Accounting for Control

Question 1

What is the budgetary control process?

Answer 1

1) prepare budgets
2) perform and collect information on actual performance
3) identify variances between planned and actual performance
4) respond to variances between planned and actual performance and exercise control

Question 2

What is the relationship between budgeted and actual profit?

Answer 2

Actual profit = budgeted profit + all favourable variances - all adverse variances

Question 3

What is the sales volume variance?

Answer 3

The difference between profit shown in original budget and profit shown in fixed budget

Question 4

What is the sales price variance?

Answer 4

The difference between actual sales and sales shown in the flexed budget

Question 5

What is the total direct material variance?

Answer 5

Difference between actual direct materialcost and direct material cost as per the flexed budget (budgeted usage for the actual output)

Question 6

What is the Direct material usage variance?

Answer 6

Difference between actual amount of direct materials used and amount as per flexed budget (budgeted usage for actual output). Multiplied by the budgeted direct material cost per unit

Question 7

What is the direct material price variance?

Answer 7

Difference between actual cost of the direct material used and direct material cost allowed (actual quantity of material used at the budgeted direct material cost)

Question 8

What is the direct labour variance?

Answer 8

Difference between actual direct labour cost and direct labour cost as per the flexed budget (budgeted direct labour hours for the actual output)

Question 9

What is the direct labour efficiency variance?

Answer 9

Difference between actual direct labour hours and direct labour hours as per the flexed budget (budgeted direct labour hours for the actual output) multiplied by the budgeted direct labour rate per hour

Question 10

What is the direct labour rate variance?

Answer 10

Difference between actual cost of direct labour hours and direct labour cost allowed (actual direct labour hours worked at the budgeted labour rate)

Question 11

What is the fixed overheads spending variance?

Answer 11

Difference between actual fixed overhead cost and fixed overhead cost as per the flexed (and the original) budget

Question 12

What are the 2 types of standards?

Answer 12

1) ideal standards

2) practical standards

Question 13

What are the problems with variances and stamdards?

Answer 13

1) standards can quickly become outdated
2) factors beyond a manager’s control may impact and affect variance
3) difficult to set the boundaries regarding the management responsibilities
4) no incentive to achieve past the standards
5) standards may create unreasonable incentives

Question 14

Behavioural issues of budgetary control

Answer 14

1) Budgets can improve job satisfaction & performance
2) Budget targets which are demanding but achievable can increase motivation
3) Demanding targets which are unrealistic can negatively affect a manager’s performance
4) Participation of managers in setting their targets can increase motivation and performance

Question 15

Impacts of management style

Answer 15

• budget constrained style
• profit conscious style
• non accounting style

Question 16

What is feedback control?

Answer 16

The key feature of feedback control is that it takes steps to correct operations as soon as a signal that they have gone wrong occurs

Question 17

What is feedforward control?

Answer 17

Predictions are made about what could possibly go wrong and then steps are taken to avoid these undesirable outcomes

Question 18

define an adverse variance

Answer 18

a variance that, by itself, makes the actual lower than the budgeted profit

Question 19

What is a favourable variance?

Answer 19

a variance that subsequently increases the profit so the actual profit is therefore above the budgeted profit

Question 20

Define a variance

Answer 20

the effect of a particular factor, taken in isolation, that impacts and effects the budgeted profit

Question 21

What does the difference between the favourable and adverse variances represent?

Answer 21

the diff. between budgeted and actual profit

Question 22

what is the total direct materials variance?

Answer 22

the sum of the usage variance and the price variance