Accounting Test #3

Standard

a benchmark for measuring performance

Self-imposed Budget

a budget that is prepared with the full cooperation and participation of managers at all levels

Production Budget

prepared after the sales budget lists the # of units that must be produced during each budget period to meet sales needs and to provide for the desired ending inventory

Planning Budget

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

Actual Quantity

represents the actual amount of direct materials, direct labor, and variable manufacturing overhead used

Actual Price

represents the actual amount paid for the input used

Standard Price

represents the amount that should have been paid for the input used

Standard Quantity

represents the standard quantity allowed for the actual output of the period

Sales Budget

shows the expected sales for the budget period expressed in dollars and units

Quantity Standards

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

Price Standards

specify how much should be paid for each unit of input

Budgeting

the acting of preparing a budget

Which of the following would produce a favorable labor efficiency variance?

working fewer hours than the standards called for in completing a job

Continuous/Perpetual Budget

12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed

Production Budget Equation

Budgeted unit sales ADD desired ending inventory EQUALS total needs LESS beginning inventory EQUALS required production

Sales Budget Equation

Estimated units to be sold X Estimated selling price = Estimated Sales

Direct Materials Budget Equation

Raw materials required for production ADD desired ending inventory EQUALS total raw materials needed LESS beginning inventory = Raw materials to be purchased

Cash Budget

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

Flexible Budget

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

Advantages of Budgeting

budgets communicate management's plans throughout the organization budgets force managers to think about and plan for the future the budgeting process provides a means of allocating resources to those parts of the organization where they can be used most effectively the budgeting process can uncover potential bottlenecks before they occur budgets coordinate the activities of the entire organization by integrating the plans of its various parts budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance

Operating Budgets

cover a one-year period corresponding to a company's fiscal year

Budget

detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period

Spending Variance

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

Revenue Variance

difference between what the total revenue should have been, given the actual level of activity for the period, and the actual total revenue

Highlight Variances

differences between actual results and what should have occurred according to the budget

Which of the following budgets are prepared before the production budget?

direct materials budget NO sales budget YES

An unfavorable materials quantity variance occurs when the actual quantity used in production is less than the standard quantity allowed for the actual output of the period

false

Comparing actual results to a budget based on the actual activity for the period is possible with the use of a:

flexible budget

Advantages of Self-imposed Budgets

individuals at all levels of the organization are viewed as members of the team whose judgments are valued by top management budget estimates prepared by front-line managers (who have intimate knowledge of day-to-day operations) are often more accurate than estimates prepared by top managers motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from above a manager who is not able to meet a budget imposed from above can claim that it was unrealistic. Self-imposed budgets eliminate this excuse

Planning

involves developing objectives and preparing various budgets to achieve those objectives

Control

involves the steps taken by management to increase the likelihood that the objectives set down at the planning stage are attained and that all parts of the organization are working together toward that goal

Poor quality materials could have an unfavorable effect on which of the following variances?

labor efficiency and materials quantity variance

Responsibility Accounting

managers should be held responsible only for those items that they can control to a significant extent

Flexible Budgets:

may be prepared for any activity level in the relevant range enable "apples to apples" cost comparisons help managers control costs help evaluate managerial performance

The standard quantity allowed (SQ) is equal to:

the amount of direct material or labor that should have been used to produce the actual production amount

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

Price Variance

the difference between the actual price of an input and its standard price, multiplied by the actual amount of the input purchased

The variance that is usually most useful in assessing the performance of the purchasing department manager is:

the materials price variance

Budgetary Control

the use of budgets to control an organization's activities

A materials price variance is unfavorable if the actual price exceeds the standard price

true

Purchasing/Production Manager

usually held responsible for the materials price variance, and materials quantity variance, respectively

Understanding Flexible Budgets

variable costs change in direct proportion to changes in activity total fixed costs remain unchanged within the relevant range

Budgetary Slack

when a budget is not aligned with overall strategic objectives