MCC Horngren's Accounting 1090 Chapter 8

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13. 252 U = ((1512/2520)-0.5) x 2520 14. 60 U = (2520 -( 1200x2)) x 0.50 15. 312 U 16. 50 U 17. 100 U = 700 - (0.25 x (2 x 1200)) 18. 150 U

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19. C 20. C 21. A 22. C 23. B

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7. 420 U = (6.25-6.0)x 1,680 8. 720 F = (1680 - (1200x1.5)) x 6 9. 300 F 10. 1260 F = ((36540-2520) - 15)x 2520 11. 1800 U = ((2520-(1200x2)) x 15 12. 540 U

How are Flexible Budgets used?

A Flexible Budget separates variable costs from fixed costs; the variable costs put the flex in the flexible budget. To create a flexible budget you need to know the budgeted selling price per unit, variable cost per unit, total fixed costs, and different volume levels within the relevant range.

What is a Standard?

A price, cost, or quantity that is expected under normal conditions

What is Static Budget Performance Report?

A report that lists the Static Budget, the actual results, and their variance.

What is Standard Cost System?

An accounting system that uses standards for product costs-direct materials, direct labor, and manufacturing overhead

Cost variance and Efficiency variance formulas

Cost= (actual cost - standard cost) x Actual quantity Efficiency= (actual quantity-standard quantity) x standard cost

What are the Direct Labor Variances?

Direct Labor Cost Variance difference between actual and expected cost of labor =(AC-SC)XAQ Direct Labor Efficiency Variance difference between labor hour should of used and actual labor hours used =(AQ-SQ) X SC

Product Cost Variances and the manager responsible

Direct Materials Cost - Purchasing manager Direct Materials Efficiency - Production manager Direct Labor Cost - Human Resources manager Direct Labor Efficiency- Production Manager Variable Overhead Efficiency- Production Variable Overhead Cost - Production Fixed Overhead Cost- Production Fixed Overhead Efficiency- Production

What are the Direct Material Variances?

Direct Materials Cost Variance difference between actual and expected cost for direct materials = (Actual Cost - Standard Cost) x Actual Quantity Direct Materials Efficiency Variance difference between actual and expected materials needed =(Actual Quantity - Standard Quantity) X Standard cost

Efficiency Standard

Efficiency standards, also referred to as quantity standards or usage standards, are a measure of how much input should be put in the manufacturing process

What are the Fixed overhead variances?

Fixed overhead cost variance actual fixed cost overhead - budgeted fixed overhead Overhead allocated to production =standard overhead allocation rate x standard quantity of allocation based allowed for actual output Fixed overhead volume variance =budgeted fixed overhead - allocated fixed overhead

How is the fixed overhead volume variance different?

Fixed overhead volume is not a cost variance--it is a volume variance, and explains why fixed overhead is overallocated or underallocated

Formulas for Flexible budget and Sales Volume Variance

Flexible Budget Variance= Actual Results - Flexible Budget Sales Volume Variance= Flexible Budget - Static Budget

What are the two components of the Static Budget Variance?

Flexible budget variance- the difference between actual results and the expected results in the flexible budget for the actual units sold. Sales Volume Variance- the difference between expected results in the flexible budget for the actual units sold and the static budget.

What is the Flexible Budget Performance Report?

Made of 5 columns reporting Actual results, Flexible Budget, Flexible budget variance, Static Budget, and Sales Volume Variance

Static vs. Flexible Budget

Static- a budget that is prepared for only one level of sales volume Flexible- summarizes revenues and expenses for various levels of sales volume within a relevant range

What is a Variance?

The difference between an actual amount and the budgeted amount; labeled as favorable if it increases operating income and unfavorable if it decreases operating income

How does the static budget affect cost and efficiency variances?

The static budget plays no role in the cost and efficiency variances

What are the variable overhead variances?

Variable Overhead Cost Variance (AC - SC) x AQ Variable Overhead Efficiency Variance (AQ-SQ) x SC

What is management by exception?

When managers concentrate on results that are outside the accepted parameters.

Standard overhead allocation rate

budgeted variable overhead + budgeted fixed overhead / budgeted allocation base

Budgeted allocation base

expected output x direct labor hours per unit