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Flashcards in BEC 2 Budgeting Deck (23)
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Attainable standards

Currently attainable standards represent costs that result from work performed by employees with appropriate training and experience but without extraordinary effort.


Ideal standards

Costs that result from perfect efficiency and effectiveness in job performance.


Flexible budget

A flexible budget is a budget that can be adjusted to any activity level, it shows how costs vary with production volume.

Budget total costs
= (Variable cost per unit x activity level) + fixed costs

Fixed costs in total are constant over the relevant range of activity level.


Master budget

A master budget documents specific short term operating performance goals for a period of time, normally one year or less. The plan generally includes an operating (non financial) budget as well as a financial budget.


Operating budgets included in the master budget

Sales budget
Production budget
Direct materials budget
Direct labor budget
Overhead budget
Cost of goods sold budget
SG&A budget


Financial budgets included in the master budget

Cash budget
Pro forma financial statements


Direct materials price variance

Actual quantity purchased x (Actual price - Standards price)


Direct materials quantity usage variance

Standard price x (Actual quantity - Standard quantity)


Direct labor rate difference

Actual labor hours x (Actual rate - Standard rate)


Direct labor efficiency variance

Standard price x (Actual hours - Standard hours)


Manufacturing overhead variances
One way

Overhead variance = Actual OH - Applied OH


Manufacturing overhead variance
Two way

Budget variance = Actual OH - ( Budgeted FOH + (Std DLH x Std VOH rate))

Volume variance = (Budgeted FOH + (Std DLH x Std VOH rate)) - Applied OH


Manufacturing overhead variance
Three way

Spending variance = Actual OH - ( Budgeted FOH + (Actual DLH x Std VOH rate))

Efficiency variance = (Budgeted FOH + ( Actual DLH x Std VOH rate)) - (Budgeted FOH + (Std DLH x Std VOH rate))

Volume variance = (Budgeted FOH + (std DLH x Std VOH rate)) - Applied OH


Volume variance

Budgeted fixed overhead - Applied fixed overhead


(Actual production in units - Budgeted production in units) x Per unit standard fixed overhead rate


Efficiency variance

(Actual DLH - Standard DLH allowed) x Standard variable overhead rate


Market size variance

(Actual market size - Expected market size) x Budgeted market share % x Budgeted contribution margin per unit


Market share variance

(Actual market share % - Budgeted market share %) x Actual industry units x Budgeted contribution margin per unit


Sales volume variance

(Actual sold units - Budgeted sales units) x Standard contribution margin per unit


Selling price variance

((Actual SP/Unit) - (Budgeted SP/Unit)) x Actual sold units


Contribution by SBU

The difference between the contribution margin (Revenue - Variable costs) and controllable fixed costs (those costs that managers can impact in less than one year)


Balanced scorecard

The balanced scorecard displays performance relative to critical success factors identified for multiple dimensions of a business operations


Balanced scorecard dimensions

Internal business process
Customer satisfaction
Advancement of human resources innovation


Types of responsibility segments that are used to establish business performance measures

Cost SBU - managers are held responsible for controlling costs

Revenue SBU - managers responsible for generating revenues

Profit SBU - managers responsible for producing a target profit

Investment SBU - managers responsible for return on investment