ACG2071 Ch. 9, 10, 11

management by exception

The concept that focuses on important variances and ignores trivial ones is

efficiency

The difference between the actual hours used and the standard hours allowed for the actual output is used in the calculation of the labor ______ variance

Denominator

The estimated amount of the allocation base used in the formula for the pre determined overhead rate is called the ______ activity

Production

The labor rate variance is typically the responsibility of the ______ supervisor

Net Operating Income

income before taxes and interest and is sometimes referred to as EBIT

Planning Budget

is prepared before the period begins and is valid for only the planned level of activity

Revenue Variance

is the difference between actual total revenue and what the total revenue should have been

Responsibility Center

is used for any part of an organization whose manager has control over and is accountable for cost, profit, or investments

Materials quantity Variance

measures the difference between the actual quantity of materials used in production and the standard quantity of materials allowed for the actual output, multiplied by the standard price per unit of materials

Investment Center

has control over cost, revenue, and investments in operating assets

revenue, and net operating income

A cost center's performance report does not include

Actual Fixed Overhead - Budgeted Fixed Overhead

Budgeted Variance Formula

variance analysis

Companies use the ______ ______ cycle to evaluate and improve performance

fixed

Comparing actual costs to static planning budget cost only makes sense if the cost are

inefficient operations, high defect rates, obsolete goods

Excessive inventory on hand, especially in the work in process inventory account, may lead to:

Margin, turnover

In order to fully evaluate ROI managers should compute both ______ and ______

AHxSR - SHxSR

Labor Efficiency Variance Formula

AHxAR - AHxSR

Labor Rate Variance Formula

Responsibility

Lower-level managers decision making authority can be linked to the outcomes of those decisions through ______ accounting systems

Net Operating Income / sales

Margin Formula

AQxAP - AQxSP

Materials Price Variance Formula

AQxSP - SQxSP

Materials Quantity Variance Formula

Materials Price Variance

Measures the difference between an inputs actual price and its standard price, multiplied by the actual quantity purchased

Net Operating Income / Avg Operating Assets

ROI Formula

Net Operating Income - Avg Operating assets x minimum required rate of return

Residual Income Formula

Net Operating Income - avg operating assets x min. rate of return

Residual Income Formula

management, exception

Standard costs are a key element in the ______ by ______ approach utilized by some companies

fixed

The % change in net income in the flexible budget is greater than the percentage change in activity due to ______ costs

Error that occurs when the level of activity is estimated incorrectly

The Volume variance is the:

Standard

The amount of an input that should have been used to produce the actual output is known as the _______ quantity or hours allowed

Cost Center

has control over costs, but not over revenue or the use of investment funds

Actual Output x Standard Quantity

The standard quantity allowed for production equals

Sales / Avg Operating assets

Turnover Formula

Fixed Component of the predetermined Overhead Rate x Denominator hours - standard hours allowed for the actual output

Volume Variance Formula

budgeted and applied fixed overhead

Volume variance is the difference between:

Increases ROI overtime

What does using net book value (instead of gross cost) to calculate avg operating assets do to ROI overtime?

Quantity Standards

What specifies how much of an input should be used to make a product or provide a service

Standard

a benchmark for measuring performance

Flexible Budget

a report showing estimates of what revenues and costs should have been, given the actual level of activity for the period

Economic Value added (EVA)

an adaptation of residual income that has been adopted by many companies

Operating Assets

include cash, AR, Inventory, plant and equipment, and all other assets held for operating purposes

Decentralized Organization

decision making authority is spread throughout the organization rather than being confined to a few top executives

Return on Investment (ROI)

defined as net operating income divided by avg operating assets

Standard quantity per unit

defines the amount of direct materials that should be used for each unit of finished product, including an allowance for normal inefficiencies, such as scrap and spoilage

Activity Variance

due solely to the difference between the actual level of activity used in the flexible budget and the level of activity assumed in the planning budget

Profit Center

has control over both costs and revenue, but not over the use of investment funds

Budget Variance

the difference between actual fixed manufacturing overhead and the budgeted fixed manufacturing overhead for the period

Spending Variance

the difference between the actual amount of the cost and how much the cost should have been, given the actual level of activity

Residual Income

the net operating income that an investment center earns above the minimum required return on its operating assets

Price Standards

what specifies how much should be paid for each unit of the input