Strategic Planning (Ch 2)

Question 1

What is a Static Budget?

Answer 1

Budget targeted for a specific segment of a company.

Budgeted Costs for Budgeted Output

Question 2

What is a Maser Budget?

Answer 2

Budget targeted for the company as a whole

Includes budgets for Operations and Cash Flows

Includes set of budgeted Financial Statements

Question 3

How do Fixed Costs affect budgeting?

Answer 3

Costs independent of the level activity within the relevant range

Property Tax is the same whether you produce 100-000 units or zero units

However - Fixed Costs per unit vary given the amount of activity

If you produce fewer units- fixed costs per unit will be greater than if you produce more units - i.e. less units to spread the cost over

Question 4

How do Variable Costs affect budgeting?

Answer 4

The more Direct Materials or Direct Labor used- the more Variable Costs per unit

However - Variable Costs per unit don’t change with the level of activity like Fixed Costs per unit

Question 5

How are Material Variances calculated?

Answer 5

SAM:

Standard Material Costs
- Actual Material Costs
= Material Variance

Question 6

How are Labor Variances calculated?

Answer 6

SAL

Standard Labor Costs
- Actual Labor Costs
= Labor Variance

Question 7

How are Overhead Variances calculated?

Answer 7

OAT

Overhead Applied
- Actual Overhead Cost
= Total Overhead Variance

Question 8

How does Absorption Costing compare to Variable Costing?

Answer 8

Absorption Costing - External Use- Cost of Sales- Gross Profit- SG&A

Variable Costing - Internal Use- Variable Costs- Contribution Margin- Fixed Costs

Question 9

How is Contribution Margin calculated?

Answer 9

Sales Price (per unit)
- Variable Cost (per unit)
= Contribution Margin (per unit)

Question 10

How is Break-even Point (per unit) calculated?

Answer 10

Total Fixed Costs / Contribution Margin (per unit)
= Break-even Point Per Unit

Assumption: Total Costs & Total Revenues are LINEAR

Question 11

What is the focus in a Cost Center?

Answer 11

Management is concerned only with costs

Question 12

What is the focus in a Profit Center?

Answer 12

Management is concerned with both costs and profits

Question 13

What is the focus in an Investment Center?

Answer 13

Management is concerned with costs- profits- and assets

Question 14

What is the Delphi technique?

Answer 14

Forecasting technique where Data is collected and analyzed

Requires judgement/consensus

Question 15

What is Regression Analysis?

Answer 15

A forecasting technique where Sales is the dependent variable.

Simple Regression - One independent variable

Multiple Regression - Multiple independent variables

Question 16

What are Econometric Models?

Answer 16

Forecast sales using Economic Data

Question 17

What are Naive Forecasting Models?

Answer 17

Very Simplistic

- Eyeball past trends and make an estimate

Question 18

How does a Moving Average compare to Exponential Smoothing?

Answer 18

Both project estimates using average trends from recent periods

Difference: Exponential Smoothing weighs recent data more heavily

Question 19

What are the characteristics of Short-term Cost Analysis?

Answer 19

Uses Relevant Costs Only

Ignore Sunk Costs

Opportunity Cost is a Must

Question 20

Relevance of a particular cost to decision

Answer 20

Potential Effect on the decision

Question 21

Relevant Costs to Decision Making

Answer 21

Incremental Cost
Avoidable Cost
Opportunity Cost

Question 22

Throughout Costs

Answer 22

Conversion of resources

Question 23

Margin of Safety

Answer 23

Current Sales - Breakeven Sales

Question 24

Discontinuation of Product

Answer 24

Relevant Costs

Question 25

Break Even Sales

Answer 25

Fixed Costs/(Contribution Margin Ratio)

Question 26

To maximize profit at full capacity

Answer 26

Contribution Margin per household should be maximized

Question 27

Minimal Acceptable Price

Answer 27

Incremental Costs associated with order

Question 28

Usefulness of External Benefits Reporting

Answer 28

Absorption Costing/GAAP

Question 29

CM(Contribution Margin)

Answer 29

Fixed Costs+Operating Income

Question 30

Break Even In Units

Answer 30

Fixed Costs/Contribution Margin Per Unit

Question 31

Learning Curve Analysis

Answer 31

Best Method to estimate the cost of competitive bid

Question 32

Expected Value Analysis

Answer 32

Long Term Average of repeated Trials

Question 33

Based on Judgement

Answer 33

Delphi

Question 34

Overall Budget Consisting of smaller budgets, based on specific level of Production

Answer 34

Master Budget

Question 35

Series of Budget based on different activity levels within relevant range

Answer 35

Flexible Budget

Question 36

Non Current Assets, PP&E

Answer 36

Capital Budgets

Question 37

Over Head Rate

Answer 37

Budgeted Overhead Costs/Estimated Cost Driver

Question 38

Applied Overhead

Answer 38

Std. Cost Driver for Actual level of Activity X Over Head Rate

Question 39

Financial Scorecard

Answer 39

Accurate, Timely, Understandable, and Accountability

Question 40

Balance Scorecard

Answer 40

FICA(Financial, Internal Business unit, Customer Satisfaction, Advancement of Innovation), gather information in multiple dimensions of organization’s performance

Question 41

Responsibility Accounting

Answer 41

Decision based on Managers

Question 42

Cash Budget

Answer 42

Anticipate Cash Flows so that excess cash can be invested

and to minimize the need for interim financing

Question 43

Market Share Variance

Answer 43

Actual Market Share (-) Budgeted Market Share (X) Actual Industry Units (X) Budgeted Contribution Margin

Question 44

Employee Satisfaction and Retention

Answer 44

Learning and Growth/ Balance Score Card

Question 45

SBU(Strategic Business Unit)

Answer 45

Decentralized

Question 46

Contribution Margin

Answer 46

Net of Controllable Costs, that managers can impact less than one year