AMA Q22 - Chapter 7 Flashcards
Flexible budget definition
A budget that is designed to change in line with changes in productivity by recognising different cost behaviours
Used continually
Flexed budget
A budget that is written after actual results have been confirmed to compare to what the standard costs should have been at that activity level
Can a flexible budget be used to create a flexed budget?
Yes
What is the most important thing to remember when preparing a flexible or flexed budget?
Need to separate variable and fixed elements. Need to consider that fixed costs can behave in stepped manner
Limits of budget flexing
- Original budget is based on assumptions that can change (demand for service, inflation, future uncertainty, etc)
- Splitting mixed costs isn’t always straight forward
- the seemingly always changing objectives and targets can be confusing to some
Summarise feedback control
Comparing predicted and actual data and taking control action to encourage favourable variances and discourage adverse ones
Positive feedback
encouraging favourable variances to happen again
What is FeedForward Control
comparing original forecast with the current trajectory forecast that considers current and recent performance
Give an example of a feedforward control
Cash budget
limitation of feedback control
not good for longer term projects
Benefit of feedforward control
Great for evaluating performance in longer term projects and implementing changes
Total direct materials variance formula
(actual materials quantity x std material price x standard material per unit) - std cost
Materials price variance
(std price per kg x actual amount) - actual cost
Materials usage variance
(actual units x std price per unit) - actual production did use cost
Shortcut to calculating variable cost variances?
calculate how much it should have cost and then how much it did cost
Total labour cost variance
(actual units x std hrs per unit x std £ per hour) - actual total labour cost
Labour rate variance
(actual hours x std £ per hour) -
(actual hours x actual £ per hour)
Labour efficiency variance
(actual units x std hrs per unit)
(actual units x actual hrs per unit)
grossed up to standard £ per hr if neccessary
Idle time variance
hours worked - hours paid
Total variable overhead variance
std overhead - actual overheads
Variable overhead price variance
(act hrs worked x std £ per hour)
-
act hrs worked did cost
two reasons for over-under absorption of overheads?
- budgeted amount is less or more than actuals
- units produced was less or more than budgeted
Fixed Overhead Volume Variance
Budgeted production units
-
Actual units
(valued at standard cost)
Thing to remember when doing calculations on overheads?
Check whether it is variable or fixed overhead
Fixed Overhead Total Cost Variance
looks at the budgeted cost but per the actual unit production level.
Only considers cost (doesn’t factor unit level differences)
Fixed Overhead Expenditure Variance
looks at overall cost totals. Both considers volume and price
In Marginal costing, what element of an overhead is ignored when calculating variances?
the variable element. Only the fixed element is analysed
Total Sales Variance
(budgeted units sold x std price per unit)
-
actual units sold x price
compares the effect of changes in price and changes in volume
Sales Price Variance
Compares the change in price between the two, volume is adjusted to actuals
Sales Volume Variance
Sales Volume Variance
compares difference in volume of units and then the profit £ at std level
Remember: profit per unit not sales price
