Chapter 14: Operational performance measurement

Question 1

What is control?

Answer 1

set of procedures, tools and systems organizations use to reach their goals

Question 2

What are management accounting and control system?

Answer 2

organization’s core performance measurement system including planning and evaluation components.

Question 3

What is operational control?

Answer 3

monitoring of short-term operating performance. It takes place when mid-level managers monitor activities of operating-level managers and employees

Question 4

What is financial control?

Answer 4

comparison of actual and budgeted financial results

Question 5

What is master budget variance?

Answer 5

difference between actual operating income and master budget operating income for the period.

Question 5

What is variances?

Answer 5

differences between budgeted and actual amounts, for either financial or nonfinancial measures.

Question 6

What is a flexible budget?

Answer 6

budget that adjusts revenues and costs to reflect varying levels of output activity.

Question 7

What are the three steps to develop a flexible budget?

Answer 7

1. Determine output of the period
2. Use seling price and variable cost per unit data from the master budget to calculate budgeted sales revenues and budgeted variable expenses, respectively, for output of the period and to compute the flexible budget contribution margin.
3. Determine budgeted amount of fixed costs and then compute flexible budget operating income

Question 8

What is sales volume variance and how do you calculate it?

Answer 8

difference between flexible budgeted amount for each item and amount it reflected in the master budget for that period
Sales volume variance: (actual units sold – Units budgeted to be sold) * Master budget contribution margin per unit

Question 9

What is total variable cost flexible budget variance?

Answer 9

difference between total variable cost incurred and total variable cost in the flexible budget for the period.

Question 9

What is total flexible budget variance?

Answer 9

difference between flexible budget operating income and actual operating income for the period.

Question 9

What is flexible budet variance?

Answer 9

difference between actual and flexible budget amounts on the income statement

Question 10

What is selling price variance?

Answer 10

difference between total actual sales revenue and sales revenue in flexible budget. Calculated as: selling price variance = Actual sales revenue – flexible budget revenue

Question 11

What is a standard cost sheet?

Answer 11

document that lists the standard costs of manufacturing and selling one unit of a product.

Question 12

What is direct materials flexible budget variance?

Answer 12

difference between total direct materials cost incurred and flexible budgeted amount, for each material.

Question 13

What is direct materials price variance and how do you calculate it?

Answer 13

difference between actual and standard costs per unit multiplied by quantity of DM used. Calculated as: (Actual price – Standard price) * Number of units used

Question 14

What is direct materials usage variance

Answer 14

• Direct materials usage variance: Difference between actual direct materials units used and umber of standard units budgeted for each material. Calculated as: (Total quantity used – Total standard quantity used) * Standard cost per unit

Question 15

What is materials usage ratio?

Answer 15

ratio of quantity used to quantity purchased

Question 16

What is direct labor rate variance and how do you calculate it?

Answer 16

difference between actual and standard hourly wage rate multiplied by actual direct labor hours worked during the period. Calculated as: (Actual hourly wage rate paid – Standard hourly wage rate) * Total direct labor hours worked

Question 17

What is the direct labor effiency variance and how do you calculate it?

Answer 17

difference between actual direct hours worked and standard direct labor hours allowed for units manufactured multiplied by standard wage rate perhour. Calculated as (Total DL hours – Total standard DL) * Standard DL hourly rate

Question 18

What is standard cost and standard cost system?

Answer 18

Standard cost: cost a firm should incur for a process or activity
Standard cost system: accounting system in which standard costs flow through formal accounting records.

Question 19

What are the three types of standards?

Answer 19

1. Ideal standard
2. Continuous-improvement standard
3. Currently attainable standard

Question 20

What is the ideal standard?

Answer 20

standard reflecting perfect implementation and maximum efficiency in every aspect of operation

Question 21

What is the continuous-improvement standard?

Answer 21

standard that gets progressively tighter over time

Question 22

What is the currently attainable standard?

Answer 22

level of performance workers with proper training and experience can attain most of the time without having to exert extraordinary efforts.

Question 23

What is the difference between authoritative and participative standard?

Answer 23

Authoritative standard: standard determined by management Participative standard: method of establishing standards whereby affected employees participate in standard development

Question 24

What is the overtime premium?

Answer 24

excess wage rate per hour over standard hourly wage rate.