B2 - Planning Techniques: Budgeting and Analysis Flashcards
Define current attainable standards.
Currently attainable standards represent costs that result from work prefromed by employees with appropriate training and experience but without extraordinary effort.
Define ideal standards.
Ideal standards represent costs that result from perfect efficiency and effectivenes in job performance.
Define flexible budget.
A flexible budget is a budget that can be adjusted to any activity level; it shows how costs vary with production volume.
Budgeted total costs
= (Variable cost per unit x activity level) + fixed costs
Fixed costs in total are constant over the relevant range of activity level.
Define a master budget.
A master budget documents specific short-term operating performance goals for a period of time, normally one year or less. The plan generally includes an operating (nonfinancial) budget as well as a financial budget.
List the operating budgets included in the master budget.
- Sales budget
- Production budget
- Direct materials budget
- Direct labor budget
- Overhead budget
- Cost of goods sold bodget
- SG&A budget
List the financial budgets included in the master budget.
- Cash budget
- Pro forma financial statements
Identify the direct materials variances (two-way variance analysis).
- Direct materials price variance = (AS-SP) x AQ
where AP = actual price
SP = standard price
AQ = actual quantity purchased - Direct materials quantity usage variance = (AQ-SQ) x SP
where AQ = actual quantity used
**SQ = standard quantityallowed**
SP = standard price
Identify the direct labor variances (two-way variance analysis).
- Direct labor rate variance = (SR-AR) x AH
- Direct labor efficiency variance = (SH-AH) x SR
where AR = actual labor rate
SR = standard labor rate
AH = actual hours
SH = standard hours
Identify the manufacturing overhead variances (one-way, two-way, and three-way analysis).
One-way
Overhead (OH) variance = Actual OH - Applied OH
Two-way
Budget (Controllable) variance = Actual OH - [Budgeted FOH x (Std DLH x Std VOH rate)]
Volume (Noncontrollable) variance = [Budgeted FOH + (Std DLH x Std VOH rate)] - Applied OH
Three-way
Spending variance = Actual OH - [Budgeted FOH + (Actual DLH x Std VOH rate)]
Efficiency variance = [Budgeted FOH + (Actual DLH x Std VOH rate)] - [Budgeted FOH + (Std SLH x Std VOH rate)]
Volume variance = [Budgeted FOH + (Std DLH x Std VOH rate)] - Applied OH
Where:
Actual OH = Actual Overhead
Applied OH = Applied Overhead (Generally, Standard rate x Allowable Hours or other input)
Budgeted FOH = Budgeted Fixed Overhead
Actual DLH = Actual Direct Labor Hours
Std VOR rate = Standard Variable Overhead Rate
Standard DLH = Standard Direct Labor Hours
Describe two alternative ways to calcualte the volume variance.
Volume variance = Budgeted fixed overhead - Applied fixed overhead
Volume variance = (Actual production in units - Budgeted production in units) x Per unit standard fixed overhead rate
Describe an alternative way to calculate the efficiency variance.
Efficiency variance = (Actual DLH - Standard SLH allowed) x Standard variable overhead rate
What is the formula for market size variance?
Market size variance =
[Actual market size (in units) - Expected market size (in units)]
x Budgeted market share
x Budgeted contribution pargin per unit (weighted-average)
What is the formula for market share variance?
Market share variance =
[Actual market share - Budgeted market share]
x Actual Industry units
x Budgeted contribution margin per unit (weighted-average)
What is the formula for sales volume variance?
Sales volume variance =
[Actual sold units - Budgeted sales units]
x Standard contribution margin per unit
What is the formula for selling price variance?
Selling price variance =
[Actual SP/unit - Budgeted SP/unit]
x Actual units sold
Devine contribution by SBU.
Contribution by SBU represents the difference between the contribution margin (Revenue - Variable costs) and controllable fixed costs (those costs that managers can impact in less than one year).
What is the purpose of the balanced scorecard?
The balanced scorecard displays performance relative to critical success factors identified for multiple dimensions of a business operation.
What dimensions or categories of business operation are frequently identified by the balanced scorecard?
Finance
Internal business processes
Customer satisfaction
Advancement of human resource innovation
List and define the types of responsibility segments (or strategic business units - SBUs) that are used to establish business performance measures.
Cost SBU
Managers are held responsible for ccontrolling costs.
Revenue SBU
Managers are held responsible for generating revenues.
Profit SBU
Managers are held responsible for producing a target profit.
Investment SBU
Managers are held responsible for return on investment.
