Accounting 2 Test 3 Flashcards
Budget Variance
The difference between the actual fixed overhead costs and the budgeted fixed overhead costs for the period.
Labor Efficiency Variance
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.
Labor Rate Variance
Difference between the actual hourly labor rate and the standard rate, multiplied by the number of hours worked during the period.
Materials Price Variance
Difference between the actual unit price paid for an item and the standard price, multiplied by the quantity purchased.
Materials Quantity Variance
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.
Price Variance
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.
Quantity Variance
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.
Standard Cost Card
Detailed listing of the standard amounts of inputs and their costs that are required to produce one unit of a specific product.
Standard Cost Per Unit
Standard quantity allowed of an input per unit of a specific product, multiplied by the standard price of the input.
Standard Hours Allowed
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.
Standard Hours Per Unit
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.
Standard Price Per Unit
Price that should be paid for an input.
Standard Quantity Allowed
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.
Standard Rate Per Hour
Labor rate that should be incurred per hour of labor time, including employment taxes and fringe benefits.
Variable Overhead Efficiency Variance
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.
Variable Overhead Rate Variance
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.
Balanced Scorecard
Integrated set of performance measures that are derived from and support the organization’s strategy.
Cost Center
Business segment whose manager has control over cost but has no control over revenue or investments in operating assets.
Decentralized Organization
Organization in which decision-making authority is not confined to a few top executives but rather is spread throughout the organization.
Delivery Cycle Time
Elapsed time from receipt of a customer order to when the completed goods are shipped to the customer.
Economic Value Added (EVA)
Concept similar to residual income in which a variety of adjustments may be made to GAAP financial statements for performance evaluation purposes.
Investment Center
Business segment whose manager has control over cost, revenue, and investments in operating assets.
Manufacturing Cycle Efficiency (MCE)
Process (value-added) time as a percentage of throughput time.
Margin
Net operating income divided by sales.
Net Operating Income
Income before interest and income taxes have been deducted.
Operating Assets
Cash, accounts receivable, inventory, plant and equipment, and all other assets held for operating purposes.
Profit Center
Business segment whose manager has control over cost and revenue but has no control over investments in operating assets.
Residual Income
Net operating income that an investment center ears above the minimum required return on its operating assets.
Responsibility Center
Any business segment whose manager has control over costs, revenues, or investments in operating assets.
Return on Investment (ROI)
Net operating income divided by average operating assets. It also equals margin multiplied by turnover.
Throughput Time
Amount of time required to turn raw materials into completed products.
Turnover
Sales divided by average operating assets.
Avoidable Cost
Cost that can be eliminated by choosing one alternative over another in a decision. This term is synonymous with differential cost and relevant cost.
Bottleneck
Machine or some other part of a process that limits the total output of the entire system.
Constraint
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.
Differential Cost
Difference in revenue between any two alternatives.
Make or Buy Decision
Decision concerning whether an item should be produced internally or purchased from an outside supplier.
Opportunity Cost
Potential benefit that is given up when one alternative is selected over another.
Relevant Benefit
Benefit that differs between alternatives in a decision. Differential revenue is a relevant benefit.
Relevant Cost
Difference in cost between any two alternatives. Synonyms are avoidable cost, differential cost, and incremental cost.
Special Order
One-time order that is not considered part of the company’s normal ongoing business.
Sunk Cost
Any cost that has already been incurred and that cannot be changed by any decision made now or in the future.
Vertical Integration
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.
