Chapter 8 Flashcards

1
Q

What is a flexible budget?

A

They show expected revenues and costs at a variety of volume levels

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2
Q

How are flexible budgets prepared?

A

Same per-unit standard amounts and fixed costs
Difference expected number of units sold
Crucial for the planning and performance evaluation

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3
Q

What are variances?

A

Difference between standard and actual amounts
Can be favourable or unfavourable

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4
Q

When is a variance favourable?

A

When actual sales exceed expected ones
When actual costs are less than standard

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5
Q

When is a variance unfavourable?

A

When actual sales are less than expected
When actual costs exceed standard

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6
Q

What is the sales volume variance?

A

Difference between the static budget and a flexible budget based on actual volume

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7
Q

How do you calculate the variable cost volume variances?

A

Difference between the static and flexible budget amounts

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8
Q

How does a manager perform effective performance evaluation?

A

Compare the actual results achieved to the flexible budget based on the actual volume of activity
Difference is called the flexible budget variance

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9
Q

How is HR connected to flexible budget variances?

A

Offers insight to the management efficiency
Favourable variance could mean purchasing agents are good negotiators, or paying low prices for inferior goods

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10
Q

What is the fixed cost spending variance?

A

Difference between actual fixed cost and the budgeted fixed costs

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11
Q

What is the accountability for fixed cost spending variances?

A

Fixed costs which are controllable must be analyzed
Uncontrollable fixed costs should be reported for oversight
If costs are not controllable in the short term - management should be aware since they can be controllable in the long term

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12
Q

How do you calculate the allocation rate?

A

Budgeted fixed costs/planned volume of activity

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13
Q

How do you calculate predetermined overhead rate?

A

Budgeted fixed costs from static budget/planned volume of activity

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14
Q

How do you calculate the applied fixed cost?

A

Predetermined overhead rate x actual volume of production

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15
Q

What is the fixed cost volume variance?

A

Difference between the applied fixed cost based on actual volume and budgeted fixed cost based on planned volume

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16
Q

How do you calculate total material cost variance?

A

Actual units (actual cost - standard cost)

17
Q

How do you calculate price variance?

A

Actual quantity (actual price - standard price)

18
Q

How do you calculate usage variance?

A

Standard price ( actual quantity - standard quantity)

19
Q

How do you calculate fixed cost volume variance?

A

Budgeted overhead - applied overhead

20
Q

How do you calculate the predetermined rate?

A

Budgeted fixed costs from the static budget/planned volume of activity

21
Q

How do you calculate total cost?

A

predetermined rate x actual volume = applied fixed cost

22
Q

How can the difficulty of achieving standard performance be measured?

A
  1. Ideal standards - flawless standards
  2. Physical standards - reasonable effort
  3. Lax standards - easily attainable goals
23
Q

How do managers decide which variances to investigate?

A

They consider the materiality, the frequency, the capacity to control the variance and the characteristics