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UGA ACCT 2102 - Final Exam Study Guide
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ACCT 2102 1st EditionFinal Study Guide Lectures: 28 - 35 Here is the outline of the test: Chapter 10 2 conceptual and 5 calculationChapter 11 2 conceptual and 6 calculationChapter 13 2 conceptual and 3 calculationNo extra credit question on testBelow are conceptual and mathematical ideas, which may or may not be on the test. Farmer says nothing outside of the notes we did in class will be on the test; therefore, a book is not required unless needed for own personal reference. Again, nothing in Chapters 10, 11, or 13 that were not in the notes will be on the test. Chapter 10:Lecture 28 (November 4), Lecture 29 (November 6), Lecture 30 (November 8), and Lecture 31 (November 11)Decentralized Operations: Everyone is involved in the decision-making (similar to participative budgeting).Companies that decentralize split their operations into different operating segments• Advantages• Frees top management: focus on bigger problems• Encourages the use of expert knowledge• Improves customer relations: respond to customers quicker• Provides training: train lower level employees• Improves motivation and retention• Disadvantages• Duplicates costs• Problems achieving goal congruence: employees and company have samegoalPerformance evaluation systems should . . . • Clearly communicate expectations• Provide benchmarks for operations• Motivate segment managersWays to decentralize:- Geography- Among product lines- Customer base: ex— one target market may be individuals and another may be companies- Responsibility: what you are in charge of Performance Evaluation Systems . . . Responsibility Accounting*You can’t be more than one type—these are mutually exclusive.• Responsibility centers• Cost—only responsible for controlling cost• Compare actual costs to budgeted costs using performance reports• Ex: purchasing dept, distribution dept for magazine company• Revenue—only responsible for generating revenue• Compare actual revenue to budgeted revenue using performance reports• Profit—held responsible for generating revenue and controlling costs• Compare actual revenues, expenses, and profits to the budget using performance reports and segmented income statements• Ex: A store for a clothing company• Investment—the company itself is always an investment center• Determine if assets were used efficiently to generate profit using Return on Investment and Residual IncomePerformance Reports—BVA Reports (Budget vs. Actual)Compares actual revenue and expenses against budgeted revenue and expenses to calculate a variance • Favorable variance (F)• Cost = actual < budget• Revenue = actual > budget• Unfavorable variance (U)• Cost = actual > budget• Revenue = actual < budget• Analyze using management by exception• Used to determine which variances need an explanation• Calculate materiality threshold (given on test)o Use this number to determine when variances are material and therefore large enough to investigate Favorable is not always good, and unfavorable is not always bad.If you have an occurrence that falls within an acceptable range of outcome, it is immaterial (ignore it).If you have an occurrence that happens outside an acceptable range of outcomes, it is material (needs explanation).% Variance = $VarianceBudgetShould only unfavorable variances be investigated? No, we investigate both if they are material—meaning they fall outside the threshold.Could a fixed cost, such as depreciation, have a variance? Yes. FC not changing in total is only from a planning perceptive, not actual. Example: Sold a piece of equipment you didn’t expect tosell.Static Budget: a budget prepared for a single level of activity. (Also called Master Budget)Managers can gain better insight when evaluating performance by using a Flexible Budget: a budget prepared for a different level of volume than what was originally anticipated. o The budget that managers would have prepared if they could have anticipated the exact sales volume for the period.- Master budget varianceo Difference between the master budget and actual results- Flexible budget varianceo Difference between flexible budget and actual resultso Price/rate varianceo Quantity/Efficiency variance- Volume varianceo Difference between master budget and flexible budgeto It is the difference that exists because you sold more or less than expected.Interpreting a Flexible Budget Performance Report• Flexible Budget SR and Variable Expenses in a table: o (Master Budget SR/Master Budget Output) x Actual Outputo (Master Budget Variable Expenses/Master Budget Output) x Actual Ouputo Flexible Budget FC remains the same.• Master Budget Output gives you the number of units of output the company anticipated selling• Flexible Budget Output is what we sold. The flexible budget is populated for your actual activity level.• Determine the budgeted unit Sales Price and budgeted unit Variable Cost.o SP = Master Budget SR/Master Budget Outputo VC = Master Budget Variable Expenses/Master Budget Output• Why are the Fixed Expenses the same in the Flexible Budget and Master Budget columns? FC in total do not change between budgets from a planning perspective.Cost: contains performance report (Variance = Budget – Actual)Revenue: rarely seeProfit: responsible for revenues and expenses (costs)Investment: responsible for investing assetsFlexible budget variance = flexible – actualMaster budget variance = master – actualVolume Variance = flexible – masterVolume variance “output = 1”  sold one more than expectedVolume variance for FC will always be 0.Profit Centers . . . Segmented Income StatementJudge a segment based on segment margin.Sales Revenue<Variable Costs>CM<Traceable FC>Segment MarginTraceable/avoidable/direct FC: directly traces back to part of company you’re talking about• Does not include common FC- Recall CM% and VC%o CM% = CM*SRJudge segment on traceable fixed cost.Judge manager by controllable fixed cost.**On test: Find operating income.Total Segment Margin(125,000 – 10,000) = 115,000<Total Common FC> <150,000>Operating income <35,000>**Know how to interpret the numbers!!• Return on Investment (ROI) measures the amount of income an investment center earnsrelative to the size of its assets• Used to determine how to investment excess funds• Used to compare a division’s performance across periodsROI =


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UGA ACCT 2102 - Final Exam Study Guide

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