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ScotlandAccounting

Preparing Management Accounting Information

7 dot points across 7 inquiry questions. Click any dot point for a focused answer with worked past exam questions where available.

How do you calculate the break-even point, the margin of safety and the output needed for a target profit, and what do the cost-volume-profit assumptions imply?

Cost-volume-profit analysis, including the calculation of the break-even point in units and in sales value, the contribution to sales (C/S) ratio, the margin of safety, the output required for a target profit, and the assumptions and limitations of break-even analysis.
A focused answer to the SQA Higher Accounting break-even content, covering the break-even point in units and value, the contribution to sales ratio, the margin of safety, output for a target profit, the break-even chart, and the assumptions and limitations of the analysis.
10 min answer →

How is a cash budget prepared, why is it different from profit, and what is a flexible budget used for?

Preparation of a cash budget showing opening and closing balances, the purpose of budgeting and the difference between cash and profit, and the preparation and use of a flexible budget that is adjusted to the actual level of activity.
A focused answer to the SQA Higher Accounting budgeting content, covering the purpose of budgeting, preparing a cash budget with receipts, payments and running balances, why cash differs from profit, and preparing and using a flexible budget adjusted to actual activity.
10 min answer →

How do the payback and accounting rate of return methods appraise a long-term investment, and what are the strengths and weaknesses of each?

Capital investment appraisal using the payback period and the accounting rate of return (ARR), the interpretation of the results to choose between projects, and the advantages and limitations of each method including the treatment of the time value of money.
A focused answer to the SQA Higher Accounting investment appraisal content, covering the payback period and the accounting rate of return, how each is calculated and used to choose between projects, and the advantages and limitations of each method.
9 min answer →

How are inventory issues and closing inventory valued using FIFO and AVCO, and what effect does the method have on profit?

Valuation of inventory issues and closing inventory using the first in first out (FIFO) and weighted average cost (AVCO) methods, and the effect of the chosen method on the cost of issues, closing inventory value and reported profit.
A focused answer to the SQA Higher Accounting inventory valuation content, covering the FIFO and AVCO methods for pricing inventory issues and closing inventory, working a stores ledger, and the effect of the method on profit when prices change.
9 min answer →

How are overheads allocated, apportioned and absorbed into the cost of a job so that a selling price can be set?

The allocation and apportionment of overheads to cost centres, the calculation and use of an overhead absorption rate, and the build-up of the total cost of a job from direct materials, direct labour, direct expenses and absorbed overhead.
A focused answer to the SQA Higher Accounting job and overhead costing content, covering the allocation and apportionment of overheads, the overhead absorption rate, absorbing overhead into a job, and building up total cost to set a selling price.
10 min answer →

What is the difference between marginal and absorption costing, and how is contribution used to make short-term decisions?

The distinction between marginal and absorption costing, the calculation and use of contribution, and the application of marginal costing to short-term decisions such as accepting a special order, making or buying, and discontinuing a product.
A focused answer to the SQA Higher Accounting marginal and absorption costing content, covering fixed and variable costs, contribution, how the two costing methods treat fixed overhead, and using marginal costing for special order, make or buy and discontinuance decisions.
10 min answer →

How are material and labour cost variances calculated and interpreted, and what might cause a favourable or adverse variance?

Standard costing and the calculation of direct material and direct labour cost variances, splitting each into its price (rate) and usage (efficiency) elements, identifying whether each variance is favourable or adverse, and explaining possible causes.
A focused answer to the SQA Higher Accounting standard costing content, covering the direct material total, price and usage variances and the direct labour total, rate and efficiency variances, the favourable or adverse rule, and the likely causes of each variance.
10 min answer →