ACC 213 Learnsmarts (CH. 7-9)
Commission expense is budgeted to be $16,000 at a planned sales level of 4,000 units. If only 2,900 units are sold, how much commission expense will appear on the flexible budget, and is the activity variance favorable or unfavorable?
$11,600 and favorable Flexible budget expense: $16,000/4,000= $4 per unit x 2,900 units= $11,600. Since the flexible budget expense < planning budget expense, the variance is favorable
Fancy Nails has an estimated cost for supplies of $0.75 per manicure. Jane's budget was based on 2,400 manicures and total cost for supplies of $1,800. June's actual activity was 2,500 manicures. Total cost of supplies in June was $2,000. Calculate the spending variance for June.
$125 U Flexible budget amount for supplies: $0.75 x 2,500 manicures= $1,875 Spending variance: $1,875-$2,000= $125 U
Budgets:
- Force managers to think about and plan for the future - And the budgeting process can uncover potential bottlenecks before they occur - Coordinate the activities of the entire organization by integrating the plans of its various parts - Define goals and objectives that can serve as benchmarks for evaluating subsequent performance
When profit targets are set by top managers:
- Goals may be unbelievably high - Too much slack may be allowed - Waste may occur
A cost center's performance report does not include:
- Net operating income - Revenue
Options to generate a favorable revenue and spending variance include:
- Protecting the selling price - Increase operating efficiency - Reduce the prices of inputs
Activity-based costing only charges products for the cost of the capacity used because:
-It results in a more stable unit product cost -Products are only assigned the costs of resources they actually use
Organizing-sustaining activities include:
-Preparing annual reports -Setting up a computer network -Heating a factory
The most common management reports using ABC data are:
-Product profitability -Customer profitability
Customer-level activities include:
-Sales calls -Mailing catalogs
Activities that could be combined into one batch-level activity are the number of:
-Shipped orders -Customer orders
What causes traditional and activity-based costing systems to report different product margins?
-Traditional cost systems allocate all manufacturing overhead costs to products -The ABC system assigns non-manufacturing overhead costs to products on a cause-and-effect basis as appropriate -Traditional cost systems allocate all of the manufacturing overhead costs to products using a volume-related allocation base
An activity-based costing system:
-Uses numerous overhead cost pools -May exclude some manufacturing costs from product costs
Steps for implementing ABC in order:
1. Define activities, activity cost pools, and activity measures 2. Assign overhead costs to activity cost pools 3. Calculate activity rates 4. Assign overhead costs to cost objects 5. Prepare management reports
The first major step in implementing ABC is to identify the _______ that will form the foundation for the system.
Activities
In ABC, any event that causes consumption of overhead resources is a(n)
Activity
In activity-based costing, each cost pool accumulates costs that relate to a single ________ measure in the ABC system
Activity
The difference between a revenue or cost item in the planning budget and the same item in the flexible budget at the actual level of activity is a(n) _______ variance
Activity
Total cost of each activity divided by the total activity is the computation of:
Activity rates
Which costing system charges products only with the costs of the capacity used by those products and not with the cost of unused capacity?
Activity-based
Unfavorable variance
Actual revenue is less than budgeted revenue
Favorable variance
Actual revenue is more than budgeted revenue
In activity-based costing, the consumption of overhead resources is caused by:
An activity
Setting up equipment, placing purchase orders, and arranging shipments to customers are all examples of ___________ activities
Batch-level
When a manager creates a budget that is to easy to attain, ______ occurs
Budgetary slack
Which of the following is NOT found in the financing section of the cash budget?
Cash deficiency
A 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed is called a(n) _____ or perpetual budget
Continuous
Gathering feedback to ensure that the plan is being followed is referred to as _______
Control
In activity based costing another term for activity measure is:
Cost driver
A cost pool including costs to entertain clients and make sales calls in a(n) _________ activity
Customer-level
A revenue variance is the:
Difference between what revenue should have been at the actual level of activity and the actual revenue
The number of working hours required to satisfy the production budget is shown on the __________ budget
Direct labor
The cost of unsold units is computed on the _______ budget
Ending finished goods inventory
True or false: The definition of responsibility accounting states that senior management is directly responsible for every decision made by lower level managers
False
Estimates of what revenues and costs should have been based on the actual level of activity are shown on the ______ budget
Flexible
What costs and revenues should be for the actual level of activity is shown on a (n) ________ budget
Flexible
Which of the following can be combined in activity-based costing?
Highly correlated activites
Unfavorable activity variance may not indicate bad performance because:
Increased activity should result in higher variable costs
Because of fixed costs, net operating income does not change in proportion to change in the level of activity which is the _________ effect
Leverage
Using a budget to blame or pressure employees to do a better job leads to:
Mistrust
If a budget initiated by top management has targets that are set too high:
Motivation will suffer
A cost center's performance report does not include:
Net operating income
Fancy Nail's monthly rent is $2,500. The company's static budget for March was based on the activity level of 2,000 manicures. Total sales was budgeted at $40,000 and nail technician wages (a variable cost based on the number of manicures) was budgeted at $20,000. Actual manicures in March totaled 2,200. Assuming no other expenses, Fancy Nails' flexible budget will show:
Net operating income of $19,500 ($44,000-$22,000-$2,500) Sales of $44,000 ($20 per manicure ($40,000/2,000) x 2,200)
Usually, traditional costing _______ high-volume products and _______ low-volume products
Overcosts; undercosts
Activity-based costing uses numerous ________ cost pools
Overhead
More accurate estimates and higher motivation are generally the result of using a(n) ______ budget
Participative
Developing goals and preparing various budgets to achieve those goals is part of the __________ process.
Planning
Designing and advertising a product are _________ activities
Product-level
Cost driver
Refers to an allocation base or activity measure in activity-based costing
Under the concept of _____________________, managers should only be held accountable for items they can actually control.
Responsibility accounting
A manager cannot complain that the budget was unrealistic and impossible to meet when a(n) _______ budget is in place
Self-imposed
An unchanged planning budgets is know as a(n) _______ planning budget
Static
Revenue and spending variance
Subtract flexible budget from actual budget
Activity variance
Subtract planning budget from flexible budget
Budgetary slack occurs when a manager submits a budget that is:
To easy to attain
In companies that do not use a self-imposed budgeting process, profit targets are generally set by:
Top managers
Costs such as factory supplies and power to run machines could be combined in a cost pool based on the number of:
Units produced
Companies use the _____________ cycle to evaluate and improve performance
Variance analysis
Power to run production equipment would be a(n) _________ activity
unit-level
