chapter 8&9

standard quantity per unit SQ

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.

standard quantity allowed

The amount of materials that should have been used to complete the period's output, as computed by multiplying the actual number of units produced by the standard quantity per unit.

Revenue Variance

The difference between the actual revenue for the period and how much the revenue should have been, given the actual level of activity. A favorable (unfavorable) revenue variance occurs because the revenue is higher (lower) than expected, given the actual level of activity for the period.

standard price per unit SP

The price that should be paid for each unit of direct materials. It should reflect the final, delivered cost of those materials.

ending finished goods inventory budget

a budget that describes planned ending inventory of finished goods in units and dollars

Planning Budget

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

merchandise purchases budget

showing the amount of goods to be purchased from suppliers during the period

Direct Labor Budget

shows the direct labor-hours required to satisfy the production budget

standard cost card

shows the standard quantity (or hours) and standard price (or rate) of the inputs required to produce a unit of a specific product

standard quantity allowed formula

standard quantity allowed = Actual output × Standard quantity per unit

management by exception

A management system in which actual results are compared to a budget. Significant deviations from the budget are flagged as exceptions and investigated further.

If a company has a beginning merchandise inventory of $50,000, a desired ending merchandise inventory of $30,000, and a budgeted cost of goods sold of $300,000, what is the amount of required inventory purchases? a.$320,000 b.$280,000 c.$380,000 d.$300,000

" Required inventory purchases are calculated as follows: Cost of goods sold of $300,000 + Ending inventory of $30,000 - Beginning inventory of $50,000 = $280,000"

"The cash budget is composed of four main sections"

"1.The cash receipts section. 2.The cash disbursements section. 3.The cash excess or deficiency section. 4.The financing section."

Budgeted unit sales for March, April, and May are 75,000, 80,000, and 90,000 units. Management desires to maintain an ending inventory equal to 30% of the next month's unit sales. How many units should be produced in April? a.80,000 units b.83,000 units c.77,000 units d.85,000 units

"80,000 units sold in April + 27,000 units of desired ending inventory - 24,000 units of beginning inventory = 83,000 units"

Referring to the facts in question 2 above, what is the accounts receivable balance at the end of May? a.$40,000 b.$50,000 c.$72,000 d.$80,000

"The May 31 accounts receivable balance is $125,000 × 80% × 40% = $40,000"

standard cost per unit

-for all three variable manufacturing costs is computed the same way. -The standard quantity (or hours) per unit is multiplied by the standard price (or rate) per unit to obtain the standard cost per unit.

Refer to the data in the above question. If the actual spending on flowers for the month was $61,978 and the hotel originally budgeted for 30 operating days and 7,500 room-days, what was the spending variance for the month? a.$3,068 Favorable b.$3,068 Unfavorable c.$1,772 Favorable d.$1,772 Unfavorable

A. The spending variance is $3,068 favorable (= $65,046 - $61,978)

A five-star hotel buys bouquets of flowers to decorate its common areas and guest rooms. Its flexible budget for flowers is $325 per day of operations plus $7.20 per room day. (A room-day is a room rented for one day; a room is decorated with flowers only if it is occupied.) If this month the hotel operated for 30 days and it had 7,680 room-days, what would be the flexible budget amount for flowers for the month? a.$55,296 b.$65,046 c.$9,750 d.$332.20

B. The cost for flowers according to the flexible budget is $65,046 (= $325 per operating day × 30 operating days + $7.20 per room-day × 7,680 room-days)

March, April, and May sales are $100,000, $120,000, and $125,000, respectively. A total of 80% of all sales are credit sales and 20% are cash sales. A total of 60% of credit sales are collected in the month of the sale and 40% are collected next month. What is the amount of cash collections for April? a) $89,600 b) $111,600 c)$113,600 d) $132,600

Cash collections for April are calculated as follows: ($100,000 × 80% × 40%) + ($120,000 × 20%) + ($120,000 × 80% × 60%) = $113,600.

favorable

If actual revenue exceeds what the revenue should have been, the variance is labeled favorable

unfavorable

If actual revenue is less than what the revenue should have been

cash budget

a detailed plan showing how cash resources will be acquired and used over a specific time period

Sales Budget

a detailed schedule showing expected sales expressed in both dollars and units

Which of the following statements is true? (You may select more than one answer.) a.The standard quantity per unit defines the amount of direct materials that should be used for each unit of finished goods. b.The "standard quantity allowed for actual output" equals the actual output of finished goods multiplied by the standard quantity per unit. c.The materials price variance measures the difference between an input's actual price and its standard price, multiplied by the standard quantity purchased. d.The 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"

a,b,d The materials price variance is based on the actual quantity purchased

Which of the following statements is true?" a.A planning budget is prepared before the period begins and it is based on the actual level of activity incurred during the period. b.A flexible budget is an estimate of what revenues and costs should have been, given the actual level of activity for the period. c.The variance analysis cycle includes analyzing differences between actual results and what should have occurred according to the budget. d.The management by exception approach enables managers to focus on the most important variances while bypassing trivial discrepancies

b,c,d

"Which of the following statements is false? a.Control involves gathering feedback to ensure that the plan is being properly executed or modified as circumstances change b.Responsibility accounting is based on the belief that all managers should be held accountable for achieving the company's overall goals, even if this requires holding some managers responsible for items that are beyond their control. c.A self-imposed budget is prepared with the full cooperation and participation of managers at all levels of the organization. d.One limitation of self-imposed budgets is that lower-level managers may allow too much budgetary slack

b.Responsibility accounting is based on the belief that all managers should be held accountable for achieving the company's overall goals, even if this requires holding some managers responsible for items that are beyond their control.

master budget

consists of a number of separate but interdependent budgets that formally lay out the company's sales, production, and financial goals.

flexible budget

is an estimate of what revenues and costs should have been, given the actual level of activity for the period

Which of the following statements is true? (You may select more than one answer.) a.The manufacturing overhead budget includes depreciation related to assets that support a company's selling and administrative functions .b.The cash disbursements for selling and administrative expenses are reported in the budgeted income statement. c.The selling and administrative expense budget includes depreciation related to manufacturing assets. d.The total variable and fixed selling and administrative expenses incurred during a period are reported in the budgeted income statement"

d.The total variable and fixed selling and administrative expenses incurred during a period are reported in the budgeted income statement"

standard hours per unit

defines the amount of direct labor hours that should be used to produce one unit of finished goods

standard rate per hour

defines the company's expected direct labor wage rate per hour, including employment taxes and fringe benefits

Direct Materials Budget

details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories

Manufacturing Overhead Budget

lists all costs of production other than direct materials and direct labor

selling and administrative expense budget

lists the budgeted expenses for areas other than manufacturing

Production Budget

lists the number of units that must be produced to satisfy sales needs and to provide for the desired ending finished goods inventory

Materials Price Variance (MPV)

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

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

Quantity Variance

the difference between how much of an input was actually used and how much should have been used and is stated in dollar terms using the standard price of the input

Spending Variance

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

Price Variance

the difference between the actual amount paid for an input and the standard amount that should have been paid, multiplied by the actual amount of the input purchased