Management Accounting Flashcards
(61 cards)
What is a budget?
A budget is a detailed plan, expressed in quantitative terms, that specifies how resources will be acquired and used during a period of time.
What are the steps of a budgeting cycle?
Performance planning, providing frame of reference, investigating variations, corrective action, planning again
What are the advantages of budgets?
Compels strategic planning and implementation of plans, provides a framework for judging performances, motivates managers and employees, promotes coordination and communication among subunits within the company
What is the master budget, and what 2 other budget types comprise it?
Master budget: a comprehensive set of budgets covering all phrases of an organization’s operations for a specific period of time
Operating budget: how to best use the limited resources of an organization
Financial budget: A plan that shows how the organization will acquire its financial resources, include:
Capital expenditures budget
Cash budget
Budgeted balance sheet
Budgeted statement of cash flows
What is sensitivity analysis?
Sensitivity analysis is used to assist managers in planning and budgeting.
Sensitivity analysis is a “what-if” technique that illustrates the impact of changes from the predicted data.
What is the formula for the preparation of production budget?
Budget Production = Budgeted sales (units) + ending finished inventory ( units) - beginning finished inventory (units)
What is a cash budget?
A detailed plan showing how cash resources will be acquired and used over some specific time period.
What are the behavioral effects 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. E.g., a plant manager believes the annual utilities cost will be $18,000, but gives a budgetary projection of $20,000, the manager has built $2,000 of slack into the budget
What are the four responsibility centers:
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
Distinguish the main differences between absorption costing and variable costing.
Absorption Costing: treats ALL costs of production as product costs, regardless of whether they are VARIABLE or FIXED in nature.
Cost per unit of product consists of direct materials, direct labour, and BOTH variable and fixed manufacturing overhead.
Variable Costing: only those costs of production that vary DIRECTLY with activity are treated as product costs
Cost per unit of product conists of direct materials, direct labour, and ONLY variable portion of manufacturing overhead
Fixed manufacturing overhead is treated as a period cost.
What is a static-budget variance?
The difference between an actual result and the corresponding budgeted amount in the static budget.
This variance helps in assessing how well the budget was adhered to in terms of actual performance.
What is the first step in developing a flexible budget?
Determine the actual quantity of output.
This step is crucial as it allows for the adjustment of budget figures based on actual performance.
What is a flexible-budget variance?
The difference between an actual result and the corresponding flexible-budget amount based on the actual output level in the budget period.
This variance indicates how well the company managed its costs relative to the flexible budget.
What is a sales-volume variance?
The difference between flexible-budget amount and the corresponding static-budget amount.
This variance helps in understanding how changes in sales volume affect budget performance.
What formula is used to calculate price variance for direct materials?
Price variance = (actual price of input – budgeted price of input) x actual quantity of input.
Price variance assesses the effectiveness of purchasing decisions.
What is efficiency variance?
Efficiency variance = (actual quantity of input used – budgeted quantity of input allowed for actual output) x budgeted/standard price of input.
This variance evaluates how effectively the inputs are utilized in production.
Fill in the blank: A _______ variance is also known as rate variance.
[price variance]
This term is commonly used in variance analysis to describe the cost differences based on pricing.
What does DMPV stand for in variance analysis?
Direct Material Price Variance.
It is calculated as DMPV = (AP - SP) x AQpurch.
What does DMEV represent?
Direct Material Efficiency Variance.
It is calculated as DMEV = (AQused - SQ) x SP.
What is the formula for Direct Labour Rate Variance (DLRV)?
DLRV = (AR - SR) x AQ.
This measures the difference in labor costs based on the actual versus standard rates.
What is the formula for Direct Labour Efficiency Variance (DLEV)?
DLEV = (AQ - SQ) x SR.
This variance indicates how efficiently labor is used compared to the standard set for the output.
What are the learning objectives of this unit?
The objectives include:
* Distinguish a static budget from a flexible budget
* Develop flexible budgets and compute flexible-budget variances and sales-volume variances
* Explain why standard costs are often used in variance analysis
* Compute price variances and efficiency variances for direct-cost categories.
These objectives guide the focus of the course and help in mastering variance analysis.
What is the variable overhead spending variance?
The difference between the actual variable overhead cost per unit of the cost-allocation base and the budgeted variable overhead cost per unit of the cost-allocation base, multiplied by the actual quantity of variable overhead cost-allocation base used for actual output.
This variance helps assess how well variable overhead costs are managed.
