Chapter 9 Flashcards
Why is it important to control, expenses?
Because doing so can increase cash flow, increase the value of the property, and increase profits for tenants.
What is a fixed cost?
A present operating expense that remains fixed
What is a variable cost?
A non-fixed operating expense that has the potential to fluctuate.
What is a semi-variable cost?
An operating expense that displays both fixed and variable components.
What causes costs to vary?
occupancy* inflation regulations building size/age tenant service requirements
What is an occupancy audit?
It is the method of allocating the latest increases in expense items, such as cleaning costs, to the most recent new tenant based on square feet occupied.
How are costs identified as either controllable or uncontrollable?
By determining whether the costs are caused by factors beyond our control.
When is the best opportunity to control costs?
During budget preparations.
Why should explanations in the annual budget be as detailed as possible?
By providing more detail, it is easier to explain and justify budget variances throughout the year.
What is a pro forma?
It is a projection of operating expenses over an anticipated holding period.
What happens when budgeted expenses exceed projections?
The asset will no longer perform as planned and a decision must be made by the owner to sell the asset or adjust the budget to align with operating projections.
What is responsibility reporting?
Budget preparations and variance explanations are assigned to those individuals responsible for the items in that portion of the budget.
Explain internal controls?
They are the efforts made to safeguard assets, assure accurate and reliable accounting data, promote efficiency, and adhere to prescribed management policies.
What areas of concern give rise to internal controls?
Selecting vendors Establishing types, quantities, and prices and terms of purchases requests for goods or services accepting goods or services reporting goods and services computing amounts due to vendors disbursing cash making adjustments to cash disbursements accessing records
What is the first step in handling an invoice?
It should be compared an reconciled with the receiving copy of the PO or other receiving docs or a monthly contract.
What is cost accounting?
It is the process of classifying or segregating the costs of operations into logically similar or homogenous groups.
What is the main reason for cost accounting?
It established the basis for pricing and enables management to control and localize cost excess and thereby take the necessary steps to correct or minimize these excesses.
What is job order costing?
It is a system used in project management where information detailing numerous types of costs that can be incurred during the completion of a project and identifying problem areas.
What is the purpose of sub-accounts and descriptions in job order costing?
It allows for more detailed records to determine costs of each area of management.
List the factors that generally cause costs to vary.
occupancy inflation regulations/compliance building size and age tenant service requirements
How does an owner use the budget process to control costs?
During budget preparation and review the owner has the opportunity to review and approve every anticipated expense of the property for the coming year with the property or facility manager substantiating budget projections; budget variance require an explanation to the owner
Explain responsibility reporting for budget variances.
In a large property, all employees involved in the operation of a property become responsible for the portions of the budgeted items that fall under their control and must explain budget variances; often the employees are also involved in budget preparations.
Define cost accounting.
It is the process of classifying or segregating the costs of operations into logically similar or homogeneous groups; it enables management to localize cost excess and take steps to control them.
Costs can be classified into which category?
a) over budget and under budget
b) controllable and uncontrollable
c) authorized and unauthorized
d) taxable and nontaxable
b) controllable and uncontrollable
Budget Variances are easier to explain when:
a) the budget is prepared in great detail
b) the owner visits the property regularly
c) actual amounts vary significantly from the budget
d) the budget is prepared by the owner
a) the budget is prepared in great detail
If budgeted expenses are higher than original projections, the owner will:
a) reevaluate investment objectives
b) loosen internal budget controls
c) speed budget approval
d) shorten the budget cycle
a) reevaluate investment objectives
The owner relies on internal controls to do all of the following except:
a) regular maintenance
b) supplies
c) contract labor
d) payroll
a) regular maintenance
