MANAGEMENT ACCOUNTING END TERM 2008

SECTION A

1. Earnings Per Share

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

EPS = Net Income - Dividends on Preference Share / (Equity Shares)

2.       Profitability Ratios 

·        Gross Profit Margin

·        Return on Assets

·        Return on equity

3.  Horizontal analysis :  A procedure in fundamental analysis in which an analyst compares ratios or line items in a company's financial statements over a certain period of time.

6. A budget committee is a group of  representatives of various important departments in an organization.

8. A flexible budget is a budget that adjusts or flexes for changes in the volume of activity. The flexible budget is more sophisticated and useful than a static budget, which remains at one amount regardless of the volume of activity

9. Marginal costing is also known as Variable Costing.It's a 

costing method that includes only variable manufacturing 

costs i.e direct materials, direct labour, and variable 

manufacturing overhead - in the cost of a unit of product

10. Margin of safety represents the strength of the business. It enables a business to know what is the exact amount he/ she has gained or lost and whether they are over or below the break even point

11. Cost-Volume-profit(CVP), in managerial economics is a form of cost accounting. It is a simplified model, useful for elementary instruction and for short-run decisions.

Cost-volume-profit (CVP) analysis expands the use of information provided by breakeven analysis. A critical part of CVP analysis is the point where total revenues equal total costs (both fixed and variable costs). At this breakeven point (BEP), a company will experience no income or loss. This BEP can be an initial examination that precedes more detailed CVP analysis.

Cost-volume-profit analysis employs the same basic assumptions as in breakeven analysis. The assumptions underlying CVP analysis are:

The behavior of both costs and revenues is linear throughout the relevant range of activity. (This assumption precludes the concept of volume discounts on either purchased materials or sales.) Costs can be classified accurately as either fixed or variable. Changes in activity are the only factors that affect costs. All units produced are sold (there is no ending finished goods inventory). When a company sells more than one type of product, the sales mix (the ratio of each product to total sales) will remain constant.

The components of Cost-Volume-Profit Analysis are:

·        Level or volume of activity

·        Unit Selling Prices

·        Variable cost per unit

·        Total fixed costs

·        Sales mix