Managerial accounting Exam #3

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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


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