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ACC 202 > Ch 20-23 > Flashcards

Ch 20-23 Flashcards

1
Q

Budget

A

Formal statement of a company’s plans expressed in dollars
-covers short periods of time

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2
Q

Budgetary Control Process

A

Management’s use of budgets to see that planned objectives are met

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3
Q

Benefits of Budgeting (5)

A

1) Plan: focus on future
2) Control: evaluate business op. against norm
3) Coordinate: activities so everyone understands goals
4) Communicate: written budget with specific action plan
5) Motivate: budgets are used to motivate employees

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4
Q

Participatory Budgeting

A

Employees affected by budget should help prepare it

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4
Q

Budget Timing

A

Apply continuous budgeting by preparing rolling budgets

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4
Q

Continuous Budgeting

A

-Continually revises budget
-Enter set of budgets added each quarter to replace quarter that passed
-Continuously planning ahead

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5
Q

What is the starting point for master budget process?

A

Sales

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6
Q

What is the report that shows predicted profitability for the budget period?

A

Budgeted Income Statement

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7
Q

What is a budgetary cushion used to meet performance targets?

A

Budgetary Slack

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8
Q

Master Budget Components

A

Sales -> Production -> DM/DL/FO -> Cash -> Budgeted Financial Statement
or
Sales -> Capital Expenditure/ Selling Gen. Admin. Expenses -> Cash -> Budgeted Financial Statement

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9
Q

How To Develop Sales Budget

A

estimate both unit sales and selling price per unit

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10
Q

Production Budget:

A

shows number of units to be produced each period to meet budgeted sales and desired inventory levels
-always shown in units of product not cost

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11
Q

Units To Produce Formula=

A

Budgeted Ending Inventory + Budgeted Sales Units - Budgeted Finished Goods Inventory

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12
Q

Safety Stock

A

Companies will keep enough inventory on hand to protect against lost sales caused by unfulfilled demands from customers or delays in shipment from suppliers

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13
Q

Direct Materials Budget

A

Shows budgeted costs for direct materials that must be purchased to meet the budgeted production

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14
Q

Materials To Be Purchased Formula =

A

(Units to Produce x Materials Required Per Unit) + Desired Ending Materials Inventory - Beginning Materials Inventory

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15
Q

Direct Labor Budget

A

Shows budgeted costs for direct labor that will be needed for the budgeted production for the period

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16
Q

Direct Labor Budget Formula =

A

Units To Produce x DL Hours Required Per Unit x DL Cost Per Hour

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17
Q

Factory OH Budget

A

Shows the budgeted costs for factory overhead needed to complete the budgeted production for the period

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18
Q

Factory OH Budget Formula =

A

(Direct Labor Hours Needed x Variable OH Rate) + Budgeted Fixed OH

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19
Q

Budgeted COGS Formula =

A

Budgeted Sales x Budgeted Cost Per Unit

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20
Q

Budgeted Cost Per Unit Formula =

A

DM + DL + Variable OH + Fixed OH

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21
Q

Selling Expense Budget

A

-Based on sales volume
-Shows types and amounts of selling expense during budget period
-Includes: Sales commissions, salary of sales manager, advertising, delivery expenses

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22
Q

General and Administrative Expense Budget:

A

-Reports gen and admin expenses expected during the budget period
-Includes: Admin salaries, property taxes, office expenses, insurance, depreciation on non manufacturing assets

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23
Capital Expenditure Budget(Investing Budget)
-Reports expected cash receipts and cash payments related to the sale and purchase of plant assets -Usually prepared after operating budgets
24
Cash Budget(Financing Budget)
-Shows budgeted cash receipts and payments during budget period -Most companies keep a minimum cash balance
25
Preliminary Cash Balance Formula =
Beginning Cash Balance + Budgeted Cash Receipts - Budgeted Cash Payments
26
If Preliminary Cash Balance Is Above Minimum Balance Required =
Repay loans
27
If Preliminary Cash Balance Is Below Minimum Balance Required =
Increase loans
28
Cash Receipts From Sales Include:
-Expected Cash sales from sales budget -Expected Cash collections of AR -Other expected cash receipts such as interest revenue or sale of assets
29
Budgeted Income Statement
-Report showing budgeted amount of sales and expenses -Summarized the income effect of the previously prepared budgets -Income tax expense predicted at this level
30
Budgeted Balance Sheet
-Shows budgeted amounts for assets, liabilities, and equity as of end of the budget period -Prepared using information from other budgets
31
Budgeting For Service Companies
also use master budgets but typically need fewer operating budgets than manufacturers. -Sales, DL, Cash, Capital Expenditures, Selling Gen and Admin Expense, Budgeted Financial Statments
32
Budgeted Direct Labor Cost Formula =
Budgeted DL Hours x DL Cost Per Hour
33
Revenue Per Employee Formula =
Total Revenue / Total # Employees
34
Budget Reports
Compare budgeted result to actual results
35
What Is The Master Budget Based On?
Predicted levels of activity, such as sales volume
36
Fixed Budgeting
A fixed budget(static budget) is based on one predicted level of sales or other activity measure
37
Flexible Budgeting
A flexible budget(variable budget) is based on more than one level of sales or activity level -more useful when actual results are different from predicted
38
Fixed Budget Performance Report
Compares actual results with planning activities -shows budgeted amounts, actual amounts and variances
39
Favorable Vairance
Actual income is higher than budgeted income -when actual revenue> budgeted revenue -when actual costs < budgeted costs
40
Unfavorable Variance
Actual Income is lower than budgeted income -when actual revenue < budgeted revenue -when actual costs > budgeted costs
41
Preparing a flexible budget before vs after the period
-Before: provides different what if scenarios -After: evaluate performance
42
Preparing A Flexible Budget Steps:
1) Identify activity levels (units produced or sold) 2) Identify costs and classify as variable or fixed 3) Compute budgeted sales (sales per unit x units of activity)
43
Total Budgeted Cost Formula=
Total Fixed Cost + (Total Variable Cost Per Unit x Units Of Activities)
44
Does Management Focus On Small Or Large Variances?
Large
45
Standard Costing
Standard costs are preset costs for delivering a product or service under normal conditions
46
Management By Exception
managers focus on most significant differences between actual costs and standard costs
47
T/F Manufacturing and Service Companies Use Standard Cost?
True
48
Setting Standard Costs
DL = DL required under norm conditions DM = quantity, grade and cost of each material used OH = studying resources needed to support production activities
49
Ideal Standard Cost
Quantity of input required if a production process is 100% efficient
50
Practical Standard Cost
Preset cost for delivering a product or service under normal conditions
51
Standard Cost Card
Record that accumulates standard cost information
52
Cost Variance
Difference between actual and standard costs -Favorable = Actual Cost Standard
53
Flow Of Events In Variance Analysis:(4)
1) prepare standard cost performance report 2) compute and analyze variances 3) identify questions and their answers 4) take corrective and strategic actions
54
Cost Variance Formula =
Actual Costs - Standard Costs Actual Costs = Actual Quantity x Actual Price Standard Costs = Standard Quantity x Standard Price
55
DM and DL Variance Is Based On 2 Factors
1) Price(rate) Variance: difference between actual price per unit and standard price per unit 2) Quantity Variance: difference between actual quantity of input and standard quantity of input
56
Price Variance Formula =
(AQ X AP) - (AQ X SP)
57
Quantity Variance Formula =
(AQ X SP) - (SQ X SP)
58
Labor Rate Variance Formula =
(AH X AR) - (AH X SR)
59
Labor Efficiency Variance Formula =
(AH X SR) - (SH X SR)
60
Flexible OH Budgets
Show budgeted variable costs per unit and fixed costs for the period
61
Standard OH Rate 3 Steps:
1) Determine an allocation base(DLH or MH) 2) Predict and activity level(80%) 3) Compute the standard OH rate
62
Standard OH Rate Formula =
Budgeted OH @ Predicted Levels / Standard Allocation Base @ Predicted Activity Level
63
Standard OH Applied Formula =
Actual Production X Standard Amount Of Allocation Base X Standard OH Rate
64
Overhead Variance Formula =
Actual Total OH - Standard OH Applied
65
Volume Variance
difference between budgeted fixed OH and standard fixed OH applied for the actual units produced
66
Volume Variance Formula =
Budgeted OH - Standard OH Applied
67
Controllable Variance
difference between actual OH and flexible budget of total OH for actual units produced
68
Controllable Variance Formula =
Actual Total OH - Budgeted Total OH @Actual Units Produced *Unfavorable = did not reach its expected operating level *Favorable = operated at a greater than expected operating level
69
Sales Price Variance
measures impact of the actual sales price differing from the expected price
70
Sales Price Variance Formula =
(Actual Sales X Actual Price) - (Actual Sales X Budgeted Price)
71
Sales Volume Variance
measures impact of operating at a different compacity level than predicted by the fixed budget
72
Sales Volume Variance Formula =
(Actual Sales X Budgeted Price) - (Budgeted Sales X Budgeted Price)
73
Sales Growth Rate Formula =
((Analysis Period Sales - Base Period Sales) / Base Period Sales) X 100
74
Decentralized Organization
large company divided into smaller units -unit managers make decisions and top managers evaluate their performance
75
Responsibility Accounting
evaluates unit managers only on activities they can control
76
Cost Center
Incurs costs without generating revenues -Ex: manufacturing and service departments
77
Profit Center
Incurs costs and generates revenues -Ex: product lines
78
Investment Center
Incurs costs, generates revenues, and its managers are responsible for major investing decisions
79
What Is The Basis For Evaluating The Different Centers?(3)
*Cost-evaluated on their success in controlling actual costs compared to budgeted costs *Profit-evaluated on their success in generating income *Investing-evaluated on their use of assets to generate income
80
Operating Center
Core business of production and sales
81
Service Center
helps operating centers
82
Controllable Costs
Costs that managers can determine and/or influence
83
Performance Report
Feedback to manager comparing budget and actual
84
Uncontrollable Costs
-Costs not within the managers control
85
T/F All Costs Are Controllable At Some Level Of Management, If The Time Period Is Sufficiently Long
True
86
Lower Level Management Have Responsibility For...
More detailed costs
87
Higher Level Management Have Responsibility For...
Larger and broader costs
88
Reports To Higher-Level Managers are usually ___ (Less/More)Detailed
Less
89
Departmental Income Statements Are Used To Report...
Profit center performance
90
Direct Expenses In Regards To Income Statements Are..
-readily traced to a department -incurred for the sole benefit of one department(no allocation required) -often, but not always, controllable costs
91
Indirect Expenses In Regards To Income Statements Are..
-incurred for joint benefit of 1+ department -can't be readily traced to just 1 department -allocated across departments benefiting from them
92
Allocated Costs Formula =
Total Cost To Allocate X Percentage Of Allocation Base Used
93
Departmental Income Statement Formula =
Dept. Sales - Dept. Direct Expenses - Allocated Indirect Expenses - Allocated Service Dept. Expenses
94
3 Steps For Allocating Costs And Preparing Department Income Statements
1) accumulate sales, direct/indirect expenses by dept. 2) allocate indirect expenses to both service and operating departments 3) allocate service dept. expenses to operating departments
95
Departmental Contributions To Overhead Formula =
Sales - COGS - Direct Expenses
96
Return On Investment(Asset) Formula =
Income / Average Assets or (Profit Margin x Inventory Turn Over)
97
Residual Income Formula =
Income - Target Income
98
Profit Margin % Formula =
Income / Sales
99
Investment TO Formula =
Sales / Average Assets
100
Balances Scorecard
System of performance measures, including nonfinancial measure used to assess company and division managers performance
101
What Are The 4 Perspectives Of The Balanced Scorecard
1) Customer: What they think of us 2) Internal: Which Ops are crucial to customer 3) Innovation: How can we improve 4) Financial: What do the owners think of us
102
Transfer Pricing
The price used to record transfers across division within a company -used in cost, profit, and investment centers
103
Low Transfer Price
TP >= Variable Manufacturing Cost
104
High Transfer Price
TP <= Market Price
105
The Transfer Price Should Be Between ____ and ____
Low, High
106
Market Based Transfer Price
if there is no excess capacity, the internal supplier will not accept a transfer price less than the market price -TP>= MP
107
Cost Based Transfer Price
If there is excess capacity, the internal supplier should accept a price between variable cost and the market price VC <= TP <= MP
108
Negotiated Transfer Price
if there is excess capacity, division managers often negotiate a transfer price between VCpu and MPpu
109
Cash Conversion Cycle
measures average time it takes to convert cash outflow into cash inflows
110
Cash Conversion Cycle Formula =
Days Sales in AR + Days Sales in Inventory - Days Sales in AP
111
Days Sales In AR Formula =
(AR / Net Sales) x 365
112
Days Sales In Inventory Formula =
(Inventory / COGS) x 365
113
Days Sales In AP Formula =
(AP / COGS) x 365
114
Standard costs are used in the calculation of:
Price and quantity variances.
115
Is Incremental OH applied to the make or buy?
Make -DL + DM + Incremental OH
116
Does Revenue subtract (Sales - cost to process) ?
No

ACC 202 (4 decks)

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