Accounting for Control Flashcards
What is the budgetary control process?
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
What is the relationship between budgeted and actual profit?
Actual profit = budgeted profit + all favourable variances - all adverse variances
What is the sales volume variance?
The difference between profit shown in original budget and profit shown in fixed budget
What is the sales price variance?
The difference between actual sales and sales shown in the flexed budget
What is the total direct material variance?
Difference between actual direct materialcost and direct material cost as per the flexed budget (budgeted usage for the actual output)
What is the Direct material usage variance?
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
What is the direct material price variance?
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)
What is the direct labour variance?
Difference between actual direct labour cost and direct labour cost as per the flexed budget (budgeted direct labour hours for the actual output)
What is the direct labour efficiency variance?
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
What is the direct labour rate variance?
Difference between actual cost of direct labour hours and direct labour cost allowed (actual direct labour hours worked at the budgeted labour rate)
What is the fixed overheads spending variance?
Difference between actual fixed overhead cost and fixed overhead cost as per the flexed (and the original) budget
What are the 2 types of standards?
1) ideal standards
2) practical standards
What are the problems with variances and stamdards?
1) standards can quickly become outdated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
Behavioural issues of budgetary control
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
Impacts of management style
- budget constrained style
- profit conscious style
- non accounting style
What is feedback control?
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
What is feedforward control?
Predictions are made about what could possibly go wrong and then steps are taken to avoid these undesirable outcomes
define an adverse variance
a variance that, by itself, makes the actual lower than the budgeted profit
What is a favourable variance?
a variance that subsequently increases the profit so the actual profit is therefore above the budgeted profit
Define a variance
the effect of a particular factor, taken in isolation, that impacts and effects the budgeted profit
What does the difference between the favourable and adverse variances represent?
the diff. between budgeted and actual profit
what is the total direct materials variance?
the sum of the usage variance and the price variance
