Ch. 14 & 16 - Operation Level Control Flashcards
control
The set of procedures, tools, and systems that organizations use to reach their goals.
management accounting and control system
An organization’s core performance measurement system.
operational control
The monitoring of short-term operating performance; takes place when mid-level managers monitor the activities of operating-level managers and employees.
financial control
The comparison of actual and budgeted financial results.
variances
Differences between budgeted and actual amounts, for either financial or nonfinancial measures.
master budget variance
The difference between actual operating income and the master budget operating income for the period.
flexible budget
A budget that adjusts revenues and costs to reflect varying levels of output activity (i.e., different levels of volume and mix).
sales volume variance
For each income statement item, the difference between the flexible budget amount for that item and the amount for that item reflected in the master budget for the period.
sales volume variance = budgeted sales price x change in sales volume
What is the formula to determine sales variance?
sales volume variance = (actual units sold – units budgeted to be sold) x master budget contribution margin per unit
flexible budget variance
The difference between actual and flexible budget amounts on the income statement.
Flexible budget variance = actual results – flexible budget results
total flexible budget variance
The difference between the flexible budget operating income and the actual operating income for the period.
Total flexible budget variance = actual operating income earned – flexible budget operating income
selling price variance
The difference between the total actual sales revenue for a period and the sales revenue in the flexible budget for the period.
Actual sales revenue = units sold x actual selling price per unit
Flexible budget sales revenue = units sold x budgeted selling price per unit
selling price variance
The difference between the total actual sales revenue for a period and the sales revenue in the flexible budget for the period.
Actual sales revenue = units sold x actual selling price per unit
Flexible budget sales revenue = units sold x budgeted selling price per unit
Therefore…
selling price variation = actual sales revenue – flexible budget sales revenue
total variable cost flexible budget variance
The difference between total variable cost incurred during a period and the total variable cost in the flexible budget for the period.
Total variable cost flexible budget variance = total variable cost incurred – total flexible budget variable cost
standard cost sheet
A document that lists the standard costs of manufacturing and selling one unit of a product.
direct materials flexible budget variance
For each material, the difference between the total direct materials cost incurred and the flexible budget amount for this period’s output.
Direct materials price variance = (actual price paid for one unit of direct material – standard price for one unit of direct material) x total number of units of the direct material used in production
materials usage ratio
The ratio of the quantity used to the quantity purchased.
direct materials usage variance
For each material, the difference between the actual direct material units used during the period and the number of standard units that should have been used for the output of the period, multiplied by the standard cost per unit of the direct material.
direct materials usage variance = (total quantity of the direct material used – total standard quantity of the direct material for the units manufactured) x standard cost per unit of the direct material
direct labor rate variance
The difference between the actual and standard hourly wage rate multiplied by the actual direct labor hours worked during the period.
direct labor rate variance = (actual hourly wage rate paid – standard hourly wage rate) x total direct labor hours worked
direct labor efficiency variance
The difference between the actual direct labor hours worked and the standard direct labor hours allowed for the units manufactured, multiplied by the standard wage rate per hour.
standard cost
The cost a firm should incur for a process or activity.
standard cost system
An accounting system in which standard, not actual, costs flow through the formal accounting records.
ideal standard
A standard that reflects perfect implementation and maximum efficiency in every aspect of the operation.
Aka under perfect circumstances
continuous-improvement standard
A standard that gets progressively tighter over time
currently attainable standard
A level of performance that workers with proper training and experience can attain most of the time without having to exert extraordinary effort.
authoritative standard
A standard determined solely or primarily by management.
participative standard
A method of establishing standards whereby employees affected by the standards participate in the development of those standards.
overtime premium
The excess wage rate per hour over the standard hourly wage rate.
sales quantity variance
The product of three elements: (1) the difference between the budgeted and actual total sales quantity, (2) the budgeted sales mix of the product, and (3) the budgeted contribution margin per unit of the product.
It measures the effect of the change in the number of units sold from the number of units budgeted to be sold.
Sales quantity variance of a product = (total units of all products sold - budgeted total units of all products) x budgeted sales mix of the product x budgeted contribution margin per unit of the product
sales mix
The relative proportion in which a company’s products (or services) are sold.
sales mix variance
The product of the difference between the actual and budgeted sales mix multiplied by the actual total number of units of all products sold and by the budgeted contribution margin per unit of the product.
Sales mix variance = (actual sales mix of the product – budgeted sales mix of the product) x total units sold x budgeted contribution margin per unit of the product
What are two contributing factors of the sales quantity variance?
Changes in the market size and the firms share of the market.
market size variance
A measure of the effect of changes in the total market size on the firm’s total contribution margin
market size variance = (actual market size in units - budgeted market size in units) x budgeted market share x weighted-average budgeted contribution margin per unit
