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ACCT 2102: TEST 3
Activity Variance
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Planned Budget- Flex budget
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Flexible Budget
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Actual Activity* Standard Price
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Planning Budget
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Created at the Beginning of the budgeted period and only vailed for the planned level of activity
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Revenue Variance
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Flex budget- Actual Budget
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Spending Variance
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Diff btwn how much a cost should have been, given the actual level of activity and the actual amount of the cost.
Flex budget- Actual Budget
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Ideal Standards
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Standards that assume peak efficiency at all times
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Labor Efficiency Variance
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(actual hours-Standard hours)* standard hour labor rate
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Labor Rate Variance
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(Actual hour rate-Standard rate)* Actual hours worked
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Management by exception
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A man system in which standards are set for various activities, with actual results compared to these standards. Sig. deviations from standards are flagged as exceptions
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Materials price Variance
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(Actual unit priced paid - standard price paid)*Quantity purchased
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Materials quantity variance
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(Actual quant of mat - standard quant allowed for output) ** by standard price per unit of materials
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Practical Standards
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Standards that allow for normal machine downtime and other work interruptions and that can be attained through reasonable, through highly efficient, efforts by the average worker
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Price Variance
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(ACTUAL price and - STANDARD price) * actual quant of input
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Quantity Variance
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(actual quant of input used - Standard quant) * result by the standard price of input
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Standard Cost Card
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Detailed listing of the standard amounts of inputs and their costs that are req to produce a unit of a specific product
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Standard cost per unit
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Standard quant allowed of an input per unit of a specific products, * standard price of the input
(SQ*SP)
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Standard hours allowed
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Time that should have been taken to complete the period's output. It is computed by multiplying the actual # of units produced by standard hours per untiunit
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Standard hours per unit
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Amount of DL time that should be req to complete a single unit of product, including allowances for breaks, machine downtime, cleanup, rejects and other normal inefficiencies
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Standard price per unit
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Price that should be paid for an input. The price should be net of discounts and should include any shipping costs
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Standard quantity allowed
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Amount of an input that should have been used to complete the period's actual output. It is computed by * the actual # of units produced by the standard quantity quant per unit
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Standard quant per unit
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Amount of an input that should be req to complete a single unit of product, including allowances for normal waste, spoilage, rejects and other normal inefficiencies
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Standard rate per hour
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Labor rate that should be incurred per hour of labor time, including employment taxes and fringe benefits
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Variable overhead efficiency variance
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The diff btwn actual level of activity (DL hours, machine hours, or some other base) and the standard activity allowed, * the variable part of the predetermined overhead rate
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Variable overhead rate variance
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Diff btwn actual variable overhead cost incurred during a period and the standard cost that should have been incurred based on the actual activity of the period
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Balanced Scorecard
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Integrated set of performance measures that are derived from and support the or strategy
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Common fixed cost
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Fixed cost that supports more than one business seg, but is not traceable in whole or in part to any one of the business segments
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Cost Center
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A business seg whose manager has control over cost but has no control over rev or investments in operating assets
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Decentralized Org
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An organization in which decision-making authority is not confined to a few top exectutives but rather is spread throughout the org
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Economic Value Added (EVA^TM)
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Concept similar to residual income in which a variety of adjustments may be made to GAAP financial statements for performance evaluation purposes
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Investment center
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Business segment whose manager has control over cost, revenue, and investments in operating assets
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Margin |
Net op income/Sales
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Net Op Income
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Income before interest and income taxes have been dedcuted
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Operating assests
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Cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes
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Profit Center
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Business segment whose manager has control over cost and rev but has no control over investments in operating assets
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Residual Income
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Net op income that an investment center earns above the min req return on its operating assets
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Responsibility Center
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Any business segment whose manager has control over cost, rev, or investments in operating assets
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Return on Investment (ROI)
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Net operating income/average operating assets.
ALSO
Margin*turnover
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Segment
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Any Part or activity of an org about which managers seek cost, rev, or profit data
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Segment Margin
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A segment's contribution margin- traceable fixed cost
It reps the margin available after a segment has covered all of its own traceable costs
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Traceable fixed cost
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A fixed cost that is incurred because of the existence of a particular business segment and that would be elminated if the segment were eleminiated
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Turnover
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Sales/average op assets
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Deli compares monthly op results w/ a static plan budget prepared @ Beg of yr. actual sales less than budget, the restaurant would report Fav var on
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Variable food costs but not fixed supervisory salaries
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Major weakness of the static budget is that
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-It is geared only to a single level of activity
-Can't be used to asses if variable costs are under control
-forces the manager to compare actual costs at one level of activity to budgeted costs at a diff level of activity |
Est OH cost $400,000
Assump 20,000 would be pro and sold
Est 30% oh is vari remain fixed
What's total OH if flex budget 24,000 units produced & sold
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~400000*30%=120000
~120000/20= 6 per unit
~Bud fix OH=400000*70%(fixed portion)=280000
~(24000*6)+280000
=424000 |
If actual cost incurred is greater than what the cost should have been as set forth in flex budget, the var is
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Labeled as unfavorable
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If average selling price is greater than expected, the revenue variance is
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Labeled as favorable
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Which of the following statements is not correct?
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To gen a favorable overall rev and spending variance, managers must take actions to protest selling prices
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A flex budget allows managers to isolate...
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activity variances and revenue and spending variances
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One of the common errors in preparing performance reports is to...
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Implicitly assume that all costs are fixed
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One of the common errors in preparing performance reports is to...
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Implicitly assume that all costs are variable
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The "standard quantiy allowed" is computed by multiplying the
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Actual output in units by the standard input allowed
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A segment of a business responsible for both rev and expenses would be referred to as
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A profit center
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Segment margin
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Computed by deducted traceable fixed expenses from CM
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Which of the following is not considered an operating asset for purposes of calculating turnover and ROI
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An investment in another company
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Company's return on investment is computed by
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Margin*Turnover
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Assuming sales and Net income remain the same, a company's return on investment will
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Decrease if its turnover decreases
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The performance of the manager of Division A is measured by residual income. Which of the following would increase the manager's performance measure?
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A decrease in the division's average operating assets
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Balanced Scorecard includes performance measures that end to fall into the following 4 groups
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-Financial
-customer
-Internal business processes
-learning and growth |
When a balanced scorecard is used the emphasis is on...
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improvement rather than just on attaining some specific objectives
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Performance measures that are not consistent with the company's strategy should or should not be included on the balanced scorecard
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SHOULD NOT
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