Lecture 8

Question 1

To separate the effects of sales volume you need:

Answer 1

A budget that adjusts according to changes in the number of units sold

Question 2

Price variance

Answer 2

How did prices of inputs deviate from expectations

= (act. input price - Bud. input price) * actual quantity of input

Question 3

Efficiency variance

Answer 3

How much input should have been used for the actual output compared to how much was actuallly used

= (Actual quantity of input - budgeted quantity of input for actual output) * Budgeted input price

Question 4

Mix variance

Answer 4

How did the mix of sub-inputs affect the efficiency

Usually substituting a low-cost input with a low-cost input leads to a favorable variance

Question 5

Yield variance

Answer 5

How did the quantity of the total amount of input used (keeping the mix of sub-inputs constsnt) affect the efficiency

Using less total inputs than budgeted leads to a favorable variance

Question 6

Developing a flexible budget

Answer 6

Calculate budgeted inputs allower per unit (allocation base)

Calculate budgeted overhead rate

Question 7

Spending variance

Answer 7

(Actual overhead rate - budgeted overhead rate) * actual allocatino units (e.g. labor hours)

Question 8

Efficiency variance

Answer 8

(actual allocation units - Budgeted allocation units for actual output) * budgeted overhead rate

Question 9

There is no flexing of fixed overhead costs

Answer 9

There is no sales volume variance of fixed overhead costs
(budgeted fixed costs are unaffected by volume changes)

There is no efficiency variance
(A manager cannot be more or less efficient in dealing with a given amount of fixed costs)

On level 3, spending variance takes over the flexible budget variance

Question 10

Production volume variance (level 3)

Answer 10

Under absoprtion costing, fixed overhead is allocated to products during the year

Allocation rate calculated at start of the period based on

1) budgeted fixed costs
2) Budgeted volume

Question 11

sales mix variance

Answer 11

Focuses on the difference between budgeted and actual mix of products sold

Imagine composite product unit: hypothetical product according to the mix of products

Question 12

sales- quantity variance

Answer 12

Focuses on the differences between budgeted and actual goods sold for each product type in the sales mix

Question 13

Market share variance

Answer 13

Change of market share responsible for sales change (share of the pie)

Focus on difference between actual and budgeted market share

Question 14

market size variance

Answer 14

Change of market siize responsible for sales change (size of the pie)

Focuses on difference between actual and budgeted market size

Question 15

Why analyse variances

Answer 15

To learn about operations and promote organizational learning

Use the knowledge to improve or emphasize learning

E.g. improve delivery process or material quality to enhance efficiency

Learn about managers decisons and capabilities, evalueate performance and design compensation
-keep in mind: controllability, dependencies, non financial measures

Question 16

Which variances to focus on

Answer 16

Not all variances are investigated

Management by exception
-Rules of thumb: company- and case specific
e.g. investigate all variances > 5000 or 25 percent of budgeted costs

Question 17

Four types of responsibility centers

Answer 17

cost - accountable for costs only

Revenue - accountable for revenues only

Profit - Accoutable for revenues only

investment - accountable for

investments, revenue, and costs

Budgets coupled with responsibility centers provide a framework of reference for performance evaluation and feedback (based on variance analysis)

Question 18

flexible budget

Answer 18

A budget that adjusts according to changes in the number of units

Question 19

sales volume variance

Answer 19

Flexible budget amount - static budget amount

Question 20

Flexible budget variance

Answer 20

Actual result - flexible budget amount

Question 21

Static budget variance

Answer 21

Actual result - budgeted result

Question 22

Price variance

Answer 22

How do prices of inputs deviate from expectation

Question 23

Efficiency variance

Answer 23

How much input should have been used for the actual output compared to how much was actually used?

Question 24

Price variance formula

Answer 24

(actual input price - budgeted input price) * actual quantity of input

Question 25

Efficiency variance formula

Answer 25

(actual quantity of input - budgeted quantity of input for actual output) * Budgeted input price

Question 26

Flexible budget variance formula

Answer 26

Budgeted input cost adjusted for actual output - actual input costs

Question 27

Mix variance

Answer 27

How did the mix of sub-inputs affect the efficiency

Usually substituting a low-cost input with a low-cost input leads to a favorable variance

Question 28

Yield variance

Answer 28

How did the quantity of the total amount of input used (keeping the mix of sub-inputs constant) affect the efficiency?

Using less total inputs than budgeted leads to a favorable variance

Question 29

Budgeted inputs allowed per unit (allocation base) formula

Answer 29

E.g. budgeted direct labor hours / budgeted number of units

Question 30

Budgeted overhead rate

Answer 30

budgeted manufacturing overhead / budgeted Direct labor hours

Question 31

Spending variance formula (flexible budget)

Answer 31

(Actual overhead rate - budgeted overhead rate) * actual allocation units

Question 32

Efficiency variance formula (flexible budget)

Answer 32

(Actual allocation units - budgeted allocation units for actual output) * Budgeted overhead rate

Question 33

Fixed overhead variances

Answer 33

there is no flexing of fixed overhead costs

Question 34

Product volume variance

Under absorption costing, fixed overhead is allocated to products during the year

Allocation rate calculated at start of the period based on:

Answer 34

1) Budgeted fixed costs
2) Budgeted volume (if missed, costs can be over-/ under-allocated (cf. previous seasons)

Question 35

Direct labor hours (flexible budget)

Answer 35

Actual units * budgeted inputs per unit (allocation base)

Question 36

Var. manufacturing overhead formula

Answer 36

Direct labor hours (of the flexible budget) * Budgeted overhead rate