Actual Management Accounting Flashcards
(25 cards)
What is a master budget?
Master budget: a comprehensive set of budgets covering all phrases of an organization’s operations for a specific period of time
What are the benefits of a master budget?
- Clear Strategic Direction”
- Coordination Across Departments
- Planning and Resource Allocation
- Performance Benchmarking
- Cash Flow Management
- Encourages Accountability
- Motivational Tool
- Early Problem Identification
Describe the advantages of budgets
Promotes strategic planning
Provides benchmarks for judging performance
Motivates staff
Promotes coordination and communication across different divisions
What is the production budget formula?
= Units produced - Ending Inv + Beginning Inv
What are the 2 human aspects of budgeting?
Participative budgeting (self-imposed budget)
Managers at all levels prepare their own budget estimates This is likely to result as a positive motivation for the managers.
Budgetary slack (padding the budget)
May result in a difference between the revenue or cost projection that a manager provides and a realistic estimate of the revenue or cost
What the four responsibility centers and what does the manager account for?
Cost center
Manager accountable for costs only
Revenue center
Manager accountable for revenues only
Profit center
Manager accountable for revenues and costs
Investment center
Manager accountable for investments, revenues and costs
What is the difference between variable and absorption costing?
Absorption costing includes all overhead manufacturing costs while variable costing counts fixed overhead costs as a period expense and does not count them.
Explain differences in operating income under absorption costing and variable costing.
Inventory Increases (produce > sell) then Absorption income is higher
Inventory Decreases (sell > produce) then Absorption income is lower
No change in inventory then Incomes are the same
Understand how absorption costing can provide undesirable incentive for managers to buildup finished goods inventory.
Overproducing units (even if sales are flat or falling).
Increasing ending inventory.
Deferring fixed costs into the future by capitalising them in inventory.
Making operating income appear higher in the current period.
What is the difference between Static and Flexible Budgets and how do you calculate static budget variance?
A static budget is what is budgeted for, a flexible budget is the actual amount. Static budget variance is actual amount - static budget amount
What is the formula for both flexible-budget variances and sales-volume variances?
FBV = Actual Result - Flexible budget amount
SVV = Actual result - Static budget amount
What are the formulas for Direct Material Price and Efficiency (Usage) Variances?
DMPV= (AP - SP) * AQpurch
DMEV = (AQ used - SQ) * SP
What are the formulas for Direct Labor Rate and Efficiency Variance?
DLRV = (AR - SR) * AQ
DLEV = (AQ - SQ) * SR
What are the formulas for Variable Overhead Spending and Efficiency Variance?
VOSV= (AC - BC) * AQ <- only variable
VOEV = (AQ - BQ) * BC <- only variable
What are the formulas for Fixed Spending, Flexible Budget and Production-Volume Variance
FOFBV = AC - FB
FOSV = AC - FB (equal to FOFBV)
FOPPV = Budgeted Fixed Overhead - Fixed Overhead allocated using input allowed for actual output units produced
What is the five-step decision making process to make decisions?
- Gather Information
- Make Predications
- Choose an alternative
- Implement the Decision
- Evaluate Performance
What is the difference between relevant costs and revenues vs irrelevant?
Relevant costs and decisions must
1. occur in the future
2. Differ among alternative courses of action
What are the two potential problems in relevant cost analysis?
- Incorrect general assumptions: all variable costs are relevant and all fixed costs are irrelevant
- Misleading Unit-Cost Data: Include irrelevant costs, use same unit costs at different output levels
how do you choose which products to produce when there are capacity constraints
Choose the product that produces the highest contribution margin per unit of the constraining resource (not the highest contribution margin per unit of the product).
What are the three major influences on pricing decisions and how do they interact?
Cost affects market forces through competitors, market forces affect cost through customers, both affect price.
What is the difference between between short-run and long-run pricing decisions?
Short Run (less then a year):
Decisions such as:
Pricing a one-time-only special order with no long-run implications
Adjusting product mix and output volume in a competitive market.
Long Run (a year or longer):
Long-run pricing is a strategic decision designed to build long-run relationships with customers based on stable and predictable prices.
What are the two long-run pricing methods
Market-Based: Looks at customers and competitors first, then cost
Cost-Based: Cost, then customers and competitors
What does a flexible budget refer to, and what is the formula to calculate it?
It is a version of the budget that adjusts based on actual out put levels, allows you to compare actual results to what should have happened.
The formula is standard quantity for actual output * standard rate
When preparing an income statement, what are the steps for both variable and absorption costing?
Variable:
1.Sales revenue = Units sold × Selling price
2.Variable production costs (COGS) = Units sold × Variable manufacturing cost per unit
3.Variable selling/admin = Units sold × Variable selling/admin per unit
4.Contribution margin = Sales – All variable costs
5.Subtract all fixed costs to get Operating Income
Absorption:
1.Sales revenue = Units sold × Selling price
2.COGS per unit = Variable production cost + (Fixed manufacturing overhead ÷ units produced)
3.COGS = Units sold × COGS per unit
4.Gross margin = Sales – COGS
5.Subtract non-manufacturing costs (selling/admin)
