Cost Accounting Test 3
DL Price Variance
(Actual DL Price - Flex DL Price) x Actual Output Quantity
DM Price Variance
(Actual DM Price - Flex DM Price) x Actual Output Quantity
Price Variance Formula
(Actual Price - Flex Price) * Actual Quantity
Efficiency Variance Formula
(Actual Quantity - Flex Quantity) * Flex Price
Variable MOH Efficiency Variance
(Actual Quantity of Cost Driver - Flex Quantity of Cost Driver) x Budgeted Variable MOH per Cost Driver
DL Efficiency Variance
(Actual Quantity of DL Output - Flex Quantity of DL Output) x Budgeted DL Price
DM Efficiency Variance
(Actual Quantity of DM Output - Flex Quantity of DM Output) x Budgeted DM Price
Selling Price Variance
(Actual Selling Price - Budgeted Selling Price) x Actual Units Sold
Variable MOH Spending Variance
(Actual Variable MOH per Cost Driver - Flex Variable MOH per Cost Driver) x Actual Quantity of Cost Driver
Fixed MOH Production-Volume Variance
(Budgeted Fixed MOH/Unit x Actual Units) - Budgeted Fixed MOH
Budgeted Direct Labor
(Budgeted Production in Units * Direct Labor Hour Requirements per Unit)* Direct Labor Cost per Hour
Budgeted Manufacturing Overhead
(Budgeted Production in Units * Estimated Variable Cost per Unit) + Fixed Overhead
Budgeted Raw Materials Purchases
(Budgeted Production in Units * RM needed per unit) + Budgeted Ending Raw Materials Inventory - Budgeted Beginning Raw Materials Inventory
Annual Depreciation
(Initial Cost - Residual Value) / Useful Life
Average Investment
(Net Original Investment + Net Cash Flows) / 2
Rolling Budget
A budget that is always available for a specified future period.
Zero-Based Budget
A cash flow plan that assigns an expense to every dollar of your income, wherein the total income minus the total expenses equals zero.
Planning
A management function that includes setting goals.
Favorable Variance
A variance that causes operating income to be higher than budgeted.
Flex Variance Formula
Actual - Flex Budget
Static Variance Formula
Actual - Static Budget
Flexible-Budget Variances in Operating Income
Actual Operating Income - Flex Operating Income
Static-Budget Variance in Operating Income
Actual Operating Income - Static Operating Income
Direct Manufacturing Labor Variance
Actual Total Direct Labor - Flex Total Direct Labor
Direct Materials Variance
Actual Total Direct Materials - Flex Total Direct Materials
Fixed MOH Spending Variance
Actual Total Fixed MOH - Flex Total Fixed MOH
Fixed MOH Variance
Actual Total Fixed MOH - Flex Total Fixed MOH
Variable MOH Variance
Actual Total Variable MOH - Flex Total Variable MOH
Organization Sturcture
An arrangement of lines of responsibility within an organization.
An actual input quantity and a budget input quantity
An efficiency variance reflects the difference between
Control
Analyzing to see if the goal was actually met.
Increase in Accounting Net Income
Annual Net Cash Flow - Expected Depreciation
Accounting Annual Rate of Return
Annual Operating Income / Initial Investment
Annual Operating Income
Annual Savings - Annual Depreciation
Budgeted Ending Cash
Beginning Cash Balance + Budgeted Cash Receipts - Budgeted Cash Disbursements
Budgeted Production in Units
Budgeted Sales + Budgeted Ending Finished Goods Inventory - Budgeted Beginning Finished Goods Inventory
Internal Rate of Return Method
Capital budgeting discounted cash flow method that calculates the discount rate at which the present value of expected cash inflows from a project equals the present value of its expected cash outflows.
Net Present Value Method
Capital budgeting discounted cash flow method that calculates the expected monetary gain or loss from a project by discounting all expected future cash inflows and outflows to the present point in time, using the required rate of return.
Discounted Payback Method
Capital budgeting method that calculates the amount of time required for the discounted expected future cash flow to recoup the net initial investment in a project.
Accrual Accounting Rate of Return Method
Capital budgeting method that divides an accrual accounting measure of average annual income of a project by an accrual accounting measure of investment.
Payback Method
Capital budgeting method that measures the time it will take to recoup, in the form of expected future cash flows, the net initial investment in a project.
Discounted Cash Flow Methods
Capital budgeting methods that measure all expected future cash inflows and outflows of a project as if they occurred at the present point in time.
Operating Budget
Consists of budgeted income statement and its supporting budget schedules.
Production Budget
Detailed plan showing the number of units that must be produced during a period in order to satisfy both sales and inventory needs.
Selling & Administrative Budget
Detailed schedule of planned expenses that will be incurred in areas other than manufacturing during a budget period.
Sales Budget
Detailed schedule showing expected sales expressed in both dollars and units.
Fixed Overhead Spending Variance
Difference between actual fixed overhead costs and fixed overhead costs.
Budget Slack
Difference between inflated and realistic standards. Could cause under-promising or over-delivering.
Variable Overhead Efficiency Variance
Difference between the actual quantity of the cost-allocation base used and budgeted quantity of the cost-allocation base that should have been used to produce the actual output, multiplied by the budgeted variable overhead cost per unit of the cost-allocation base.
Variable OH Spending Variance
Difference between the actual variable overhead cost per unit of the cost-allocation base and the budgeted variable overhead cost per unit of the cost-allocation base, multiplied by the actual quantity of variable overhead cost-allocation base used.
Production Volume Variance
Difference between the budgeted fixed overhead and the fixed overhead allocated on the basis of actual output produced.
Choosing the appropriate level of investment in productive assets
Effective planning of fixed overhead costs includes
Master Budget
Expresses management's operating and financial plans for a specified period, usually a fiscal year, and it includes a set of budgeted financial statements.
Present Value
Factor * Net Cash Flows
Sales-Volume Variance in Operating Income
Flex Operating Income - Static Operating Income
Pro Forma Balance Sheet
Follows a financial budget.
Make Predictions Stage
Forecasts all potential cash flows attributable to alternative projects.
Leading
Implementing budget strategy.
Accounting Rate of Return
Increase in Accounting Net Income / Initial Investment
Initial Investment
Increase in annual cash flows * factor
Compound Interest
Interest earned on both the principal amount and any interest already earned.
Market Rate
Interest rate that borrowers are willing to pay and lenders are willing to accept for a specific lending agreement given the borrowers' risk level.
Proverbs 10:4
Lazy hands make a man poor, but diligent hands bring wealth.
When managers are concerned about improving quality
Little focus is placed on variable costs and more focus is on fixed costs during an operating cycle.
Favorable Variance Reminders
Managers should not simply interpret a favorable variance as good but should understand why the variance occurred.
Required Rate of Return (RRR)
Minimum acceptable annual rate of return on an investment. Also called the discount rate, hurdle rate, cost of capital, or opportunity cost of capital.
Interest
Money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.
Payback Period
Net Initial Investment/Annual Net Cash Flow
Net Present Value
Present Value of Future Cash Flows - Initial Investment
Unfavorable When Variance is Positive
Price Variance, Efficiency Variance, and Flexible Variance
Compounding
Process in which interest is earned on both the principal and on any previously earned interest.
Options to Improve an unfavorable direct materials efficiency variance
Provide additional training for direct laborers, improve design of product, purchase higher quality materials.
Organizing
Putting a plan together.
Time Value of Money
Recognition of the fact that a dollar received today is worth more than a dollar received at any future point in time.
Internal Rate of Return
Required Return + ((Difference Between Two Closest Factors) * Range Between Two Factors) = % per year
Parts of the Static Budget
Revenue - VC = CM CM - FC = OI
Total expected fixed costs
Same for a flexible budget and a master budget.
Cash Budget
Schedule of expected cash receipts and cash disbursements
Cash Receipts Budget
Schedule of the amounts and timings of the receipt of cash into a business.
Annuity
Series of equal regular deposits
Controlability
The degree of influence a specific manager has over costs, revenues, or related items for which he or she is responsible.
Financial Budget
The part of the master budget made up of the capital expenditures budget, the cash budget, the budgeted balance sheet, and the budgeted statement of cash flows.
Proverbs 21:5
The plans of the diligent lead to profit as surely as haste leads to poverty.
Budgetary Slack
The practice of underestimating budgeted revenues or overestimating budgeted costs to make budgeted targets easier to achieve.
Net Cash Flow
Total inflows - total outflows
Cash Disbursement Budget
Used to project the amount of cash to be disbursed during the budget period.
Unfavorable Variance
Variance that causes operating income to be lower than budgeted.
Matthew 25:27
Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest.
Colossians 3:23
Whatever you do, work at it with all your heart, as working for the Lord, not for men.
Unfavorable Fixed Overhead Flexible-Budget Variance
When machine-hours are used as an overhead cost-allocation base and annual leasing costs for equipment unexpectedly increase, the most likely result would be to report a(n) ________.
Work is scheduled efficiently
a favorable efficiency variance for direct labor might indicate that
Price Variance
a variance that is computed by taking the difference between the actual price and the standard price and multiplying the result by the actual quantity of the input
Static Budget
based on the level of output planned at the start of the budget period
Flexible Budget
calculates budgeted revenues and budgeted costs based on the actual output in the budget period.
Standard Cost
carefully determined cost of a unit of output
Flexible Budget Variance
difference between an actual result and the corresponding flexible-budget amount.
Efficiency Variance
difference between the actual input quantity used (such as square yards of cloth) and the budgeted input quantity allowed for actual output, multiplied by budgeted price.
Level 2 Variance
flexible budget variance and sales volume variance
Level 1 Variance
static budget variance
Sales Volume Variance
the difference between a flexible-budget amount and the corresponding static-budget amount.
Static Budget Variance
the difference between actual results and the expected results in the static budget
