costing values closing inventory at:

Answer: Variable cost per unit only

Under marginal costing, only variable costs are included in inventory valuation; fixed overheads are treated as period costs and written off to profit or loss in the period incurred.

A favourable direct material usage variance means:

Answer: Less material was used than the standard amount for actual output

Direct material usage variance = (standard quantity for actual output − actual quantity used) × standard price. A favourable variance means actual usage was less than standard, saving material.

In breakeven analysis, the contribution to sales (C/S) ratio represents:

Answer: The percentage of each pound of sales available to cover fixed costs and profit

The C/S ratio (contribution margin ratio) = contribution / sales revenue. It shows what proportion of every pound of sales contributes towards fixed costs and then profit.

Which budgeting approach starts from a zero base each period, requiring all expenditure to be justified?

Answer: Zero-based budgeting (ZBB)

ZBB requires managers to justify every item of expenditure from scratch each period, eliminating the assumption that previous spending levels were appropriate, which helps identify waste.

The purpose of a flexible budget is to:

Answer: Compare actual costs with budgeted costs at the actual level of activity

A flexible budget adjusts the original budget to reflect actual activity levels, allowing meaningful comparison between actual results and what costs should have been at that level of output.