Accounting Final Flashcards
What is decentralization?
decentralization is when the power within a company is spread out (not solely at the top)
What is the Static budget also referred to as?
- the master budget
- Prepared at the beginning of an accounting period
- Based solely on planned volume activity
What is the flexible budget and how is it determined?
- Shows expected revenues and cost in a variety of volume levels
- Standard Price X Actual Quantity
The differences between standard (planned, expected, or estimated) amounts are known as what?
- Variance
How is variance calculated?
- The difference between what is budgeted vs the actual numbers
How do you know when variance is favorable or unfavorable?
-When actual sales revenue is greater than planned revenue
How to calculate Price Variance
- Price Variance = Actual Price - Standard Price X Actual quantity
What is Cost of goods sold and how is it calculated?
- The direct cost of producing the goods sold by the company
- Subtracting from the company’s revenue to determine gross profit
- COGS = Begg. Inv. + P - Ending Inv.
P= Purchases during the period
Product Cost
- Are all the costs related to obtaining or manufacturing a product ( can be assets or expenses)
Period Cost
- All cost not included in product cost
- Overhead, SG&A,
Activity Based Costing (ABC)
- Two-stage allocation process
- Cost associated with business activity
- allocated to cost pools
Activity Center
- a place to maintain all types of records
Break Even Point
- Contribution margin to be = to fixed cost
Margin of Safety
- Budgeted units - break even units
What are the 3 levels of planning for a business?
- Strategic: long term
- Capital: intermediate (2-5 yrs)
- Operations: short term (< a yr)
- Perpetual: Monthly basis
What does a cash budget include?
1: cash receipts
2: cash payments
3: financing activities
What are the advantages of budgeting?
- it promotes planning
- coordination
- enhances performance measurement
How is sales revenue determined when working with a static budget?
Expected sales price per unit X planned volume activity
Investment centers
- Decisions are based on revenue, investments, and expenses
- Managers are evaluated based on ROI and RI
Profit centers
- These make revenue and expense decisions
- Managers are evaluated with financial statements
Cost Centers
- Managers only control expenses
- Managers are evaluated bases on decisions and variances
Responsibility centers
- An organizational unit that controls identifiable revenue or expense items
- Can be divided into 3 categories (Cost, profit, investment)
