B4 Flashcards

1
Q

What is the difference between a master budget and a flexible budget?

A

master budget - based on one production level
flexible budget - reflects any production level within a relevant range; budgeted amounts are adjusted for the actual level of activity (units of output)

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2
Q

What is a static budget?

A

budgeted costs for budgeted output
(they are not based on or adjusted for actual performance)

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3
Q

What is the first and last type of budget that should be created?

A

first = sales (sales volume comes first, then price of sales, price of products for inventory, etc.)
last = cash (derived from accrual basis assumptions) and financial budgets including pro forma FS; cash flow statement is the last pro forma FS to be created

note: the budgeted income statement needs to be done before the budgeted balance sheet

note: the cash budget needs to be done before the budgeted balance sheet (the budgeted I/S can be done before the cash budget)

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4
Q

What is the formula for budgeted production?

A

budgeted sales purchases + desired ending inventory - beginning inventory

note: for beginning inventory, sometimes you’ll need to take a % x the budgeted sales of the current month

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5
Q

What is the 3 step process to calculate a direct materials budget?

A
  1. sales for the year in units + FG ending inventory - FG beginning inventory = production units
  2. production units + DM ending inventory - DM beginning inventory = units of DM to purchase
  3. units of DM to purchase x cost per unit
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6
Q

What is the purpose of preparing a cash budget?

A

to invest excess cash and minimize the need for interim financing (if you run out of cash)

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7
Q

What is the difference between a flexible and a static budget?

A

flexible budget - provides cost allowances for different levels of activity

static budget - provides cost allowances for one level of activity

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8
Q

When production levels increase, what happens to fixed and variable costs per unit?

A

-fixed costs decrease per unit
-variable costs per unit remain constant (but total variable costs increase based on the volume)

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9
Q

What is a simple way of explaining a flexible budget?

A

the actual output x static budget amounts per unit

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10
Q

What is the formula for operating cycle?

A

days in inventory + days in accounts receivable

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11
Q

How do you know what the primary cost driver is?

A

the B/S or I/S account with the higher rate of an increase or decrease compared to the other account in the ratio

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12
Q

What is a true fact about the relevant range?

A

fixed costs (in total) do not change

note: cost relationships determine when the relevant range will change (not prices)

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13
Q

How would you know how much a company is gaining or losing by getting rid of a division or product line?

A

avoidable costs - contribution margin

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14
Q

What is the formula for # of units needed to sell with a desired % of profit?

A

[fixed cost + (% x sales price per unit)] / (sales price - variable costs - sales commission per unit)

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15
Q

How do you calculate the direct labor efficiency variance?

A

standard rate per hour * (actual hours worked - standard hours allowed)

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16
Q

What are the three things that cost-based pricing is associated with?

A
  1. price justification
  2. price stability
  3. fixed-cost recovery

note: NOT target pricing

17
Q

T/F: If the question asks for the # of units needed to sell to reach a desired profit ABOVE the breakeven point, do NOT include fixed costs in the numerator.

A

true