Managerial accounting Exam #3
Rate of Return Formula
Usually cost of capital (current value - original value)/original value
You would expect total _____ costs to be higher in the flexible budget than expected at a higher activity level
Variable
A favorable _____ variance that is higher than expected and can cause the actual budgeted profit to change
activity
common errors in preparing performance reports include
assuming all costs are fixed assuming all costs are variable
When a static planning budget is compared to actual results at a different activity level,
changes in costs are expected due to changes in activity increases or decreases in net income are not adequately explained
a spending variance is the
difference between what a cost should have been at the actual level of activity and cost
Performance reports for cost centers
do not include revenues or net income
Revenues and costs are adjusted as the level of activity changes on a ______ budget
flexible
Unfavorable activity variances may not indicate bad performance because
increased activity should result in higher variable costs
When a static planning budget is compared to actual results at a different activity level,
increases or decreases in net income are not adequately explained Changes in costs are not expected due to changes in activity
Variances are more accurate when using
multiple cost drivers
variances are more accurate when using
multiple cost drivers
A cost center's performance report does not include
net operating income
A significant amount of funding from sources other than sales usually occurs in
nonprofit
flexible budget
shows what revenue should have been at the actual level of activity shows what variable costs should have been at the actual level of activity shows what fixed costs should have been at the actual level of activity
if activity levels are lower than expected, total _____ costs should be favorable
variable
Break Even Formula Units
Target Profit + Fixed Expenses/Contribution Margin Per Unit
Break Even Formula Sales
Target Profit + Fixed Expenses/Percent of Sales
Labor Rate Variance
AH*(AR - SR)
Variable Overhead Rate Variance
AH*(AR - SR)
Variable Overhead Spending Variance
AOH - AH*SR
Spending Variance Thing??
AQ X AP AQ X AP SQ X SP Price Var (C1 - C2) Quantity Var (C2 - C3) Spending Var (C5 - C4)
Material Price Variance
AQ*(AP - SP)
Match the comparisons made on the performance report
Activity Variance --> Planning Budget - Flexible Budget Revenue and Spending Variances --> subtract flexible budget from actual budget
Average Operating Assets Formula
Add up All Operating Expenses Identify all Beginning & Ending Balances Add together Divide the sum by 2
When actual revenue ____ what the revenue should have been, the result is favorable
Exceeds
When actual revenue ______ what the revenue should have been, then it is favorable
Exceeds
Revenue/Spending Variance Formula
Flexible Budget - Actual Results
How does the level of activity affect costs in a flexibility budget?
Higher levels of activity increase some costs
What kind of responsibility center gets to keep and reinvest its profits?
Investment Center
ROI Formula
Margin x Turnover
Nonprofit organizations
May have revenue sources that are fixed Usually have significant funding sources other than assets
What items would be omitted on a cost center's performance report?
Net Operating Income Revenue ONLY DOES EXPENSES
Margin Formula
Net Operating Income/Sales
Residual Income Formula
Operating Income - (Rate of Return*Operating Assets)
Activity Variance Formula
Planned Budget - Flexible Budget
Order of flexible budget
Planning Budget Activity variance Flexible budget Revenue/expenses Actual budget
Which responsibility center has both revenue and expenses?
Profit Center
Material Quantity Variance
SP*(AQ - SQ)
Labor Efficiency Variance
SR*(AH - SH)
Variable Overhead Efficiency Rate
SR*(AH - SH)
Net Operating Income Formula
Sales x Margin
Turnover Formula
Sales/Average Operating Assets
A ____ budget is prepared before the period begins
Static
