Module 4: Budgeting and Variance Analysis Flashcards by Oliver Casey

The main purpose and benefit of using a ______ is to assist with the ____________ of the ___________ _________.

budget; achievement; organisation’s objectives;

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A budget is a ___________ __________, for a defined ______ of ____, which may include __________ _______, ________, ______, _________ and _____ flows.

quantitative statement; period; time; planned revenues, expenses, assets, liabilities; cash;

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Using a budget has seven further purposes/benefits:
- To _______ ________
- To ___________ _____ and _____
- To __________ _________
- To provide a ________ for ____________ _________
- To _________ a ______ of ________
- Motivate ________ to ________ their ____________
- A_______ of _________

compel planning;
communicate ideas; plans;
coordinate activities;
framework; responsibility accounting;
establish; system; control;
employees; improve performance;
allocation; resources;

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Stages in the Planning and Control Cycle

PLANNING PROCESS
1) I______ o________
2) I______ __________ ______ of ______
3) E_______ ________
4) Choose ________ courses of _______
5) I________ the ____-____ plan

CONTROL PROCESS
6) Measure _____ results and _______ with the _____. Respond to __________ from _____.
7) The ____-____ plan should be ________ in light of the comparison made between ________ results and _______ results.

1) Identify objectives
2) Identify alternative courses; action;
3) Evaluate strategies;
4) alternative; action;
5) Implement; long-term;
6) actual; compare; plan; divergencies; plan;
7) long-term; compared; actual; planned;

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The control of ___-__-___ operations is exercised by ______-______ managers.
They must be provided with __________ ______ which consist of ________ comparisons of _____ results and _________ results.
Effective control requires that _________ action is taken so that _______ outcomes conform to ________ outcomes.

day-to-day; lower-level;
performance reports; detailed; actual; budgeted;
corrective; actual; planned;

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The __________ and ____________ of budgets may be the responsibility of a _______ __________, consisting of _______ ___________.
The _______ __________ is assisted by a ______ ________, who is usually an accountant.

coordination; administration; budget committee; senior executives;
budget committee; budget officer;

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Functions of the budget committee:

__________ and _________ of responsibility for the preparation of _______.
Issuing of the _____ _______
T__________
P_______ of ___________ to assist in the preparation of _______
C___________ of ______ _______ to the appropriate managers.
M_________ the budgeting and planning process by comparing ______ and _________ results.

Coordination; allocation; budgets;
budget manual;
Timetabling;
Provision; information; budgets;
Communication; final budgets;
Monitoring; actual; budgeted;

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The ______ ________ should draft the ______ ________ and the selling overhead cost centre budgets.
The __________ ______ should draft the ________ __________ budget.
The _________ _________ should draft the ______ _________ cost budgets.

sales manager; sales budget;
purchasing manager; material purchases;
production manager;
direct production;

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The budget manual is a _________ of ___________ on how to use the _____, _______ and _________ related to the __________ ______

collection; instructions; tools; systems; software; budgeting process;

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A budget manual may contain the following:
- An explanation of the _________ of the _________ process
- O__________ structures
- An outline of the _________ _____ and the ___________ between them
- A_________ details of _______ ________
- P________ m________

objectives; budgetary;
Organisational;
principal budgets; relationship;
Administrative; budget preparation;
Procedural matters;

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The p_______ b______ f______ is usually _____ ________.

The p______ b______ f______ is the ________ which ________ the _________ of an ____________.

principal budget factor; sales demand;
principal budget factor; factor; limits; activities; organisation;

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Preparation of a budget with sales as the limiting factor: Step 1

1) The ______ _______ (revenue budget) is prepared by calculating _____ of _______ (volume) multiplied by _____ ______. The ________ ______ _________ ______ can be prepared at the same time.

sales budget; units; product; sales price; finished goods inventory budget;

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Preparation of budget with sales as limiting factor: Step 2

2) With the information from _____ and ________ budgets, the ___________ budget can be prepared.
This is the ______ budget (in units) plus (or minus) the ________ (or _________ ) in _________ _____ ________.

sales; inventory; production; sales; increase; decrease; finished goods inventory;

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Preparation of budget with sales as the limiting factor: Step 3

3) This leads on to budgeting the __________ for ___________.
This involves preparing a _________ ______ budget, _________ ____ budget and a _______ budget.

resources; production; materials usage; machine usage; labour;

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Preparation of a budget with sales as the limiting factor: Step 4

4) A ________ ________ budget will be prepared, to decide the planned ______ or ________ in the _____ of __________ held.

materials inventory; increase; decrease; level; inventories;

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Preparation of a budget with sales as the limiting factor: Step 5

5) During the preparation of _____ and ________ budgets, the managers of the cost centres of the __________ will prepare their draft budgets for the __________ ________ _____.

sales; production; organisation; department overhead costs;

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Preparation of a budget with sales as the limiting factor: Step 6

6) From the above information, a _________ __________ of ______ or ____ can be produced.

budgeted statement; profit; loss;

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Preparation of a budget with sales as the limiting factor: Step 7

Several other budgets must be prepared in order to arrive at the ________ _________ of ________ ________.

These are the ________ __________ ______, the _______ ________ ________, and a ____ _______.

budgeted statement; financial position;

capital expenditure budget; working capital budget; cash budget;

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A functional (or departmental) budget is a ______ ___________ ______ and _________ for a _________ ___________ or ______.

budget forecasting income; expenditure; particular department; process;

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A ____ ______ is a __________ in which estimated _______ _____ _________ and __________ are tabulated in such a way as to show the forecast ____ ________ of a business at _______ ________.

cash budget; statement; future cash receipts; payments; cash balance; defined intervals;

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Usefulness of cash budgets:

Shows the ____ ______ of all plans made within the __________ ______.
It can also give ___________ an indication of the _________ _________ that could arise and allows them the opportunity to take action to avoid such _________.

cash effect; budgetary process;
management; potential problems; problems;

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Four positions of a cash budget:
- S_____-____ _______
- S_____-____ _______
- L_____-____ _______
- L____-____ _______

Short-term surplus
Short-term deficit
Long-term surplus
Long-term deficit

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Appropriate management action during a SHORT-TERM SURPLUS:
- Pay _______ early to ______ ________
- Attempt to _______ sales by _______ __________ and _________
- Make _____-____ investments

suppliers; obtain discounts;
increase; increasing receivables; inventories;
short-term;

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Appropriate management action during a SHORT-TERM DEFICIT:
- I_______ _______
- R______ ________
- A______ an ________

Increase payables;
Reduce receivables;
Arrange; overdraft;

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Appropriate management action during a LONG-TERM SURPLUS: - Make ____-____ ___________ - E______ - D______ - R_______/update ___-_______ assets - Pay _________, repay ____ _______, buy back and _______ shares

long-term investments; Expand; Diversify; Replace; non-current; dividends; debt capital; cancel;

Appropriate management action in a LONG-TERM DEFICIT: - Raise ____-_____ ________ - Borrow or ______ _______ ________ through a new _____ ______ - Consider _________/___________ opportunities

long-term finance; raise equity finance; share issue; shutdown; disinvestment;

A f_____ (______) budget is a budget which is set for a ______ ________ level

fixed; static; single activity;

A f________ _______ is a budget which, by recognising ___________ ____ ___________ patterns, is designed to _______ as ________ of ________ changes.

flexible budget; different cost behaviour; change; volume; activity;

M_____ budgets are ______ budgets

Master; fixed;

F_______ budgeting uses the principles of ________ costing

Flexible; marginal;

ZBB involves preparing a ________ from a _____ base.

budget; zero;

ZBB has three steps: 1) D_____ _______ _______ 2) E______ and _____ ________ 3) A_______ __________

Define decision packages; Evaluate; rank packages; Allocate resources;

S________ costing has a variety of uses but its two principal ones are: - To v______ __________ and measure the ____ of ___________ for cost accounting purposes - To act as a _______ ________ by establishing _________, highlighting activities not conforming to plan and therefore _________ ____________ to areas which may be ____ of _________ and in need of __________ action.

Standard; value inventories; cost; production; control device; standards; alerting management; out; control; corrective;

Differences between actual and standard costing are called ___________

Variances

Standard costing involves: - The establishment of _________ _________ of the ______ of ________ or _________ - The __________ of _______ costs - The ___________ of the ______ costs with the _____________ ___________

predetermined estimates; costs; products; services; collection; actual; comparison; actual; predetermined estimates;

Standard costing can be used in a variety of costing situations: - B_____ and m____ production - _______ ____________ - ___ ________ - where there is a ____________ of parts - ________ _________ - if a realistic cost unit can be established

Batch; mass; Process manufacture; Job production; standardisation; service industries;

Standard costing may be used in both __________ costing and ________ costing systems.

absorption; marginal;

The greatest benefit from standard costing is if there is a _______ of __________ in the __________ _______. It is therefore most suited to _____ ___________ and __________ _________ work.

degree; repetition; production process; mass production; repetitive assembly;

Performance standards are used to set __________ ______. There are four types: - _______ - __________ - ________ - ______

efficiency targets; Ideal; Attainable; Current; Basic;

I______ standards: - May provide an _________ to greater __________ even though the standard cannot be ___________. - Differences between ________ and _______ results will always be _________. - Employees may feel goals are ____________ and hence, they will not work so hard.

Ideal; incentive; efficiency; achieved; standards; actual; adverse; unattainable;

A___________ standards might be an incentive to work ________ as they provide a __________ but ___________ target of efficiency.

Attainable; harder; realistic; challenging;

C_________ standards will not __________ employees to do anything more than they are currently doing.

Current; motivate;

B_____ standards: - May have an __________ impact on the _________ of employees - Over time they may feel they are easily able to ________ the ___________. - They may become _______ and _____ interest in what they are doing if they have nothing to aim for.

Basic; unfavourable; motivation; achieve; standard; bored; lose;

Types of performance standards: - I_____ - A_________ - C_______ - B______

Ideal; Attainable; Current; Basic;

The standard cost of direct material for a unit of product: __________ _____ per unit of ___________ X _________ _________ of the _________

Standard price; material; standard; quantity; material;

Direct material price standards will be estimated by the purchasing department from their knowledge of the following: - p________ _________ already agreed - P______ _____________ with __________ __________ - F_________ __________ of prices in the market - Availability of ____ ________ _________

Purchase contracts; Pricing discussions; regular suppliers; Forecast movement; bulk purchase discounts;

Standard cost of direct labour for a unit of product = ________ ______ _____ per hour X ________ ________ of hours required by that particular labour type

Standard labour rate; Standard quantity;

When standard costs are fully absorbed costs, the ___________ rate of _____ __________ ________ will be predetermined.

absorption; fixed production overheads;

For selling and distribution costs, standard costs might be absorbed as a __________ of the _________ ________ ______.

percentage; standard selling price;

Standard costs under marginal costing will not include any element of ____________ overheads.

absorbed;

A _________ _____ is a predetermined estimated unit cost, used for _________ ___________ and ______

inventory valuation; control;

Performance standards are used to set _________ _______. There are four types: - I______ - A_________ - C_______ - B______

efficiency targets; Ideal; Attainable; Current; Basic;

Standard costing is a control technique that __________ __________ costs with _______ costs. When the differences between _________ costs and _______ costs are __________, this is known as __________ analysis.

compares standard; actual; standard; actual; analysed; variance;

Standard costing may be suitable when an organisation produces a ______ _________ of _________ ________, or provides _________ __________.

large quantity; standard products; standard services;

Budgetary control is a system of management control that is based on feedback - ____________ of ______ results with the _______.

comparisons; actual; budget;

The differences between ________ and _________ results are used to provide a guideline for _______ _______ by individual managers.

actual; expected; control action;

A manufacturing organisation budgeted to produce 16000 units in the budget period. The budgeted variable cost per unit was $2.75. When output was 18000 units, total expenditure was $98000 and it was found that fixed overheads were $11000 over budget, while variable costs were in line with budget. What was the amount budgeted for fixed costs? Total expenditure = $________ Variable cost, as expected = ($__________) Actual fixed costs incurred = $__________ Unfavourable fixed overhead expenditure variance = $________ Budgeted fixed costs = $_________

$98000; 18000 * $2.75 = $49500; $48500; $11000; $37500;

Direct Material Price Variance The difference between the _________ cost and the ______ cost for the actual ________ of _________ used or purchased.

standard; actual; quantity; material;

Direct Material Usage Variance This is the difference between the ________ ________ of _________ that should have been used for the number of units actually produced, and the ______ ________ of ________ used, valued at the _________ ______ per unit of _________.

standard quantity; materials; actual quantity; materials; standard price; material;

Product X has a standard direct material cost as follows: 10kg of material Y at $10 per kilogram = $100 per unit of X During period 4, 1000 units of X were manufactured, using 11,700kg of material Y which cost $98600. Calculate: (a) The direct material total variance (b) The direct material price variance (c) The direct material usage variance

(a) $1 400 (F) (b) $18 400 (F) (c) $17 000 (U)

Direct material _______ variances are usually extracted at the time of ________ of the materials rather than at the time of ______.

price; receipt; usage;

Should material price variances be based on materials purchased, or materials used? - It depends on how ________ __________ are valued. - If they are valued at ________ ____, the price variance is calculated on ________ ________ in the period. - If they are valued at ______ cost, the price variance is calculated on _______ _____ in ___________ in the period.

closing inventories; standard cost; material purchases; actual;

A ____ ________ costing ______ is usually in operation and therefore the price variance is calculated on __________ in the period.

full standard; system; purchases;

Two main advantages in extracting the material price variance at the time of receipt: - If variances are extracted at the time of receipt they will be brought to the _________ of _________ earlier than if they are extracted as the material is used. - Since variances are extracted at the time of receipt, ___ _________ will be valued at ________ ______. This is administratively easier and it means that all issues from inventory can be made at standard price.

attention; managers; all inventories; standard price;

A company uses raw material P and the raw material has a standard price of $3 per metre. During one month 6000m are bought for $18600, and 5000m are used in production. What is the material price variance? _______m of material P should cost (x$3) = $_______ but did cost = $________ Price variance = $_______

6000m; $18,000; $18,600; $600 (U);

Direct labour total variance can be subdivided into: - Direct labour _____ variance - Direct labour ________ variance

rate; efficiency;

The direct labour total variance is the __________ between what the ________ should have _____, and what it did ____, in terms of _______

difference; output; cost; cost; labour;

The direct labour rate variance is similar to the direct __________ ______ __________. It is the ___________ between the _________ rate and the ______ rate for the actual number of hours paid for.

material price variance; difference; standard; actual;

The direct labour efficiency variance is similar to the direct material ______ variance. It is the difference between the hours that ________ have been ________ for the number of units actually __________, and the _______ number of hours worked, valued at the _________ ____ per hour.

usage; should; worked; produced; actual; standard rate;

The standard direct labour cost of product X is: 2 hrs of grade Z labour at $5/hr = $10 per unit of product X During period 4, 1000 units of product X were made, and the direct labour cost of grade Z labour was $8900 for 2300 hours of work. Calculate the following: a) Direct labour total variance b) Direct labour rate variance c) Direct labour efficiency (productivity) variance

a) $1100 (F) b) $2600 (F) c) $1500 (U)

Suppose that the variable production overhead cost of product X is as follows: 2 hours at $1.50 = $3 per unit During period 400 units of product X were made. The labour force worked 820 hours, of which 60 hours were recorded as idle time. The variable overhead cost was $1230. Calculate: a) the variable overhead total variance b) The variable production overhead expenditure variance c) The variable production overhead efficiency variance

a) $30 (U) b) $90 (U) c) $60 (F)

It is usually assumed that variable overheads are incurred during ______ _________ _______

active working hours;

The variable production overhead expenditure variance is the difference between the amount of _________ __________ overhead that ________ have been incurred in the _______ hours actively worked, and the _______ amount of ________ _________ ___________ _________

variable production; should; actual; actual; variable production overhead incurred;

- The fixed production overhead total variance can be subdivided into an ___________ variance and a ________ variance. - The fixed production overhead volume variance can be further subdivided into an _________ and _________ variance.

expenditure; volume; efficiency; capacity;

In an absorption costing system, ______ __________ ___________ _________ are an attempt to explain the ______ or _______ absorption of _______ __________ __________ in production costs.

fixed production overhead variances; under; over; fixed production overheads;

The fixed production overhead total variance may be broken down into two parts: - An ___________ variance - A ________ variance

expenditure; volume;

Fixed overhead expenditure variance = B________ (_________) ____________ - A_____ ____________

Budgeted (planned) expenditure; Actual expenditure;

Overhead absorption rate = __________ ______ _________ / __________ ________ _____ The fixed overhead expenditure variance occurs if the ___________ is incorrect. The fixed overhead volume variance arises if the ____________ is incorrect.

Budgeted fixed overhead; Budgeted activity level; numerator; denominator;

Fixed overhead total variance is the difference between fixed overhead _________ and fixed overhead __________.

incurred; absorbed;

Fixed overhead expenditure variance is the difference between __________ fixed overhead expenditure and ________ fixed overhead expenditure

budgeted; actual;

Fixed overhead volume variance is the difference between ______ and __________ (_______) volume multiplied by the ________ ____________ rate per unit.

actual; budgeted (planned); standard absorption;

Suppose a company plans to produce 1000 units of product E during August 20X3. The expected time to produce a unit of E is 5 hrs, and the budgeted fixed overhead is $20,000. The standard fixed overhead cost per unit of product E will therefore be as follows: 5 hours at $4 per hour = $20 per unit Actual fixed overhead expenditure in August 20X3 turns out to be $20,450. The labour force manages to produce 1100 units of product E in the month. Calculate: a) The fixed overhead total variance b) The fixed overhead expenditure variance c) The fixed overhead volume variance

a) $1,550 (F) b) $450 (U) c) $2,000 (F)

What should be taken into account when deciding whether or not to investigate reported variances? - M________ - C__________ - The ____ of __________ being used - I_____________ between __________ - Costs of _____________

Materiality; Controllability; The type of standard being used; Interdependence between variances; Costs of investigation;

When two variances are _______________ (______________), one will often be ____________ and the other one ___________.

interdependent; interrelated; unfavourable; favourable;

The selling price variance is calculated as the difference between what the ______ _________ should have been for the _______ __________ sold, and what it was.

sales revenue; actual quantity;

Suppose that the standard selling price of product X is $15. Actual sales in 20X3 were 2000 units at $15.30 per unit. The selling price variance is?

$600 (F)

The sales volume profit variance is the difference between the ______ _____ sold and the ___________ quantity, valued at the ________ ______ per unit.

actual units; budgeted; standard profit;

Suppose that a company budgets to sell 8000 units of product J for $12 per unit. The standard full cost per unit is $7. Actual sales were 7700 units, at $12.50 per unit. What is the sales volume profit variance?

$1,500 (U)

A reduction in the ______ ________ variance might stimulate bigger ______ _______, so that an unfavourable ______ _______ variance might be counterbalanced by a favourable ______ ________ variance.

sales price; sales demand; sales price; sales volume;

A price rise would give a favourable ______ ________, but possibly at the cost of a fall in ________ and an unfavourable _______ ________ _________

price variance; demand; sales volume variance;

An operating statement is a ________ ________ for ____________ of ______ costs and _________, usually showing _________ from budget.

regular report; management; actual; revenues; variances;

Control limits may be illustrated on a _______ _______

control chart;

The following variances would lie within the tolerance limits: - Normal variations around ________ ____________ - Minor ____________ variances which are too small to justify the costs of an _____________ - A ______ _________ error in the standard cost for the year

average performance; operational; investigation; minor planning;

The cost of investigating a particular variance is $150 and cost savings of $1200 can be made if the variance is corrected successfully. However, it is also known that there is only a 30% possibility of the variance being corrected once the cause is found. What is the expected value of the investigation?

($1200 * 0.3) - $150 = $210

Some possible reasons for variance include: - M___________ errors - P____ p_________: out of date standards of measurement - R______ or ________ fluctuations - E_________ or i___________ operations

Measurement; Poor planning; Random; chance; Efficient; inefficient;

- If the cause of a variance is __________, ______ can be taken to bring the system back under control in the future. - If the variance is _____________, but not simply due to chance, it will be necessary to review _________ of __________ results, and perhaps to revise the _______.

controllable; action; uncontrollable; forecasts; expected; budget;

The significance of a _________ can be assessed initially by means of its ____ relative to the actual _____ incurred.

variance; size; costs;

Module 4: Budgeting and Variance Analysis Flashcards

(97 cards)