Cost Accounting Test 3

DL Price Variance

(Actual DL Price - Flex DL Price) x Actual Output Quantity

DM Price Variance

(Actual DM Price - Flex DM Price) x Actual Output Quantity

Price Variance Formula

(Actual Price - Flex Price) * Actual Quantity

Efficiency Variance Formula

(Actual Quantity - Flex Quantity) * Flex Price

Variable MOH Efficiency Variance

(Actual Quantity of Cost Driver - Flex Quantity of Cost Driver) x Budgeted Variable MOH per Cost Driver

DL Efficiency Variance

(Actual Quantity of DL Output - Flex Quantity of DL Output) x Budgeted DL Price

DM Efficiency Variance

(Actual Quantity of DM Output - Flex Quantity of DM Output) x Budgeted DM Price

Selling Price Variance

(Actual Selling Price - Budgeted Selling Price) x Actual Units Sold

Variable MOH Spending Variance

(Actual Variable MOH per Cost Driver - Flex Variable MOH per Cost Driver) x Actual Quantity of Cost Driver

Fixed MOH Production-Volume Variance

(Budgeted Fixed MOH/Unit x Actual Units) - Budgeted Fixed MOH

Budgeted Direct Labor

(Budgeted Production in Units * Direct Labor Hour Requirements per Unit)* Direct Labor Cost per Hour

Budgeted Manufacturing Overhead

(Budgeted Production in Units * Estimated Variable Cost per Unit) + Fixed Overhead

Budgeted Raw Materials Purchases

(Budgeted Production in Units * RM needed per unit) + Budgeted Ending Raw Materials Inventory - Budgeted Beginning Raw Materials Inventory

Annual Depreciation

(Initial Cost - Residual Value) / Useful Life

Average Investment

(Net Original Investment + Net Cash Flows) / 2

Rolling Budget

A budget that is always available for a specified future period.

Zero-Based Budget

A cash flow plan that assigns an expense to every dollar of your income, wherein the total income minus the total expenses equals zero.

Planning

A management function that includes setting goals.

Favorable Variance

A variance that causes operating income to be higher than budgeted.

Flex Variance Formula

Actual - Flex Budget

Static Variance Formula

Actual - Static Budget

Flexible-Budget Variances in Operating Income

Actual Operating Income - Flex Operating Income

Static-Budget Variance in Operating Income

Actual Operating Income - Static Operating Income

Direct Manufacturing Labor Variance

Actual Total Direct Labor - Flex Total Direct Labor

Direct Materials Variance

Actual Total Direct Materials - Flex Total Direct Materials

Fixed MOH Spending Variance

Actual Total Fixed MOH - Flex Total Fixed MOH

Fixed MOH Variance

Actual Total Fixed MOH - Flex Total Fixed MOH

Variable MOH Variance

Actual Total Variable MOH - Flex Total Variable MOH

Organization Sturcture

An arrangement of lines of responsibility within an organization.

An actual input quantity and a budget input quantity

An efficiency variance reflects the difference between

Control

Analyzing to see if the goal was actually met.

Increase in Accounting Net Income

Annual Net Cash Flow - Expected Depreciation

Accounting Annual Rate of Return

Annual Operating Income / Initial Investment

Annual Operating Income

Annual Savings - Annual Depreciation

Budgeted Ending Cash

Beginning Cash Balance + Budgeted Cash Receipts - Budgeted Cash Disbursements

Budgeted Production in Units

Budgeted Sales + Budgeted Ending Finished Goods Inventory - Budgeted Beginning Finished Goods Inventory

Internal Rate of Return Method

Capital budgeting discounted cash flow method that calculates the discount rate at which the present value of expected cash inflows from a project equals the present value of its expected cash outflows.

Net Present Value Method

Capital budgeting discounted cash flow method that calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time, using the required rate of return.

Discounted Payback Method

Capital budgeting method that calculates the amount of time required for the discounted expected future cash flow to recoup the net initial investment in a project.

Accrual Accounting Rate of Return Method

Capital budgeting method that divides an accrual accounting measure of average annual income of a project by an accrual accounting measure of investment.

Payback Method

Capital budgeting method that measures the time it will take to recoup, in the form of expected future cash flows, the net initial investment in a project.

Discounted Cash Flow Methods

Capital budgeting methods that measure all expected future cash inflows and outflows of a project as if they occurred at the present point in time.

Operating Budget

Consists of budgeted income statement and its supporting budget schedules.

Production Budget

Detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs.

Selling & Administrative Budget

Detailed schedule of planned expenses that will be incurred in areas other than manufacturing during a budget period.

Sales Budget

Detailed schedule showing expected sales expressed in both dollars and units.

Fixed Overhead Spending Variance

Difference between actual fixed overhead costs and fixed overhead costs.

Budget Slack

Difference between inflated and realistic standards. Could cause under-promising or over-delivering.

Variable Overhead Efficiency Variance

Difference between the actual quantity of the cost-allocation base used and budgeted quantity of the cost-allocation base that should have been used to produce the actual output, multiplied by the budgeted variable overhead cost per unit of the cost-allocation base.

Variable OH Spending Variance

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.

Production Volume Variance

Difference between the budgeted fixed overhead and the fixed overhead allocated on the basis of actual output produced.

Choosing the appropriate level of investment in productive assets

Effective planning of fixed overhead costs includes

Master Budget

Expresses management's operating and financial plans for a specified period, usually a fiscal year, and it includes a set of budgeted financial statements.

Present Value

Factor * Net Cash Flows

Sales-Volume Variance in Operating Income

Flex Operating Income - Static Operating Income

Pro Forma Balance Sheet

Follows a financial budget.

Make Predictions Stage

Forecasts all potential cash flows attributable to alternative projects.

Leading

Implementing budget strategy.

Accounting Rate of Return

Increase in Accounting Net Income / Initial Investment

Initial Investment

Increase in annual cash flows * factor

Compound Interest

Interest earned on both the principal amount and any interest already earned.

Market Rate

Interest rate that borrowers are willing to pay and lenders are willing to accept for a specific lending agreement given the borrowers' risk level.

Proverbs 10:4

Lazy hands make a man poor, but diligent hands bring wealth.

When managers are concerned about improving quality

Little focus is placed on variable costs and more focus is on fixed costs during an operating cycle.

Favorable Variance Reminders

Managers should not simply interpret a favorable variance as good but should understand why the variance occurred.

Required Rate of Return (RRR)

Minimum acceptable annual rate of return on an investment. Also called the discount rate, hurdle rate, cost of capital, or opportunity cost of capital.

Interest

Money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.

Payback Period

Net Initial Investment/Annual Net Cash Flow

Net Present Value

Present Value of Future Cash Flows - Initial Investment

Unfavorable When Variance is Positive

Price Variance, Efficiency Variance, and Flexible Variance

Compounding

Process in which interest is earned on both the principal and on any previously earned interest.

Options to Improve an unfavorable direct materials efficiency​ variance

Provide additional training for direct laborers, improve design of product, purchase higher quality materials.

Organizing

Putting a plan together.

Time Value of Money

Recognition of the fact that a dollar received today is worth more than a dollar received at any future point in time.

Internal Rate of Return

Required Return + ((Difference Between Two Closest Factors) * Range Between Two Factors) = % per year

Parts of the Static Budget

Revenue - VC = CM CM - FC = OI

Total expected fixed costs

Same for a flexible budget and a master budget.

Cash Budget

Schedule of expected cash receipts and cash disbursements

Cash Receipts Budget

Schedule of the amounts and timings of the receipt of cash into a business.

Annuity

Series of equal regular deposits

Controlability

The degree of influence a specific manager has over costs, revenues, or related items for which he or she is responsible.

Financial Budget

The part of the master budget made up of the capital expenditures budget, the cash budget, the budgeted balance sheet, and the budgeted statement of cash flows.

Proverbs 21:5

The plans of the diligent lead to profit as surely as haste leads to poverty.

Budgetary Slack

The practice of underestimating budgeted revenues or overestimating budgeted costs to make budgeted targets easier to achieve.

Net Cash Flow

Total inflows - total outflows

Cash Disbursement Budget

Used to project the amount of cash to be disbursed during the budget period.

Unfavorable Variance

Variance that causes operating income to be lower than budgeted.

Matthew 25:27

Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest.

Colossians 3:23

Whatever you do, work at it with all your heart, as working for the Lord, not for men.

Unfavorable Fixed Overhead Flexible-Budget Variance

When​ machine-hours are used as an overhead​ cost-allocation base and annual leasing costs for equipment unexpectedly​ increase, the most likely result would be to report​ a(n) ________.

Work is scheduled efficiently

a favorable efficiency variance for direct labor might indicate that

Price Variance

a variance that is computed by taking the difference between the actual price and the standard price and multiplying the result by the actual quantity of the input

Static Budget

based on the level of output planned at the start of the budget period

Flexible Budget

calculates budgeted revenues and budgeted costs based on the actual output in the budget period.

Standard Cost

carefully determined cost of a unit of output

Flexible Budget Variance

difference between an actual result and the corresponding flexible-budget amount.

Efficiency Variance

difference between the actual input quantity used (such as square yards of cloth) and the budgeted input quantity allowed for actual output, multiplied by budgeted price.

Level 2 Variance

flexible budget variance and sales volume variance

Level 1 Variance

static budget variance

Sales Volume Variance

the difference between a flexible-budget amount and the corresponding static-budget amount.

Static Budget Variance

the difference between actual results and the expected results in the static budget