ACG2071 Ch. 9, 10, 11
management by exception
The concept that focuses on important variances and ignores trivial ones is
efficiency
The difference between the actual hours used and the standard hours allowed for the actual output is used in the calculation of the labor ______ variance
Denominator
The estimated amount of the allocation base used in the formula for the pre determined overhead rate is called the ______ activity
Production
The labor rate variance is typically the responsibility of the ______ supervisor
Net Operating Income
income before taxes and interest and is sometimes referred to as EBIT
Planning Budget
is prepared before the period begins and is valid for only the planned level of activity
Revenue Variance
is the difference between actual total revenue and what the total revenue should have been
Responsibility Center
is used for any part of an organization whose manager has control over and is accountable for cost, profit, or investments
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
Investment Center
has control over cost, revenue, and investments in operating assets
revenue, and net operating income
A cost center's performance report does not include
Actual Fixed Overhead - Budgeted Fixed Overhead
Budgeted Variance Formula
variance analysis
Companies use the ______ ______ cycle to evaluate and improve performance
fixed
Comparing actual costs to static planning budget cost only makes sense if the cost are
inefficient operations, high defect rates, obsolete goods
Excessive inventory on hand, especially in the work in process inventory account, may lead to:
Margin, turnover
In order to fully evaluate ROI managers should compute both ______ and ______
AHxSR - SHxSR
Labor Efficiency Variance Formula
AHxAR - AHxSR
Labor Rate Variance Formula
Responsibility
Lower-level managers decision making authority can be linked to the outcomes of those decisions through ______ accounting systems
Net Operating Income / sales
Margin Formula
AQxAP - AQxSP
Materials Price Variance Formula
AQxSP - SQxSP
Materials Quantity Variance Formula
Materials Price Variance
Measures the difference between an inputs actual price and its standard price, multiplied by the actual quantity purchased
Net Operating Income / Avg Operating Assets
ROI Formula
Net Operating Income - Avg Operating assets x minimum required rate of return
Residual Income Formula
Net Operating Income - avg operating assets x min. rate of return
Residual Income Formula
management, exception
Standard costs are a key element in the ______ by ______ approach utilized by some companies
fixed
The % change in net income in the flexible budget is greater than the percentage change in activity due to ______ costs
Error that occurs when the level of activity is estimated incorrectly
The Volume variance is the:
Standard
The amount of an input that should have been used to produce the actual output is known as the _______ quantity or hours allowed
Cost Center
has control over costs, but not over revenue or the use of investment funds
Actual Output x Standard Quantity
The standard quantity allowed for production equals
Sales / Avg Operating assets
Turnover Formula
Fixed Component of the predetermined Overhead Rate x Denominator hours - standard hours allowed for the actual output
Volume Variance Formula
budgeted and applied fixed overhead
Volume variance is the difference between:
Increases ROI overtime
What does using net book value (instead of gross cost) to calculate avg operating assets do to ROI overtime?
Quantity Standards
What specifies how much of an input should be used to make a product or provide a service
Standard
a benchmark for measuring performance
Flexible Budget
a report showing estimates of what revenues and costs should have been, given the actual level of activity for the period
Economic Value added (EVA)
an adaptation of residual income that has been adopted by many companies
Operating Assets
include cash, AR, Inventory, plant and equipment, and all other assets held for operating purposes
Decentralized Organization
decision making authority is spread throughout the organization rather than being confined to a few top executives
Return on Investment (ROI)
defined as net operating income divided by avg operating assets
Standard quantity per unit
defines 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
Activity Variance
due solely to the difference between the actual level of activity used in the flexible budget and the level of activity assumed in the planning budget
Profit Center
has control over both costs and revenue, but not over the use of investment funds
Budget Variance
the difference between actual fixed manufacturing overhead and the budgeted fixed manufacturing overhead for the period
Spending Variance
the difference between the actual amount of the cost and how much the cost should have been, given the actual level of activity
Residual Income
the net operating income that an investment center earns above the minimum required return on its operating assets
Price Standards
what specifies how much should be paid for each unit of the input
