Chapter 3, 6, 7, 8 combined

Price Variance Formula

(AP - BP) x AQ

efficiency variance formula

(AQ-BQ) x BP

flexible budget variance formula

(Actual selling price - Budgeted selling price) x Actual units sold

break even revenue equation

(Selling Price x Quantity) - (Variable Costs x Quantity) - Fixed Costs = 0

Margin of safety in units

(budgeted revenue/selling price per unit) - break even units

Budget Cycle

- Before the start of a fiscal year, managers at all levels take into account past performance, market feedback, and anticipated future changes to initiate plans for the next period - At the start of the year, the budget is created - senior managers give subordinate managers a frame of reference, a set of specific financial or non-financial expectations, against which they will compare actual results - Throughout the year, managers and management accountants investigate any deviations from the plan

Standard costing is a costing system that:

- Traces direct costs to output produced by multiplying the standard prices or rate by the standard quantities of inputs allowed for actual outputs produced - Allocates overhead costs based on the standard overhead cost rates times the standard quantities of the allocation bases allowed for the actual outputs produced

budget

- the quantitative expression of a proposed plan of action by management for a specified period - budget is an aid to coordinating what needs to be done to implement that plan - generally includes the plan's both financial and nonfinancial aspects and serves as a road map for the company to follow in an upcoming period

Variable Overhead Efficiency Variance

= (Actual quantity of variable overhead cost-allocation base used for actual output) - (Budgeted quantity of variable overhead cost-allocation based allowed for actual output) x budgeted variable overhead cost per unit of cost-allocation base

Quantity of units

= (Fixed costs + target operating income)/CM per unit

variable overhead cost variances

= (actual variable overhead cost per unit of cost-allocation base) - (budgeted variable overhead cost per unit of cost-allocation base) x actual quantity of variable overhead cost-allocation base used

Sales Volume Formula

= CM/unit x (actual output units - static budget output units)

fixed overhead flexible budget variance and fixed overhead spending variance

= actual costs incurred - flexible budget amount

variable overhead flexible budget variance

= actual costs incurred - flexible budget amount

production-volume variance

= budgeted fixed overhead - fixed overhead allocated for actual output units produced

margin of safety $

= budgeted pr actual sales - break even sales

operating income

= contribution margin - fixed costs

degree of operating leverage

= contribution margin/operating income

contribution margin ratio (or percentage)

= contribution margin/revenues

margin of safety ratio

= margin of safety/budgeted sales

(after-tax) operating income

= net income/(1 - tax rate)

(after-tax profit) net income

= operating income * (1 - tax rate)

contribution margin

= revenues - varaible cost

operating income

= revenues - variable costs - fixed income

contribution margin per unit

= selling price - variable cost per unit

Which of the following is the correct mathematical expression to calculate the fixed overhead spending variance?

Actual costs incurred - flexible-budget amount

In which order are the following​ developed? First to​ last: A​ = Production budget B​ = Direct materials costs budget C​ = Budgeted income statement D​ = Revenues budget

DABC

Which of the following is true of flexible​ budget?

It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.

Which of the following best defines standard costing?

It is a system that traces direct costs to output produced by multiplying the standard price or rates by the standard quantities of inputs allowed for the actual output produced

Under the contribution income​ statement, a​ company's contribution margin will be

Lower if variable manufacturing overhead costs increase

margin of safety definition

Measures the "cushion" that a budgeted or actual revenues can fall before break even point is reached

Which of the following statements is correct regarding the components of the master​ budget?

Operating budgets are used to create cash budgets

During the current​ year, XYZ Company increased its variable​ SG&A expenses while keeping fixed​ SG&A expenses the same. As a​ result, XYZ​'s

Operating income will be the same under both the financial accounting income statement and contribution income statement

Once a company exceeds its breakeven​ level, operating income can be calculated by multiplying

The contribution margin per unit by the difference between unit sales and breakeven sales

sales-volume variance

The difference in operating income between the static-budget and the flexible-budget amounts is called the sales-volume variance because it arises SOLELY from the difference between the actual volume and the budgeted volume (from the static budget)

flexible budget variance

The flexible budget variance is the difference in operating income between the actual results and the flexible budget

​________ is the usual starting point for budgeting

The revenues budget

Which of the following statements is correct regarding the drivers of operating and financial​ budgets?

The sales budget will drive the cost of goods sold budget

When machine-hours are used as an overhead cost-allocation base, the MOST likely cause of a favorable variable overhead spending variance is: a. excessive machine breakdowns b. the production scheduler efficiently scheduled jobs c. a decline in the cost of energy d. strengthened demand for the product

a decline in the cost of energy

When variable overhead efficiency variance is favorable, it can be safely assumed that the

actual quantity of the cost allocation base used is lower than the budgeted quantity

The variable overhead efficiency variance measures the difference between the _______, multiplied by the budgeted variable overhead cost per unit of the cost-allocation base

actual quantity of the cost-allocation base used and the budgeted quantity of the cost allocation base that should have been used to produce the actual output

Variance

actual results deviate from budgeted targets

A favorable variance indicates that​

actual revenues exceed budgeted revenues

Which of the following information is needed to prepare a flexible​ budget?

actual units sold

A Static (master) budget

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

he flexible budget contains​

budgeted amounts for actual output

which of the following is the correct mathematical expression to calculate the fixed overhead production-volume variance?

budgeted fixed overhead - fixed overhead allocated for actual output

Which of the following is the mathematical expression for the budgeted fixed overhead cost per unit of cost allocation base?

budgeted fixed overhead cost per unit of allocation base = budgeted total costs in fixed overhead cost pool + budgeted total quantity of cost allocation base

The margin of safety is the difference between​

budgeted revenues and breakeven revenues

Budgeted production equals​

budgeted unit sales​ + targeted ending finished goods inventory − beginning finished goods inventory

Compared to variable overhead costs planning, fixed overhead cost planning has an additional strategic issue beyond undertaking only essential activities and efficient operations. That additional requirement is best described as:

choosing the appropriate level of capacity that will benefit the company in the long-run

total revenue

contribution margin/contribution margin ratio

Operating Leverage

describes the effects that fixed costs have on changes in operating income as changes occur in units sold and contribution margin

For fixed manufacturing overhead, there is no

efficiency variance

The number of units in the sales budget and the production budget may differ because of a change in​

ending finished goods inventory levels

In flexible budgets the costs are not "flexed" because they remain the same within a relevant range of activity(such as sales or output) are called

fixed costs

The breakeven point revenues is calculated by dividing​

fixed costs by contribution margin percentage

Breakeven point in units is​

fixed costs divided by contribution margin per unit

Financing decisions primarily deal with​

how to obtain funds to acquire resources

If a company would like to increase its degree of operating leverage it should​

increase its fixed costs relative to its variable costs

A regional manager of a restaurant chain in charge of finding additional locations for expansion is most likely responsible for​ a(n)

investment center

A master budget​

is the initial plan of what the company intends to accomplish in the period and evolves from both the operating and financing decisions

A favorable efficiency variance for direct manufacturing labor indicates that​

less direct manufacturing​ labor-hours were used during production than planned for actual output

Margin of Safety ratio %

margin of safety/budgeted sales

The​ sales-volume variance is sometimes due to​

quality problems leading to customer dissatisfaction

break-even point definition

quantity of output sold at which total revenue equals total cost results in $0 of operating income

input

refers the direct materials and direct labor that go into making the output (jackets) - such as 2 square yards of fabric or 0.8 labor-hours

sales mix

refers to determining the breakeven point or target net income when multiple products with differing contributions margins are involved

output

refers to the output of finished, completed units

The district director of 5 mortgage origination offices staffed by bank associates who could call potential customers in an attempt to gain home mortgage and home equity loan business is most likely responsible for​ a(n)

revenue center

The breakeven point is the activity level where​

revenues equal the sum of variable and fixed costs

Standard cost per output unit for each variable direct cost input is calculated by multiplying​

standard input allowed for one output unit by standard price per input unit

An unfavorable variance indicates that

the actual units sold are less than the budgeted units

A $5,000 unfavorable flexible budget variance indicates that

the actual variable manufacturing overhead exceeded the flexible-budget amount by $5,000

the variable overhead spending variance measures the difference between _____, multiplied by the actual quantity variable overhead cost-allocation base used.

the actual variable overhead cost per unit and the budgeted variable overhead cost per unit

Operating decisions primarily deal with

the best use of scarce resources

variance

the difference between actual results and expected (budgeted) performance

Static Budget Variance

the difference between actual results and the corresponding static budget amount

Each of the following statements is correct regarding overhead variances except

the efficiency overhead variance ignores the standard variable overhead rate

Management by Exception

the practice of focusing attention on areas not operating as expected (budgeted)

An unfavorable fixed overhead spending variance indicates that

the price of fixed overhead items cost more than budgeted

cost structure

the relationship of fixed costs and variable costs to total costs

The breakeven point decreases if​

the total fixed costs decrease

Which of the following items will be same for a flexible budget and a master​budget?

total expected fixed costs

Break even revenue

unit quantity*selling price

While calculating the costs of products and services, a standard costing system

uses standard costs to determine the cost of products

An unfavorable​ flexible-budget variance for variable costs may be the result of​________.

using more input quantities than were budgeted

The contribution income statement highlights​

variable and fixed costs

Which of the following is the correct formula for the materials price​ variance?

​(Actual price of input − Budgeted price of​ input) x Actual quantity of input

Mary​ Jacobs, the controller of the Jenks Company is working on​ Jenks' cash budget for year 2. She has information on each of the following​ items: I. Wages due to workers accrued as of December​ 31, year 1. II. Limits on a line of credit that may be used to fund​ Jenks' operations in year 2. III. The balance in accounts payable as of December​ 31, year​ 1, from credit purchases made in year 1. Which of the items above should Jacobs take into account when building the cash budget for year​ 2?

​I, II, and III

Elmhurst Corporation is considering changes to its responsibility accounting system. Which of the following statements​is/are correct for a responsibility accounting​ system? I. In a cost​ center, managers are responsible for controlling costs but not revenue. II. The idea behind responsibility accounting is that a manager should be held responsible for those items that the manager can control to a significant extent. III. To be​ effective, a good responsibility accounting system must help managers to plan and to control. IV. Costs that are allocated to a responsibility center are normally controllable by the responsibility center manager.

​I, II, and III are correct