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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
Q

Capital Expenditure Budget(Investing Budget)

A

-Reports expected cash receipts and cash payments related to the sale and purchase of plant assets
-Usually prepared after operating budgets

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24
Q

Cash Budget(Financing Budget)

A

-Shows budgeted cash receipts and payments during budget period
-Most companies keep a minimum cash balance

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25
Q

Preliminary Cash Balance Formula =

A

Beginning Cash Balance + Budgeted Cash Receipts - Budgeted Cash Payments

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26
Q

If Preliminary Cash Balance Is Above Minimum Balance Required =

A

Repay loans

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27
Q

If Preliminary Cash Balance Is Below Minimum Balance Required =

A

Increase loans

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28
Q

Cash Receipts From Sales Include:

A

-Expected Cash sales from sales budget
-Expected Cash collections of AR
-Other expected cash receipts such as interest revenue or sale of assets

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29
Q

Budgeted Income Statement

A

-Report showing budgeted amount of sales and expenses
-Summarized the income effect of the previously prepared budgets
-Income tax expense predicted at this level

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30
Q

Budgeted Balance Sheet

A

-Shows budgeted amounts for assets, liabilities, and equity as of end of the budget period
-Prepared using information from other budgets

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31
Q

Budgeting For Service Companies

A

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

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32
Q

Budgeted Direct Labor Cost Formula =

A

Budgeted DL Hours x DL Cost Per Hour

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33
Q

Revenue Per Employee Formula =

A

Total Revenue / Total # Employees

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34
Q

Budget Reports

A

Compare budgeted result to actual results

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35
Q

What Is The Master Budget Based On?

A

Predicted levels of activity, such as sales volume

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36
Q

Fixed Budgeting

A

A fixed budget(static budget) is based on one predicted level of sales or other activity measure

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37
Q

Flexible Budgeting

A

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

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38
Q

Fixed Budget Performance Report

A

Compares actual results with planning activities
-shows budgeted amounts, actual amounts and variances

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39
Q

Favorable Vairance

A

Actual income is higher than budgeted income
-when actual revenue> budgeted revenue
-when actual costs < budgeted costs

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40
Q

Unfavorable Variance

A

Actual Income is lower than budgeted income
-when actual revenue < budgeted revenue
-when actual costs > budgeted costs

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41
Q

Preparing a flexible budget before vs after the period

A

-Before: provides different what if scenarios
-After: evaluate performance

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42
Q

Preparing A Flexible Budget Steps:

A

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)

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43
Q

Total Budgeted Cost Formula=

A

Total Fixed Cost + (Total Variable Cost Per Unit x Units Of Activities)

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44
Q

Does Management Focus On Small Or Large Variances?

A

Large

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45
Q

Standard Costing

A

Standard costs are preset costs for delivering a product or service under normal conditions

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46
Q

Management By Exception

A

managers focus on most significant differences between actual costs and standard costs

47
Q

T/F Manufacturing and Service Companies Use Standard Cost?

A

True

48
Q

Setting Standard Costs

A

DL = DL required under norm conditions
DM = quantity, grade and cost of each material used
OH = studying resources needed to support production activities

49
Q

Ideal Standard Cost

A

Quantity of input required if a production process is 100% efficient

50
Q

Practical Standard Cost

A

Preset cost for delivering a product or service under normal conditions

51
Q

Standard Cost Card

A

Record that accumulates standard cost information

52
Q

Cost Variance

A

Difference between actual and standard costs
-Favorable = Actual Cost<Standard
-Unfavorable=Actual > Standard

53
Q

Flow Of Events In Variance Analysis:(4)

A

1) prepare standard cost performance report
2) compute and analyze variances
3) identify questions and their answers
4) take corrective and strategic actions

54
Q

Cost Variance Formula =

A

Actual Costs - Standard Costs
Actual Costs = Actual Quantity x Actual Price
Standard Costs = Standard Quantity x Standard Price

55
Q

DM and DL Variance Is Based On 2 Factors

A

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
Q

Price Variance Formula =

A

(AQ X AP) - (AQ X SP)

57
Q

Quantity Variance Formula =

A

(AQ X SP) - (SQ X SP)

58
Q

Labor Rate Variance Formula =

A

(AH X AR) - (AH X SR)

59
Q

Labor Efficiency Variance Formula =

A

(AH X SR) - (SH X SR)

60
Q

Flexible OH Budgets

A

Show budgeted variable costs per unit and fixed costs for the period

61
Q

Standard OH Rate 3 Steps:

A

1) Determine an allocation base(DLH or MH)
2) Predict and activity level(80%)
3) Compute the standard OH rate

62
Q

Standard OH Rate Formula =

A

Budgeted OH @ Predicted Levels / Standard Allocation Base @ Predicted Activity Level

63
Q

Standard OH Applied Formula =

A

Actual Production X Standard Amount Of Allocation Base X Standard OH Rate

64
Q

Overhead Variance Formula =

A

Actual Total OH - Standard OH Applied

65
Q

Volume Variance

A

difference between budgeted fixed OH and standard fixed OH applied for the actual units produced

66
Q

Volume Variance Formula =

A

Budgeted OH - Standard OH Applied

67
Q

Controllable Variance

A

difference between actual OH and flexible budget of total OH for actual units produced

68
Q

Controllable Variance Formula =

A

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
Q

Sales Price Variance

A

measures impact of the actual sales price differing from the expected price

70
Q

Sales Price Variance Formula =

A

(Actual Sales X Actual Price) - (Actual Sales X Budgeted Price)

71
Q

Sales Volume Variance

A

measures impact of operating at a different compacity level than predicted by the fixed budget

72
Q

Sales Volume Variance Formula =

A

(Actual Sales X Budgeted Price) - (Budgeted Sales X Budgeted Price)

73
Q

Sales Growth Rate Formula =

A

((Analysis Period Sales - Base Period Sales) / Base Period Sales) X 100

74
Q

Decentralized Organization

A

large company divided into smaller units
-unit managers make decisions and top managers evaluate their performance

75
Q

Responsibility Accounting

A

evaluates unit managers only on activities they can control

76
Q

Cost Center

A

Incurs costs without generating revenues
-Ex: manufacturing and service departments

77
Q

Profit Center

A

Incurs costs and generates revenues
-Ex: product lines

78
Q

Investment Center

A

Incurs costs, generates revenues, and its managers are responsible for major investing decisions

79
Q

What Is The Basis For Evaluating The Different Centers?(3)

A

*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
Q

Operating Center

A

Core business of production and sales

81
Q

Service Center

A

helps operating centers

82
Q

Controllable Costs

A

Costs that managers can determine and/or influence

83
Q

Performance Report

A

Feedback to manager comparing budget and actual

84
Q

Uncontrollable Costs

A

-Costs not within the managers control

85
Q

T/F All Costs Are Controllable At Some Level Of Management, If The Time Period Is Sufficiently Long

A

True

86
Q

Lower Level Management Have Responsibility For…

A

More detailed costs

87
Q

Higher Level Management Have Responsibility For…

A

Larger and broader costs

88
Q

Reports To Higher-Level Managers are usually ___ (Less/More)Detailed

A

Less

89
Q

Departmental Income Statements Are Used To Report…

A

Profit center performance

90
Q

Direct Expenses In Regards To Income Statements Are..

A

-readily traced to a department
-incurred for the sole benefit of one department(no allocation required)
-often, but not always, controllable costs

91
Q

Indirect Expenses In Regards To Income Statements Are..

A

-incurred for joint benefit of 1+ department
-can’t be readily traced to just 1 department
-allocated across departments benefiting from them

92
Q

Allocated Costs Formula =

A

Total Cost To Allocate X Percentage Of Allocation Base Used

93
Q

Departmental Income Statement Formula =

A

Dept. Sales - Dept. Direct Expenses - Allocated Indirect Expenses - Allocated Service Dept. Expenses

94
Q

3 Steps For Allocating Costs And Preparing Department Income Statements

A

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
Q

Departmental Contributions To Overhead Formula =

A

Sales - COGS - Direct Expenses

96
Q

Return On Investment(Asset) Formula =

A

Income / Average Assets
or
(Profit Margin x Inventory Turn Over)

97
Q

Residual Income Formula =

A

Income - Target Income

98
Q

Profit Margin % Formula =

A

Income / Sales

99
Q

Investment TO Formula =

A

Sales / Average Assets

100
Q

Balances Scorecard

A

System of performance measures, including nonfinancial measure used to assess company and division managers performance

101
Q

What Are The 4 Perspectives Of The Balanced Scorecard

A

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
Q

Transfer Pricing

A

The price used to record transfers across division within a company
-used in cost, profit, and investment centers

103
Q

Low Transfer Price

A

TP >= Variable Manufacturing Cost

104
Q

High Transfer Price

A

TP <= Market Price

105
Q

The Transfer Price Should Be Between ____ and ____

A

Low, High

106
Q

Market Based Transfer Price

A

if there is no excess capacity, the internal supplier will not accept a transfer price less than the market price
-TP>= MP

107
Q

Cost Based Transfer Price

A

If there is excess capacity, the internal supplier should accept a price between variable cost and the market price
VC <= TP <= MP

108
Q

Negotiated Transfer Price

A

if there is excess capacity, division managers often negotiate a transfer price between VCpu and MPpu

109
Q

Cash Conversion Cycle

A

measures average time it takes to convert cash outflow into cash inflows

110
Q

Cash Conversion Cycle Formula =

A

Days Sales in AR + Days Sales in Inventory - Days Sales in AP

111
Q

Days Sales In AR Formula =

A

(AR / Net Sales) x 365

112
Q

Days Sales In Inventory Formula =

A

(Inventory / COGS) x 365

113
Q

Days Sales In AP Formula =

A

(AP / COGS) x 365

114
Q

Standard costs are used in the calculation of:

A

Price and quantity variances.

115
Q

Is Incremental OH applied to the make or buy?

A

Make
-DL + DM + Incremental OH

116
Q

Does Revenue subtract (Sales - cost to process) ?

A

No

ACC 202 (4 decks)

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