I. Direct materials quantity and price variancesII. Direct labor efficiency and rate variancesIII. Variable manufacturing overhead efficiency and rate variancesIV. Fixed overhead volume and budget variancesI. Cost, Profit, Investment CentersII. Return on investment (ROI)V. Residual IncomeVI. Delivery cycle time, throughput time, and manufacturing cycle efficiency (MCE)VII. Balanced scorecardI. Acceptability of an investment project using the net present value methodVIII. Internal Rate of ReturnIX. A Rank investment projects in order of preferenceX. Determine the payback period for an investmentXI. Compute the simple rate of return for an investmentExam # 4 Study Guide Chapters 11,12,8Chapter 11 (Standard Costs and Variances)I. Direct materials quantity and price variances - Many companies use a standard cost system. COVERED IN THE APENDIX**- Determine in advance what the standard cost should be for any product they make. Apply costs to inventory to determine costs. Instead of tracking direct hours or materials, companies just use the standards to apply the cost. How do we come up for the standard costs?- Standard Cost of Material per unit of finished good (FG)o Standard quantity (SQ) per unit of FG x Standard Price (SP) per unit of Raw Material Ex. Feet of wood per table x Cost of wood per foot- Variances1. Material Price Variance- (Actual Quantity purchases x Actual Price) – (AQ x SP)- Same as = AQ (AP - SP)2. Material Quantity Variance- (Actual Quantity Used x SP) – (Standard Quantity x SP)- Same as = SP (Actual Quantity – Standard Quantity)- Negative # = Favorable Variance / Positive # = Unfavorable VarianceII. Direct labor efficiency and rate variances- Standard Cost of Labor per unit of FGo Standard Hours (SH) of Direct Labor per FG x Standard Rate (SR) per hour- Variances1. Labor Efficiency Variance- = (AH x SR) – (SH x SR) = SR (AH – SH) - Negative # = Favorable Variance / Positive # = Unfavorable VarianceACCT 2020 1nd Edition2. Labor Rate Variance- (Actual hours x Actual Rate)- (AH x SR)- Same as = AH (AR-SR)III. Variable manufacturing overhead efficiency and rate variances - Variable Manufacturing Overhead (M.OH) per unit of FGo SH (or DLH, or MHrs) x Variable portion of the Predetermined OH Rate (POHR) Whatever the allocation base is used in the POHR, that is multiplied by the variable portion of the M.OH  POHR= Total Est. Vari M. OH + Total Est. Fixed M.OHTotal Estimated Activity in allocation base- Variances1. Variable Manufacturing Overhead Rate Variance- (AH x AR) – (AH x SR- Same as AH (AR-SR)- (AH x AR) given usually as actual variable Manufacturing overhead2. Variable MOH Efficiency Variance - = (AH (or DLH, or MHrs) x SR) – (SH (or DLH, or MHrs) x SR) - Same as SR (AH-SH)- Negative # = Favorable Variance / Positive # = Unfavorable VarianceIV. Fixed overhead volume and budget variances1. Budget Variance- Actual fixed M.OH – Budgeted Fixed M.OH- Positive = Unfavorable2. Volume Variance- Budgeted Fixed M.OH – Fixed M.OH applied to Work in Progress- Simply take the fixed component of the Fixed M.OH rate (fixed OH/hour) and multiply by (the denominator hours (MHrs / DLH / etc.) – standard hours allowed for actual output)- Positive Outcome = Unfavorable - If we actually worked less Direct Labor, than we could have worked more hours. Volume variance helps us understand if we fully utilized that fixed overhead. If you end up with denominator hours being greater than the hours should have worked, than it will be unfavorableChapter 12 (Performance Measurement in Decentralized Organizations)I. Cost, Profit, Investment Centers- Cost Centero A segment whose manager has control over cots but not over revenues or investment funds. They only have control on costs because they are not bringing in any revenue. Law team, administration etc.- Profit Centero A segment whose manager has control over both costs and revenues but not control over investment funds. An example would be the cafeteria in a corporate building, revenue from the lunches and cost associated. - Investment Center o A segment whose manger has control over costs, revenues, and investments in operating assets.This manager could be responsible for all 3 of these responsibilities. II. Return on investment (ROI)- Formulaso ROI = Net operating income Average operating assetso Margin =Net operating income x Turnover = Sales Sales Average operating assetso So, ROI = MARGIN x TURNOVER- Criticismso Managers often inherit many committed costs over which they have no controlo Managers evaluated n ROI may reject profitable investment opportunitiesV. Residual Income- Formulao RI = Net Operating Income – (Average operating assets x Min. rate of return) o If net operating income is greater than the part in parentheses, we WILL have residual income. ROI measures net operating income in percentages, while Residual income provides a dollar amount- Benefits o Residual Income is preferred over ROI sometimes, as it might encourage investment that at leastmeets their minimum required return.- Disadvantageso Residual income is just a dollar amount, while ROI is just a percentage. It’s hard to evaluate departments of different sizes. The best systems take several financial evaluations in mind whenevaluating managers. VI. Delivery cycle time, throughput time, and manufacturing cycle efficiency (MCE)- Delivery cycle time is the whole time when the goods are ordered till the goods are shipped.- Throughput Time includes process time, inspection time, move time, and queue time. o Process time is the only value-added time. Only time increasing the value for the customer, the company should try to decrease all wait times to improve efficiency.- Manufacturing cycle Efficiency = Value-Added Time (process time Manufacturing cycle time (throughput time)VII. Balanced scorecard- Management translates its strategy into performance measures that employees understand and influencedFinancial: has aboutfinancial performanceimproved?Internal business processes:have we improved key businessprocesses so that we can delivermore value to the customers?Performancemeasures:- The balances scorecard relies on non financial measures in addition to financial measures:o Financial measures are lag indicators that summarize the results of past actions. Non-financial measures are leading