Accounting 2 Test 3

Question 1

Budget Variance

Answer 1

The difference between the actual fixed overhead costs and the budgeted fixed overhead costs for the period.

Question 2

Labor Efficiency Variance

Answer 2

Difference between the actual hours taken to coplete a task and the standard hours allowed for the actuaal output, multiplied by the standard hourly labor rate.

Question 3

Labor Rate Variance

Answer 3

Difference between the actual hourly labor rate and the standard rate, multiplied by the number of hours worked during the period.

Question 4

Materials Price Variance

Answer 4

Difference between the actual unit price paid for an item and the standard price, multiplied by the quantity purchased.

Question 5

Materials Quantity Variance

Answer 5

Difference between the actual quantity of materials used in production and the standard quantity allowed for the actual output, multiplied by the standard price per unit of materials.

Question 6

Price Variance

Answer 6

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.

Question 7

Quantity Variance

Answer 7

Variance that is computed by taking the difference between the actual quantity of the input used and the amount of the input that should have been used for the actual level of output and multiplying the result by the standard price of the input.

Question 8

Standard Cost Card

Answer 8

Detailed listing of the standard amounts of inputs and their costs that are required to produce one unit of a specific product.

Question 9

Standard Cost Per Unit

Answer 9

Standard quantity allowed of an input per unit of a specific product, multiplied by the standard price of the input.

Question 10

Standard Hours Allowed

Answer 10

Time that should have been taken to complete the period’s output. It is computed by multiplying the actual number of units produced by the standard hours per unit.

Question 11

Standard Hours Per Unit

Answer 11

Amount of direct labor time that should be required to complete a single unit of product, including allowances for breaks, machine downtime, cleanup, rejects, and other normal inefficiencies.

Question 12

Standard Price Per Unit

Answer 12

Price that should be paid for an input.

Question 13

Standard Quantity Allowed

Answer 13

Amount of an input that should have been used to complete the period’s actual output. It is computed by multiplying the actual number of units produced by the standard quantity per unit.

Question 14

Standard Rate Per Hour

Answer 14

Labor rate that should be incurred per hour of labor time, including employment taxes and fringe benefits.

Question 15

Variable Overhead Efficiency Variance

Answer 15

Difference between the actual level of activity (direct labor hours, machine hours, or some other base) and the standard activity allowed, multiplied by the variable part of the predetermined overhead rate.

Question 16

Variable Overhead Rate Variance

Answer 16

Difference between the actual variable overhead cost incurred during a period and the standard cost that should have been incurred based on the actual activity of the period.

Question 17

Balanced Scorecard

Answer 17

Integrated set of performance measures that are derived from and support the organization’s strategy.

Question 18

Cost Center

Answer 18

Business segment whose manager has control over cost but has no control over revenue or investments in operating assets.

Question 19

Decentralized Organization

Answer 19

Organization in which decision-making authority is not confined to a few top executives but rather is spread throughout the organization.

Question 20

Delivery Cycle Time

Answer 20

Elapsed time from receipt of a customer order to when the completed goods are shipped to the customer.

Question 21

Economic Value Added (EVA)

Answer 21

Concept similar to residual income in which a variety of adjustments may be made to GAAP financial statements for performance evaluation purposes.

Question 22

Investment Center

Answer 22

Business segment whose manager has control over cost, revenue, and investments in operating assets.

Question 23

Manufacturing Cycle Efficiency (MCE)

Answer 23

Process (value-added) time as a percentage of throughput time.

Question 24

Margin

Answer 24

Net operating income divided by sales.

Question 25

Net Operating Income

Answer 25

Income before interest and income taxes have been deducted.

Question 26

Operating Assets

Answer 26

Cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes.

Question 27

Profit Center

Answer 27

Business segment whose manager has control over cost and revenue but has no control over investments in operating assets.

Question 28

Residual Income

Answer 28

Net operating income that an investment center ears above the minimum required return on its operating assets.

Question 29

Responsibility Center

Answer 29

Any business segment whose manager has control over costs, revenues, or investments in operating assets.

Question 30

Return on Investment (ROI)

Answer 30

Net operating income divided by average operating assets. It also equals margin multiplied by turnover.

Question 31

Throughput Time

Answer 31

Amount of time required to turn raw materials into completed products.

Question 32

Turnover

Answer 32

Sales divided by average operating assets.

Question 33

Avoidable Cost

Answer 33

Cost that can be eliminated by choosing one alternative over another in a decision. This term is synonymous with differential cost and relevant cost.

Question 34

Bottleneck

Answer 34

Machine or some other part of a process that limits the total output of the entire system.

Question 35

Constraint

Answer 35

Limitation under which a company must operate, such as limited available machine time or raw materials, that restricts the company’s ability to satisfy demand.

Question 36

Differential Cost

Answer 36

Difference in revenue between any two alternatives.

Question 37

Make or Buy Decision

Answer 37

Decision concerning whether an item should be produced internally or purchased from an outside supplier.

Question 38

Opportunity Cost

Answer 38

Potential benefit that is given up when one alternative is selected over another.

Question 39

Relevant Benefit

Answer 39

Benefit that differs between alternatives in a decision. Differential revenue is a relevant benefit.

Question 40

Relevant Cost

Answer 40

Difference in cost between any two alternatives. Synonyms are avoidable cost, differential cost, and incremental cost.

Question 41

Special Order

Answer 41

One-time order that is not considered part of the company’s normal ongoing business.

Question 42

Sunk Cost

Answer 42

Any cost that has already been incurred and that cannot be changed by any decision made now or in the future.

Question 43

Vertical Integration

Answer 43

Involvement by a company in more than one of the activities in the entire value chain from development through production, distribution, sales, and after-sales service.