Chapter 9-6 Flashcards
mangers must determine budgeted fixed manufacturing cost rates when
at the start of each fiscal year
ensures accurate product cost allocation and efficient capacity utilization
product costing and capacity management
helps in setting competitive and profitable prices
pricing decisions
assists in assessing managerial and operational performance
performance evaluation
ensures compliance with accounting standards and accurate financial statements
financial reporting
affects tax calculations and compliance
tax requirements
using ______ capacity results in an unrealistically low fixed manufcaturing cost per unit because it is based on an idealistic and unattainable level of capacity utilization
theoretical capacity
many companies prefer _____ capacity to calculate budgeted fixed manufacturing cost per unit. ______ capacity represents the maximum number of units that can reasonably be produced given the fixed costs
practical capacity
the level of plant capacity is a ________ made well before knowing the actual usage, and the budgeted fixed naufacturing cost per unit measures the cost of supplyig the capacity
strategic decision
the capacity and its cost are _____ in the short run and do not automaticaly reduce to matchthe actual capacity needed
fixed
using practical capacity allows managers to identify the cost of resources supplied into ____ and _____ components
used and unused
highlighting _____ capacity costs directs managers to manage it by designing new products, leasing unused capacity, or eliminating it
unused
using ______ capacity utilization hides the amount of unused capacity and results in a higher budgeted fixed manufacturing cost per unit
master budget
this occurs when a company fails to match competitor prices, leading to reduced demand and higher unit costs, which further reduces the ability to compete on price
downward demand spiral
_____ utilization is used for long term planning but does not provide meaningful feedback for evaluating a marketing managers performance in a specific year
normal capacity utilization
________ utilization is recommended for evaluating a marketing managers performance in the current year because it aligns with short term planning and control
master budget capacity utilization
managers are more likley to meet the levels specified in the _______ utilization, which should be set based on the maximum sales opportunities for the current year
master budget
production volume variance equation
production volume variancee =
budgeted fixed manufacturing overhead - fixed manufacturing allocated using budeted cost per output unit allowed for actual output produced
different _____ concepts result in different budgeted fixed manufacturing overhead cost rates, affecting the production volume variance
capacity level concepts
(theoretical, practical, normal, master budget
3 ways to approaches to the treatment of the production volume variance at the end of the fiscal year affects the companys operating income
- adjusted allocation rate approach
- proration approach
- write off variance to cost of goods sold approach
recalculates actual cost rates, making the choice of capacity level irrelevant for year end financial statements
adjusted allocation rate approach
spreads the variance among work in process control, finished goods control, and cost of goods sold, also making the capacity level choice irrelevant
proration approach
directly affects operating income based on the fixed manufacturing cost per unit assigned to ending inventory
write off variances to cost of goods sold approach
the IRS requres companies to allocate inventoriable indirect production costs how
fairly among produced items
