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Managerial Accounting > Ch 8 - Flexible Budgets and Standard Costing > Flashcards

Ch 8 - Flexible Budgets and Standard Costing Flashcards

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1
Q

What is the preparation of a master budget based on?

A

predicted level of activity (such as sales volume)

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2
Q

define budgetary control

A

management use of budgets to monitor and control company operations

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3
Q

define budget reports

A

report comparing actual results to planned objectives; sometimes used as a progress report

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4
Q

what is the budget report comparison motivated by?

A

need to both monitor performance and control activities

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5
Q

What are the minimum four steps of budgetary control process?

A
  1. develop the budget from planned objectives
  2. compare actual results to budgeted amounts and analyze any differences
  3. take corrective and strategic actions
  4. establish new planned objectives and prepare new budget
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6
Q

In a fixed budgetary control system, what is the master budget based on?

A
  1. based on a single prediction for sales volume or other activity level
  2. budgeted amount for each cost assumes that specific/fixed amount of sales will occur
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7
Q

define fixed budget or static budget

A

based on a single predicted amount of sales or other measure of actvity

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8
Q

define fixed budget performance report

A

report that compares actual revenues and costs with fixed budgeted amounts and identifies the differences as favorable or unfavorable variances

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9
Q

define favorable variance

A

when compared to budget, the actual cost or revenue contributes to a higher income
Ie: actual revenue is higher than budgeted income, or actual cost is lower than budgeted cost

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10
Q

define unfavorable variance

A

when compared to budget, actual cost or revenue contributes to lower income,
IE: actual revenue is lower than budget revenue, actual cost is higher than budgeted cost

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11
Q

define flexible budget or variable budget

A 
budget prepared (using actual volume) once a period is complete that helps managers evaluate past performance; 
uses fixed and variable costs in determining total costs
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12
Q

are flexible budgets based off of one or multiple scenarios

A

often best & worst scenarios

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13
Q

What does the analysis of flexible budgets allow management to do?

A

to make adjustments to avoid or lessen the effects of the worst case scenario

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14
Q

how does a flexible budget yield an apples to apples comparison

A

because budgeted activity levels are same as actual levels

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15
Q

what is a flexible budget designed to do?

A

reveal effects of volume of activity on revenues and costs

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16
Q

what distinctions does management rely on when preparing flexible budgets

A

distinctions between fixed and variable costs

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17
Q

does the cost per unit of activity remain constant or changes in direct proportion to a change in activity level

A

remains constant

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18
Q

What are the two ways a variable cost is expressed in a flexible budget

A
  1. constant amount per units of sales

2. percent of a sales dollar

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19
Q

how is a fixed cost expressed in a flexible budget

A

total amount expected to occur at any sales volume w/in relevant range

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20
Q

what is a contribution margin format for flexible budget layouts?

A
  1. format beginning with sales followed by variable costs and then fixed costs
  2. both expected individual and total variable costs are reported and then subtracted from sales
  3. difference between sales and variable costs equals contribution margin
  4. expected amts of fixed costs listed next
  5. expected income from ops before taxes
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21
Q

define flexible budget performance report

A

report the compares actual revenues and costs with their variable budgeted amounts based on actual sales volume (or other level of activity) and identifies the differences as variances

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22
Q

define price variance

A

difference between actual and budgeted revenue or cost caused by difference between the actual price per unit and budgeted price per unit

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23
Q

define quantity variance

A

difference between actual and budgeted revenue or cost caused by difference between actual number of units and budgeted number of units

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24
Q

define variance analysis

A

process of examining differences between actual and budgeted revenues or costs and describing them in terms of price and quantity differences

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25
What is the main difference between fixed and flexible budgets
A fixed budget is prepared using an expected volume of sales or production. A flexible budget is prepared using the actual volume of activity.
26
How can you identify standards for direct labor costs?
1. conduct time and motion studies for each labor operation in the process of providing a product or service 2. from studies, mgmt learns best way to perform operation and set standard labor time required for operation under normal conditions
27
How are standards costs set for materials?
studying quantity, grade and cost of each material used
28
what word is generally used in business practice when speaking of total amounts
budget
29
what word is generally used in business practice when discussing per unit amounts
standard
30
define ideal standard
quantity of material/labor required if process is 100% efficient w/out any loss or waste
31
define practical standard
quantity of material required under normal application of the process
32
what factors are considered when determining standard price
1. quality of materials 2. future economic conditions 3. supply factors (shortages and excesses) 4. any available discounts 5. amount of labor time (after including allowances) required to manufacture product
33
define standard cost card
card showing standard cost of direct materials, direct labor and overhead
34
define cost variance or variance
difference between the actual incurred cost and the standard cost
35
can a cost variance be favorable or unfavorable
yes
36
when is a variance from standard cost considered favorable
if actual cost is less than standard cost
37
when is a variance from standard cost considered unfavorable
if actual cost is more than standard cost
38
what are the four steps in effective mgmt of variance analysis
1. preparing standard cost performance report 2. computing and analyzing variances 3. identifying questions and their explanations 4 taking corrective and strategic actions
39
cost variance (CV) equation in simple format
CV = actual cost (AC) - standard cost (SC) Notes: AC = Actual quantity (AQ) * Actual Price (AP) SC = Standard Quantity (SQ) * Standard Price (SP)
40
Actual Cost (AC) formula and what is it
actual quantity X actual price Note: the input (material or labor) used to manufacture the quantity of output
41
standard cost (SC) and what is it
standard quantity (SQ) x Standard price (sp) note: the expected input for the quantity of ouput
42
what is the actual price?
amount paid to acquire the input (material or labor)
43
what are price and quantity variances for direct labor usually referred to as?
rate and efficiency variances, respectively
44
what are the two main factors for a cost variance?
1. difference between actual price and standard price results in a price (or rate) variance 2. difference between actual quantity and standard quantity results in a quantity (or usage or efficiedncy) variance
45
Formula for Cost Variance or Total Variance
Price Variance (PV) + Quantity Variance (QV) ``` Note: PV = (AQ * AP) - (AQ * SP) QV = (AQ * SP) - (SQ * SP) AQ = actual quantity AP = actual price SP = standard price SQ = standard quantity ```
46
Formula for Price Variance with four factors
(AQ * AP) - (AQ * SP) ``` Note: AQ = actual quantity AP = actual price SP = standard price SQ = standard quantity ```
47
Formula for Quantity Variance with four factors
(AQ * SP) - (SQ * SP) ``` AQ = actual quantity AP = actual price SP = standard price SQ = standard quantity ```
48
When computing a price variance, what is held constant?
actual quantity
49
When computing a quantity variance, what is held constant?
standard price
50
Price variance formula with three factors
(AP - SP) * AQ ``` Note: AQ = actual quantity AP = actual price SP = standard price SQ = standard quantity ```
51
Quantity variance formula with three factors
(AQ - SQ) * SP ``` Note: AQ = actual quantity AP = actual price SP = standard price SQ = standard quantity ```
52
What is the first step to mgmt finding info about factors causing a cost variance?
first properly compute the variance
53
What can the labor cost variance be divided into?
rate (price) variance and efficiency (quantity) variance
54
Formula for actual labor cost
AH * AR Note: AH = Actual Direct Labor Hours AR = Actual Wage Rate
55
Formula for standard labor cost
SH * SR Note: SH = Standard Direct Labor Hours for Actual Output SR = Standard Wage Rate
56
How find the Actual Hours at Standard Rate to compute variance from standard cost
AH * SR Note: AH: Actual Direct Labor Hours SR: Standard Rate (wage)
57
Formula for computing rate variance in labor hours
AC - (AH * SR) ``` Note: AH = Actual Direct Labor Hours AR = Actual Wage Rate SH = Standard Direct Labor Hours for Actual Output SR = Standard Wage Rate ```
58
Formula for labor efficiency variance
(AH * SR) - Standard Cost ``` Note: Standard Cost = SH * SR AH = Actual Direct Labor Hours AR = Actual Wage Rate SH = Standard Direct Labor Hours for Actual Output SR = Standard Wage Rate ```
59
Formula for Total Direct Labor Variance
Rate Variance - Efficiency Variance ``` Note: AH = Actual Direct Labor Hours AR = Actual Wage Rate SH = Standard Direct Labor Hours for Actual Output SR = Standard Wage Rate ```
60
When standard costs are used, why are predetermined overhead rates also used?
to assign standard overhead costs to products or services produced
61
What is the standard predetermined overhead rate often based on?
an allocation base, such as standard labor cost, standard labor hours, stadard machine hours
62
How does the average overhead cost per unit relate to changes in predicted volume?
average overhead cost changes w/changes in predicted volume
63
how are standard overhead costs measured
average per unit costs based on predicted activity level
64
What are the 4 general steps to establishing the standard overhead cost rate
1. use same cost structure used to construct flexible budget at end of period 2. identify the diff overhead cost components and classify each as variable or fixed 3. select level of activity (volume) and predict total OH cost 4. divide total by allocation base to get standard rate
65
What happens with variable costs, fixed costs, average total OH cost per unit with increases in volume?
1. variable costs per unit remain constant 2. fixed costs per unit decline 3. average total OH cost per unit declines
66
What are factors that prevent the activity level from being less than full capacity?
1. difficulties in scheduling work 2. equipment under repair 3. maintenance 4. insufficient product demand
67
define overhead cost variance
difference between total overhead cost applied to products and total overhead cost actually incurred
68
overhead cost variance formula (OCV)
OCV = AOI - SOA Note: AOI: actual overhead incurred SOA: standard overhead applied
69
what is the standard overhead applied based on?
based on predetermined overhead rate and the standard number of hours that should have been used, based on actual production
70
what do managers analyze to identify factors causing the overhead cost variance
analyze the variance separately for controllable and volume variances
71
define controllable variance
combination of both overhead spending variances (variable and fixed) and the variable overhead efficiency variance
72
define volume variance
difference between two dollar amounts of fixed overhead cost, one amount is total budgeted overhead cost, and other is overhead cost allocated to products using predetermined fixed overhead rate
73
Does the budgeted fixed overhead amount change with increases or decreases in volume
no, it will stay the same
74
what is the computation for budgeted fixed overhead amount based on?
based on standard direct labor hours that the budgeted production volume allows
75
what is the applied fixed overhead based on
standard direct labor hours allowed for the actual volume of production, using the flexible budgeyt
76
formula for fixed overhead rate
fixed OH $ / budgeted DL hours
77
formula for variable OH rate
variable OH $ / budgeted DL hours

Managerial Accounting (13 decks)

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