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Flashcards in Exam 3 Deck (23):
1

Price/Rate Variances Formula?

(Actual $ - Standard $) x Actual Quantity

2

Usage/Quantity/Efficiency Formula?

(Actual Quantity -Standard Quantity) x Standard $

3

When in the Flexible Budget prepared?

At the END of the period

4

What does the Static Budget use? What does the Flexible Budget use? (Quantity and Price)

Static Budget
-budgeted/expected Price
-budgeted/expected Quantity

Flexible Budget
-Actual Quantity
-budgeted/expected Price

5

You must know the ___ to prepare the Flexible Budget

Cost Behavior

6

How do people come up with standard costs for items in manufacturing?

-Historical Costs
-Engineering Based

7

Are things like normal spillage of materials, clean-up time, machine setup and downtime, etc. built into Standard Costs?

Yes

8

Who investigates when there is a

DM Price Variance
DM Usage Variance
DL Rate Variance
DL Efficiency Variance
Variable Manufacturing Overhead Variance

DM Price Variance
-Purchasing Department Manager

DM Usage Variance
-Production Department Manager

DL Rate Variance
-HR Department Manager

DL Efficiency Variance
-Production Department Manager

Variable Manufacturing Overhead Variance
-Various Managers

9

What is a Decentralized Organization?

Organization where decision-making occurs at all levels (employees, managers, directors, etc.)

10

Advantages and Disadvantages of Decentralized Organizations?

Advantages
-company is faster at responding
-motivates managers
-people who make the decisions actually know what's going on

Disadvantages
-sometimes managers duplicate assets/services unknowingly
-goal congruence
-lack of coordination

11

What is responsibility accounting?

-accounting method within business
-large organizations are hard to account for as whole
-breaks up organization into individual segments

12

What are the 3 types of responsibility centers associated with the Responsibility Accounting method? Give a description of each.

Cost Centers
-manager ONLY influences costs
(EX: IT, Accounting Department, HR Department, Legal Department Managers)

Profit Centers
-manager influences Revenues and Costs
(EX: mid-level managers, sales manager, product-line manager, division managers)

Investment Centers
-manager influences Costs, Revenues, and Allocation of Resources
(EX: CEO, Division Managers)

13

Formula of ROI

Formula of PM

Formula of AT

ROI
(Net Operating Income / Avg. Total Assets)

PM
(Net Operating Income / Sales)

AT
(Sales / Avg. Total Assets)

14

___ is the income that a firm earns about its minimum rate of return

Residual Income

15

Formula to find Residual Income?

Net Operating Income

- Investment Charge (minimum rate of return x avg total assets)

= Residual Income

16

3 ways to Increase your ROI?

-Decrease Costs (b/c increases NI)
-Decrease Assets
-Increase Sales (b/c increases Asset Turnover)

17

1 Advantage and Disadvantage of ROI?

Advantage
-influences managers to cut costs and increase sales

Disadvantage
-potential goal congruence

18

Explain Throughput Time

-applies to manufacturing companies
-time it takes to convert raw material into finished good

19

Explain the 4 parts of the Delivery Cycle Time (for manufacturing companies)

Process Time (Value-Added)
-time spent working on product

Inspection Time (Non-Value Added)
-time ensuring product has no defects

Move Time (Non-Value Added)
-time spent moving product between departments

Queue Time (Non-Value Added)
-time the product spends waiting for inspection, shipping, or processing

20

Explain Manufacturing Cycle Efficiency (MCE)

Compares Value Added to Non-Value Added time in the Delivery Cycle Time

(Process Time / Throughput Time)

21

The process in which companies use both financial and non-financial perspectives to evaluate performance is called the ___

Balanced Scorecard

22

When companies use the Balanced Scorecard method, what 4 perspectives are commonly used?

Financial Perspective
-evaluates performance with finances
(EX: ROI on an employee)

Customer Perspective
-what do customers say about the employee

Internal Process Perspective
- EX: Delivery Cycle Time

Learning and Growth Perspective
-evaluates performance with how well company develops and retains its employees

23

Why is the Flexible Budget a more valid assessment tool for performance evaluation than the Static Budget?

Flexible Budget is based on Actual Activity level and the Static Budget is not (based on Expected Activity)