EXAM 4 Flashcards
If managers attempt to recover the costs with a 2) ___ number of units, they are likely to meet 3) re___ in the market, resulting in 4) d__ for even 5) f___ units.
With lower production, the reported 5.1) p___t costs 6) __ even more. This can set off a 7) ___us cycle of attempting to 8) ___ a fixed amount of costs with 9)___ and ___ units until the firm is producing 10) ___ units.
This is called the 11) ___ sp___
2) smaller
3) resistance
4) demand
5) fewer
5.1) product
6) increase
7) vicious cycle
8) cover
9) fewer and fewer
10) no
11) death spiral
Define Death Spiral
a process that begins by 1) ____ to 2) ____ price to meet reported 3) ___ cost, 4) ____ market, reporting still higher costs, etc. until the firm is 6) ____ of business
-the process may result in demand for even 7) \_\_\_ units
1) attempting
2) increase
3) product
4) losing
6) out
7) fewer
Death Spiral can begin in many ways
- can occur even in firms with 1) in_____ d____
EX.
-a firm is likely to add 2) ___ with increasing demand. This can be a new form of plant and equipment.
-an increase in capacity is accompanied by an increase in 3) ___ (___) costs without a 4) si___ in___ output, at least not immediately.
1) increasing demand
2) capacity
3) fixed (overhead)
4) similar increase
The reason for the capacity to increase is an expected 1) i___ in 2) ___e demand.
However, if the accounting system computes product costs based on relatively 3) ____ -term demand estimated (EX. for the next year), it will 4) in___ in the 5) pr____costs the costs of the 6) ex___ capacity that exists for growth.
Using the reported product costs, managers will attempt to 7) re___ the excess capacity costs from current customers, who are 8) u___ to be willing to pay, assuming there are competitors without the excess capacity.
In this case, the death spiral can lead companies to build 9) n___ pl___ only to see them idle because of 10) re____ demand.
1) increase
2) future
3) short
4) include
5) product
6) excess
7) recover
8) unlikely
9) new plants
10) reduced
The basic approach in product costing is to 1) al____ costs in the cost 2) p___ to 3) in___ cost 4) _____, which are the 5) pr____/se___ of 6) in___
1) allocate
2) pools
3) individual
4) objects
5) products/services
6) interests
Two-Stage allocation
First Stage costs objects are the 1) ___ accounts (EX. 2) su___, de___, etc)
The two-stage approach allowed us to 3) se___ 4) pl____ or ____overhead into 5) ___ or m___ p___ based on the account which the costs were 6) ____
The allocation in the first stage, although simple, allowed us then to select 7) mu___ cost d___, (EX. direct labor and machine hours) that were used to allocate costs to products
1) overhead
2) supplies, depreciation
3) separate
4) plant or manufacturing
5) two or more pools
6) recorded
7) multiple cost drivers
Choice of Cost Allocation Methods: Cost Benefit Decision (plantwide rate or departmental rates)
The choice of whether to use a plantwide rate or departmental rates depends on the 0) pr___s and the 00) pro____ process.
If a company manufactures products that are similar and use the same set of resources, the 1) ___ is better.
If multiple products use the manufacturing facilities in many different ways, the 2) ____ is better
0) products
00) production
1) the plantwide rate
2) departmental rate
Typically, when we go from a single plantwide rate to activity base costing
-we shifts costs from 1) ____ volume 2) s___units to 3) l____ volume 4) c____ units
1) high
2) standard
3) lower
4) custom
Choice of Cost Allocation Methods: Cost Benefit Decision (plantwide rate or departmental rates)
Managers need to make a decision about plantwide V departmental rates based on the 1) c__ and be___s of the information inherent in each system.
Selecting more complex allocation methods requires more 2) ti__ and s___ to collect and process accounting information. Such incremental costs of additional information must be justified by an increase in 3) be___ from 4) im___decisions.
1) costs and benefits
2) time and skill
3) benefits
4) improved
Define Activity-based costing (ABC)
It’s a 0) ___- ____ costing method that 1) ___ assigns costs to 2) a___ and then assigns them to 3) __ based on the products’ 4) co___ of a___
0) two-stage
1) first
2) activities
3) products
4) consumption of activities
Activity-based costing (ABC)
An activity is any 1) di___ task that an organization undertakes to 2) m___ or de___ a 3) pr____/se____
Why use ABC?
Activity-based costing is based on the concept that products 4) co____ ___ and activities consume 5) r____
1) discrete
2) make or deliver
3) product/service
4) consume activities
5) resources
Developing Activity-Based Costs
Activity-based costing involves the following 4 steps
Step 1: 1) ___ the activities, that 2) c___ resources and 3) a____ costs to them
-can take 4) ____s to do
-it’s 5) c___
-it’s the 6) _____ part of this process
Step 2: Identify the 7) ___ ___(s) associated with each activity
Step 3: Compute a 9) ___ __ per cost ___ unit/transaction:
Step 4: 10) ___ costs to p__ by multiplying the 11) ___ dr___ rate by the 12) ___ of cost driver units consumed by the products
1) Identify
2) consume
3) assign
4) years
5) costly
6) hardest
7) cost driver(s)
9) cost rate per cost driver
10) Assign costs to products
11) cost driver rate
12) volume
Define cost driver
factors that 1) c___ or “____” an activity costs
1) cause or “drive”
Identifying Activities That Use Resources
-often the most interesting and challenging part of the exercise is 1) id___ activities that use 2) ___ because it requires an 3) __ of 4) ___ the activities required to make a 5) ___
When managers step back and analyze the process (activities) they follow to produce a good/service, they often uncover many 6) ____ -__e steps that they can 7) e___
1) identifying
2) resources
3) understanding
4) all
5) product
6) nonvalue-added
The best cost driver is one that is casually related to the cost being 1) ____. Finding an allocation base that is casually related to the cost is often 2) ___ possible.
With activity-based costing, the selection of an allocation base (or cost driver), is often 3) ___ because we can use a measure of the 4) ____ __me
1) allocated
2) not
3) easier
4) activity volume
In the ABC two-stage cost system, the first stage consists of 1)__. (NOT ___
The first stage allocated costs to 2) ____, not 3) ___
1) activities
2) activities
3) departments
NOT departments
Comparing cost flow diagram for activity based cost system and the 2 stage cost flow diagram
2 major differences
- Activity-based costing system, the first stage allocates 1) ___, not 2) ___
- The nature of 3) ___ ___, they are proportional to production 4) ___ (volume related)
1) activities
2) departments
3) cost drivers
4) volume
The distinctive feature of activity-based costing is that it recognizes that OH costs are caused by 1) ____ and that some activities are 2) d___ by something 3) o___ than production volume
1) activities
2) driven
3) other
Define cost hierarchy
classifies cost drivers by general 1) di__ or levels of 2) ___
-this is the 3) cl____n of 4) c____ dr___ into general 5) le___ of ac___.; ___me, b___, ___ct, fa___, etc.
1) dimensions
2) activity
3) classification
4) cost drivers
5) levels of activity
6) volume, batch, product, facility
- Different cost allocation methods result in different estimates of how much it costs to make a product
- Activity-based costing provides more detailed measures of costs than do plantwide or department allocation methods
- Production also benefits because activity-bassed costing provides better information about how much each activity costs. In fact, it helps identify cost drivers that were previously unknown. To manage costs, production managers learn to manage cost drivers
- Activity-based costing provides more information about product costs but requires more recordkeeping. Managers must decide whether the benefits of improved decisions justify the additional cost of activity-based costing compared to department or plantwide allocation
- Installing activity-based costing requires teamwork between accounting, production, marketing, management, and other nonaccounting employees.
2 Stage Allocation
First Stage: allocate 1) __ costs to 2) ____
Second Stage: allocate 4) ____ ____ costs to the 5) p____/se____ 6) (fin_____)
1) OH
2) departments
4) department OH
5) products/services
6) finishing
Define Plantwide Allocation Method
all OH costs are recorded in one 1)___ pool and applied to products using one 2) __ allocation rate for the entire plant
-one set of rates to allocate OH for products for all 3) ____
1) cost pool
2) OH allocation
3) departments
Define Departmental Allocation Method
OH costs are 1) t___ to 2) s___ departments and applied to products using a 3) ___ allocation rate
-one cost pool for each 4) ___
1) traced
2) separate
3) department
4) department
Activity Based Costing (ABC) is a two-stage product costing method, what do each stage do?
Stage 1: assign costs to 2) ___
Stage 2: assign costs to 3) ___ based on the 4) ___ of ___ activity
2) activities
3) products
4) use of each
Cost Hierarchy can have other levels also
1) ___ Related - include the costs of maintaining 2) s____ or de___
3) ___ Related - regulatory 4) ___ costs (ex testing for environmental compliance)
1) Product
2) specification or designs
3) Facility
4) compliance
Volume related – 1) ___ unit of product
Batch related – 2) ____ of products
Product level – doesn’t mean single unit of product
-has to do with the whole 3) p___ ____
Facility related – related to 4) f___ as a whole
-ex. plant manager salary
1) single
2) batches
3) product line
4) facility
What are 4 main cost hierarchies?
___me, b____, p____, f____ ___
volume, batch, product, facility related
Cost Hierarchy: Batch Related
what are cost examples and cost drivers examples?
Cost Ex. Cost Driver Ex.
S__ __ costs Set up ___
Material ____ ______ runs
S_____ costs ___ of shi____
Cost Ex. Cost Driver Ex.
Set up costs Set up hours
Material Handling Production runs
Shipping costs # of shipments
Cost Hierarchy: Facility related
what are cost examples and cost drivers examples?
Cost Ex. Cost Driver Ex.
General p____ costs ____ cost
P____ a____ costs ____ Added
-EX. p___ d____
Cost Ex. Cost Driver Ex.
General plant costs Direct cost Plant admin costs Value Added
-EX. plant depreciation
Cost Hierarchy: Volume Related
what are cost examples and cost drivers examples?
Cost Ex. Cost Driver Ex.
Su_______ ____ cost
Lu___ ___ Mac___ ___
Mac____ ____ # of ____
Cost Ex. Cost Driver Ex.
Supplies DL cost
Lubricating Oil Machine Hrs
Machine Repair # of units
Cost Hierarchy: Product Related
what are cost examples and cost drivers examples?
Cost Ex. Cost Driver Ex.
C____ costs # of products De____ & Sp____ costs
Cost Ex. Cost Driver Ex.
Compliance costs # of products Design & Specification costs
[200,000 × (500/800)] + [75,000 × (10/25)] + [50,000 × (25/40)] = $186,250
$75,000 ÷ (10 + 15) = $3,000 per setup
$200,000 ÷ (500 + 300) = $250 per machine-hour
[200,000 × (300/800)] + [75,000 × (15/25)] + [50,000 × (15/40)] = $138,750
When a company uses only one rate to allocate overhead costs, the accounting system treats all overhead as if the costs were ______ with respect to the allocation base.
variable
When a company uses a single allocation base, it gives the appearance that when a company drops a segment, all overhead costs will __
decrease
The second step of the two-stage cost allocation identifies ____
cost drivers
SB 9-2
When cost systems were first being developed in industry, companies were far more 1) ___ intensive than they are today.
Much of the 2) __ cost was incurred to support labor, so it made sense to allocate OH products based on the amount of labor in the products.
1) labor
2) overhead
1) ___ is still a major product cost in many companies, especially 2) ____ organizations, such as consulting, law, and public accounting firms
In those cases, 3) o___ is often allocated to products (called 4) j___) on the basis of the amount of 5) ___ in the product
As companies have become more automated, 6) d___ ___ has become 7) l__ as a basis of the amount of labor in the product
1) labor
2) service
3) OH
4) jobs
5) labor
6) direct labor
7) less
When labor is such a small part of product costs, there’s little relation between labor and OH. Also, small errors in assigning labor to products are magnified many times when OH rates are several hundred percent or more of labor costs.
Finally, allocating OH on the basis of direct labor sends signals that direct labor is more 1) __ than it really is.
This also creates tremendous incentives to 2) ___ the labor content of products.
1) expensive
2) reduce
The magnitude of OH rate based on direct labor is 1) l___ of a 2) co___ when all resources are used 3) pr___
EX.
-an employee uses one machine.
-the # of direct labor hours and machine hours on a product will be proportional
But in manufacturing settings, proportionally machine hours and direct labor hours are less common.
-because workers use 2 or more machines at the same time
1) less
2) concern
3) proportionally
Low-volume products often require 1) m___ m___ setups for a given level of production output because they’re produced in 2) ____ batches
Also, low-volume products adds 3) co___ to the operation by 4) d___ the production flow of high-volume items.
1) more machine
2) smaller
3) complexity
4) disrupting
When overhead is applied based on the volume of output, high volume are allocated relatively 1) ___ o___ than low volume products.
High volume products 2.0) “s___” low volume products. Volume based allocation methods 2) ____the costs effects of keeping a 3) ___ number of low volume products. This has led many companies to continue to 4) _____/____ products without 5) __ how 6) ___ they are
1) more overhead
2.0) “subsidize”
2) hide
3) large
4) producing/selling
5) realizing
6) costly
When low-volume products require more machine setups, overhead should be allocated based on ___
complexity
Instead of computing the cost of a product, accountants compute a cost of 1) pe____ an 2) ad___ service
1) performing
2) administrative
Activity-based costing ______ be applied to administrative activities.
can
3 problems with identifying users of ABC
- ABC means 1) di___ t___ to different 2) ob____ : there is no 3) ___ ABC method
- ABC may be applied in 4) ___ of an organization but not 5) ____
- Firms may 6) ____ announce the adoption of ABC, they are 7) ___ likely to announce its 8) di____
1) different things
2) observers
3) one
4) parts
5) everywhere
6) publically
7) less
8) discontinuance
Why might a company not use ABC,
In order to provide useful information, ABC system must be 1) m___ and u____ to reflect 2) c___ activities
That’s one reason why companies don’t use ABC costing, because if the system is not up to date, there’s a danger that the product costs it produces might be worse than simpler system. Continuing to update the system is costly.
1) maintained and updated
2) current
A modified version of ABC addresses the costs of maintaining an ABC system has been developed.
Its called ___based costing or TDABC
time driven activity based costing
Developing Time-Driven Activity-Based Costs
With TDABC, the manager only needs to determine…
- The 1) ___ of resources 2) su___ to a 3) de___
- The 4) ___ it takes to 5) c__e the various activities of the department
This approach avoids the need to 6) c___ su___/in___ of multiple managers and employees.
-this means that it’s 7) __ as costly to maintain as the unmodified ABC system
1) cost
2) supplied
3) department
4) time
5) complete
6) conduct surveys/interviews
7) not
Assuming that 4 employees work 48 weeks each year, and 35 hours per week, the minutes of capacity available equals _____
48 weeks × 35 hours per week × 60 minutes per hour × 4 employees = 403,200
Time equations can also be 1) w______ if there is a 2) ma_____ size of an order that can be 3) i____ or tr___ to the warehouse
1) written
2) maximum
3) inspected or transported
SB 13-1
Define Budget
Financial 1) ___ of the 2) ____ and ___s needed to carry out 3) ___ and meet financial 4) ___
1) plan
2) revenues and resources
3) activities
4) goals
During the strategic planning process, companies often outline their 1) _______ s___ factors , which are the 2) s____ that are responsible for making them 3) su____
These help to outperform their competitors
By identifying these factors and ensuring that they are incorporated into a strategic plan, companies are able to maintain an edge over competitors and improve overall competitiveness
1) critical success factors
2) strengths
3) successful
Define master budget
Financial 1) p__n of an organization for the 2) co___ year or other 3) p___ period.
1) plan
2) coming
3) planning
The master budget is a ___ year plan
one
The master budget is made up 3 components
- Organization 1) ___
- 2) S____ ___ range Profit Plan
- 3) T____ ___range profit plan
1) goals
2) Strategic Long
3) Tactical Short
A company’s broad objectives established by management that employees work to achieve are _____ go___.
organizational goals
Define Strategic Long Range Profit Plan
details the 1) s____ s__ to achieve organization’s goals
-looks into the 2) i____ and distant 3) f___ usually stated in 4) b____ terms
Strategic plans discuss the major capital 5) in___ required to maintain present 6) fa___, increase 7) c____, 8) di____ products and/ processes, and develop 9) p__ markets
1) specific steps
2) intermediate
3) future
4) broader
5) investments
6) facilities
7) capacity
8) diversify
9) particular
The plan for the coming year, which is more 1) ___ than long range plans is called 2) ____ b___
master budget is also called s___ budget, p___ budget, and budget pl___
The 3) ___ st___portion of the master plan budget called the 4) p__ p___
1) specific
2) master budget
3) income statement
4) profit plan
also called static budget, planning budget, and the budget plan
Budgeting
it’s a 1) d___ process that ties together 2) g___, p___, d___ m___, and employee ____ evaluation
1) dynamic
2) goals, plans, decisions making, and employee performance
Human Element in Budgeting
Although budgets are often viewed in purely 1) q____ t
__ terms, the importance of this human factor should 2) ___ be 3) ov____
1) quantitative technical terms
2) not
3) overemphasized
Human Element in Budgeting
Budget preparation rests on 1) ____ estimates of an 2) u_____ future
1) human
2) unknown
Human Element in Budgeting
1) O___ goals –> Goal 2) c__ –> 3) I___ goals
1) organizational
2) congruence
3) individual
Define Participative budgeting
Use of input from 1) l__ and ___ m____ employees; also called 2) gr___ ___ budgeting.
1) lower and middle mgmt
2) grass roots
Participative budgeting
Thes use of lower and middle managers in budgeting has an obvious cost: it’s 4) __-con___ but it has benefits
Benefits
-enhances employee 6) m___ and acceptance of 7) g___ and provides 8) i___ that enables employees to associate 9) r___ and p___
-it can serve as a 10) ___ or development role for managers
-participative budgeting can yield 11) ___ that 12) ___ know that managers 13) __ ___
4) time consuming
6) motivation
7) goals
8) information
9) rewards and penalities
10) training
11) information
12) employees
13) do not
Value of Employee Participation
Number of studies have shown that managers often provide inaccurate data when asked to give budget estimates
-they might request more money than they need because they expect their request their cut
Managers who believe that the budget will be used as a norm for evaluating their performance could provide an estimate that will not be much of a challenge to achieve
-so, managers usually view the technical steps required to construct a comprehensive tactical budget and the effect that the budget will have on them. Ideally, the budget will motivate people and facilitate their activities so that the organization can achieve its goals
Developing the Master Budget
Although budgeting is an ongoing process in most companies, the bulk of the work is usually done in the 6 months immediately preceding the beginning of the coming fiscal year.
Final budget approvals by the chief executive and board of directors are made 1 month to 6 weeks before beginning of the fiscal year
Where do you start when preparing a master budget?
-understand that the organization has more control overcome some aspects of the business and less control over other aspects
-for most organizations, sales are most uncertain
Begin with sales forecast, the firm can plan the activities
-as better information about sales becomes available, it’s reasonable easy to adjust the rest of the budget
If production is more 1) ___ than sales, it is reasonable to start the master budget with a forecast of 2) __
1) uncertain
2) production
In most firms, forecasting 1) ___ is the most difficult aspect of budgeting because it involves considerable 2) su____
To reduce subjectivity and father as much information as possible, management often use a number of different methods to obtain forecasts from a number of different sources
1) sales
2) subjectivity
How do you forecast sales?
-___ Staff
-M___ re___rs
-_____ Technique
-E____ models
-A____ ___ or (___)
-Sales Staff
-Market researchers
-Delphi Technique
-Econometric models
-Artificial Intelligence (or AI)
Sales Staff
-salespeople are in the unique position of being 1) ___ to the customers and they could be in the company who possess the 2) __ information and the best local 3) ___ about customers immediate and near term needs
Salespeople also realize that they will be evaluated based, on their actual 4) ____ compared to the budget. So they have an 5) ____ to 6) ___ their sales 7) ____
1) close
2) best
3) knowledge
4) performance
5) incentive
6) bias
7) forecasts
Bonuses based on sales is an example of a(n) __ compensation
incentive
Market Researchers
to provide a check on forecasts from local sales personnel, management often turns to market researchers.
This group probably does not have the same incentives that sales personally have to bias the budget.
Researchers have a different perspective on the market. They may know a little about customers immediate needs, but they can predict long term trends in attitudes and the effects of social and economic changes on the company’s sales, potential markets, and products
Market researchers generally do not predict __
customers immediate needs
The group method used to enhance forecasting and reduce bias in estimates is ____
the Delphi Technique
The forecasting method that ranges from a simple visual extrapolation of points on a graph to a highly sophisticated computerized time series analysis is called __
trend analysis
Melon Company estimates 20,000 pounds of beginning inventory and 15,000 pounds of ending inventory. Required production from the production budget is 200,000 units, and each unit requires 2 pounds of material. The required materials purchases are ______ pounds
(200,000 × 2) + 15,000 – 20,000 = 395,000
Morris Company is planning on producing 200,000 units. Direct labor is estimated at 0.25 hours per unit at a cost of $10 per hour. The total direct labor needed is ______ hours.
200,000 units × 0.25 hours per unit = 50,000 hours
Morris Company is planning on producing 200,000 units. Direct labor is estimated at 0.25 hours per unit at a cost of $10 per hour. The total direct labor cost is ____
(200,000 units × 0.25 hours per unit) × $10 per hour = $500,000
Brooklyn plant projects sales of 150,000 units. Management estimates that 40,000 units will be in beginning inventory at an estimated cost of $400,000 and the required ending inventory is estimated to be 20,000 units. The budgeted level of production is ______ units.
150,000 + 20,000 – 40,000 = 130,000
Define Rolling Budget
continually updated to add a new 1) b___ period as the most 2) r____ budget period is 3) c___
-thus, the rolling budget involves the 4) in____ extension of the 5) e___ budget model. By doing so, a business always has a budget that extends 6)___ year into the 7) f___
1) budget
2) recent
3) completed
4) incremental
5) existing
6) 1
7) future
Define Static Budget
budget that does 1) n___ ___e with variations in 2) ___ levels
-thus, even if 3) ac____ s___ volume changes significantly from the 4) e____ documented in the static budget, the amounts listed in the budget are 5) c___
1) not change
2) activity
3) actual sales
4) expectations
5) changed
Define Flexible Budget
adjusts to changes in 1) ac___ _____ levels
-actual revenues or other activity measures are entered into the flexible budget once an accounting period has been 2) ___ and it generates a budget that’s 3) s___ to the 4) ___
1) actual revenue
2) completed
3) specific
4) inputs
Define Zero-Based Budget
a method of budgeting in which all 1) e____ must be justified for 2) e_ ___ period
-the process of zero-based budgeting starts form a 3) “__ ___”, and every 4) f___ within an organization is analyzed for its needs and costs
-the budgets are then built 5) a___ what’s needed for the 6) u__ period, regardless of whether each budget is 7) h___/l___ than the previous one
-not cheap to do (do it like every 5 years)
1) expenses
2) each new
3) “zero base”
4) function
5) around
6) upcoming
7) higher/lower
When doing the master budget start with ___ , why?
sales budget
-it’s the hardest thing to do
4 important concepts to remember for budgeting
- The differences between 1) ____ and 2) ___ costs
a. Fixed costs can change unless we decide to change it (ex. wages, such as increasing wage)
b. Fixed Costs changes per unit - The 3) ___ costs that make up out product costs 4) (__ ____ ___)
- The basic formula for inventories
a. 5) ___ + ___ - ___ = __ - The differences between 6) c___ o___ and 7) ex___
a. 8) __ is non cash expense
1) fixed
2) variable
3) 3
4) (DM, DL, Manu OH)
5) BB + TI – TO = EB
6) cash outlays
7) expenses
8) depreciation
Define Production Budget
-a plan of 1) r___ needed to meet 2) c___sales 3) d___ and ensure that 4) in___ levels are sufficient for 5) f___ sales
1) resources
2) current
3) demand
4) inventory
5) future
Forecasting Production
What’s the formula for inventories, production, and sales:
Units in be____ in____ + Required ____ – Budgeted Sa____ = Units in en___ in_____
Units in beginning inventory + Required production – Budgeted Sales = Units in ending inventory
Forecasting Production
What’s the formula for required production:
B___ ___ + Units in ___ ___– Units be___ ____ = required ___
Budgeted Sales + Units in ending inventories – Units beginning inventory = required production
Given the following information, how much cash is collected in February?
January Total Sales = $500,000
February Total Sales = $400,000
Assumptions for the budget:
- 20 percent is collected in the month of sales
- 75 percent is collected in the next month
- 2 percent is taken as a cash discount
- 3 percent will not be collected because accounts are written off as bad debts
($500,000 × 75%) + ($400,000 × 20%) = $455,000
Fill in the blank question.
Based on the following information, cash disbursements for March equals $ ____
January purchases = $200,000
February purchases = $300,000
March purchases = $350,000
Assumptions for the budget:
- 55 percent is paid in the month of purchase
- 43 percent is paid in the month following the purchase
- 2 percent taken as a cash discount for early payment
321,500
Febuary: 300,000 x .43 = 129,000
March: 350,000 x .55 = 192,500
Define Budgeted Balance Sheets
statements of 1) ____ at the beginning of the budget period with the estimated results of operations for the period (from the income statements) and estimated changes in assets and liabilities
1) financial position
The latter result from managements decisions about optimal levels of capital investment in long-term assets (capital budget), investment in working capital, and financing decisions.
Decision-making in these areas, for the most part the 1) _____ function
1) treasurer’s
A key difference in the master budget of a service enterprise is the absence of 2) p____ or ma__ in__
2) product or material inventories
The merchandise purchase budget is similar to the d____ m____ pu_____ budget in manufacturing
direct materials purchases
Service businesses need to carefully coordinate sales with required l____
labor
Transactions that reduce collections of accounts receivable include ___ and b___ d__s
cash discounts and bad debts
Ethical Problems in Budgeting
Managers and employees provide 1) __of the 2) i__ for the budget, their performance then is 3) c__ to the budget they helped develop
1) most
2) information
3) compared
Ethical Problems in Budgeting
Budgets can create serious ethical issues for many people
-the company must recognize the 1) tr___ between encouraging 2) un____ reporting by 3) m___ and the use of budget information in performance 4) ev___ and r____
1) tradeoff
2) unbiased
3) managers
4) evaluation and rewards
A merchandiser does not have a(n) ____ , budget but instead has a merchandiser purchases budget
production
Asking hypothetical questions in order to evaluate an organization’s exposure to risk is the basis of s____ analysis
sensitivity
Define Zero-based budgeting
-management tool designed to 1) __ attention on the most important 2) i____ , rather than on repeated 3) it__ at arriving at an agreed upon budget
1) focus
2) issues
3) iterations
this is hard to do, you have to start from 0
Zero Based Budgeting
-is a process to assist 1) ___t in choosing among 2) al___ levels of effort in different units of the 3) ___
-the specific implementation of ZBB and the business activities to which it’s applied different among adopters
1) management
2) alternative
3) organization
Zero Base Budgeting Problems
- 1) __ c__ to apply
- the biggest benefit in those read where the 2) l___ between 3) ef____ or in___ and o__ is the most difficult to determine
1) time consuming
2) link
3) effort or inputs and outputs
SB 16-1
The master budgets include 1) ____ budgets and 2) _____ budgets
1) operating
2) financial
Operating budgets include ____
-budgeted ___ _____t
-pr___ budget
-budgeted ____
-su___ budgets
-budgeted income statement
-production budget
-budgeted COGS
-supporting budgets
When actual results are compared to budgeted, or planned results, there’s almost always a 1) d___ or v___
Variance analysis uses the difference between 2) a___ performance and 3) b___ performance to
1. Evaluate the 4) p___ of 5) in___ and 6) b___ units
2. Identify possible 7) so___ of de___ between budgeted and actual performance
- Calculate the difference between actual performance and a planned (budgeted) number
- Attempt to explain the causes of the difference
1) difference or variance
2) actual
3) budget
4) performance
5) individuals
6) business
7) sources of deviations
As with all management accounting practices, firms and organizations may develop many variances for their own needs.
- Calculate the difference between actual
performance and a planned (budgeted) number - Attempt to explain the causes of the difference
The difference between the actual outcome and a planned result is called a(n) ____
variance
What does favorable and unfavorable variance indicate?
how actual income differs from budgeted income
Why are actual and budgeted results different?
The decomposition of the profit variance means breaking it down into 1) re___ and c___ components is more informative than the 2) si___ profit variance.
An important part of variance is understanding
1. What might 3) cause a 4) difference between 5) actual and budgeted results
2. What portion of total profit variance is due to each cause
1) revenue and cost
2) simple
Define favorable variance
____ operating profits
-not necessarily ___
Define unfavorable variance
____ operating profits
-not necessarily ___
Favorable variance: increases profits
-not necessarily good
unfavorable variance: decreases profits
-not necessarily bad
When discussing revenue, income, or contribution margin
-favorable variance means the actual result is 1) ___ than the budgeted result
When discussing cost
-favorable variance indicates that actual costs are 2) __ than budgeted costs
1) greater
2) less
Define Static Budget (SB 16-1)
budget for a 1) s___ activity level; usually the 2) m__ budget
1) single
2) master budget
Define flexible budget (SB 16-1)
budget that indicates 1) re___, co___, and p___s for different 2) le___ of ac____
1) revenues, costs, and profits
2) levels of activity
Define sales activity variance (also called sales volume variance)
The difference between 1) o___ profits in the 2) ____ budget and operating profits in the 3) fl___ budget
1) operating
2) master
3) flexible
Sales Activity Variance
the variance arises because the 1) __ number of units 2)___is 3) ___ from the 4) ___ number
1) actual
2) sold
3) different
4) budgeted
Master budgets sales in units 15,000
Flexible budget sales in units 16,500
Budgeted sales price per unit $12.00
Actual sales price per unit $11.00
Given the following information, calculate the sales activity variance.
(16,500 units – 15,000 units) × $12.00 = $18,000 favorable
A favorable variable cost variance is expected when activity ____
decreases
When preparing a flexible budget variable costs 1) ___ based on 2) _____ and fixed costs remain 3) ___
1) change
2) activity
3) constant
The sales activity variance highlights differences due to c_____ in the number of units s__ only
changes in the number of units sold only
Define Profit Variance Analysis
differences between 1) b___ ___ and the 2) a____ p____ earned.
1) budgeted profits
2) actual profits
What are things that are part of Profit Variance Analysis
-1) s___ p___ variance
-2) ___ production cost variance
-3) ___production cost variances
-4) m___ and a___ cost variances
1) sales price
2) variable
3) fixed
4) marketing and administrative
Results for Desserts by Jacki’s pies last quarter were as follows:
Master budget sales in pies 18,000
Flexible budget sales in pies 17,500
Budgeted sales price per pie $15.00
Actual sales price per pie $16.50
Desserts by Jacki’s sale volume variance was ____
(18,000 units – 17,500 units) × $15.00 = $7,500 unfavorable
A profit variance analysis compares __ results with both ____ budget and ____ budget
actual results with both flexible budget and master budget
Define fixed production cost variance
the difference between 1) __ and 2) ___ costs
- Fixed costs are treated as 3) ___ costs, they should 4)___ be affected by 5) ___ levels within the relevant range
Hence the 6) ___ budgets fixed costs equal the 7)____budgets fixed costs
1) actual
2) budgeted
3) period
4) not
5) activity
6) flexible
7) master
Marketing and Administrative Variance
marketing and administrative costs are treated like 1) p____ costs
When computing a flexible budget and variances, only 2) ______ marketing and administrative costs are expected to change
1) production
2) variable
SB 16-2
Define Financial Budgets
budgets of 1) ____ resources including the 2) c___ budget and the budgeted 3) b___ sheet
1) financial
2) cash
3) balance
Define Cost Variance Analysis
Comparison of 1) ___l input amounts and 2) p___ with 3) st___ input amounts and 4) ___
both the actual and standard input quantities are for the 5) ____ output attained
1) actual
2) prices
3) standard
4) prices
5) actual
Define Price Variance
Difference between 1) ___ costs and 2) ___ costs arising from 3) c___ in the 4) c___ of inputs to a 5) p____ process or other activity.
1) actual
2) budgeted
3) changes
4) cost
5) production
Define Efficiency Variance
Difference between 1) __ and 2) ___ results arising from differences between the 3) i___s that were 4) b___ per___ of ___ and the inputs actually used
1) budgeted
2) actual
3) inputs
4) budgeted per unit of output
Whats the formula for price variance?
(___-___) x ___
= (AP - SP) x AQ
AP = actual price
AQ = actual quantity
SP = standard price
Whats the formula for efficiency variance?
____ x (__- __)
=SP x (AQ-SQ)
AP = actual price
AQ = actual quantity
SP = standard price
SQ = standard quantity of input allowed for actual good and output produced
Results for Desserts by Jacki’s pie crust information for last quarter was as follows
Actual production in pies 18,000 pies
Standard cost for pie crust
6 ounces × $0.09 per ounce
Actual cost for pie crust $10,890 for 99,000 ounces
Desserts by Jacki’s direct material price variance for pie crusts was ______.
(99,000 x .09) - 10,980 = 1,980 unfavorable
= (AP - SP) x AQ
AP = actual price: 99,000
AQ = actual quantity: 10,980
SP = standard price: .09
Results for Desserts by Jacki’s pie crust information for last quarter was as follows
Actual production in pies 18,000 pies
Standard cost for pie crust 6 ounces × $0.09 per ounce
Actual cost for pie crust$10,890 for 99,000 ounces
Desserts by Jacki’s direct material efficiency variance for pie crusts was ______
($0.09 × 99,000) – ($0.09 × 6 × 18,000) = $810 favorable
Responsibility for the direct materials price variance is generally assigned to the ______ department
purchasing
Direct materials efficiency variances are typically the responsibility of p _______ departments
production
Given the following information, calculate the direct material price variance.
Actual production in units 17,000
Standard cost for materials per unit $0.75 per pound × 3 pounds
Actual cost for materials $36,750 for 52,500 pounds
$36,750 – ($0.75 × 52,500) = $2,625 favorable
Given the following information, calculate the direct material efficiency variance.
Actual production in units 17,000
Standard cost for materials per unit $0.75 per pound × 3 pounds
Actual cost for materials $36,750 for 52,500 pounds
($0.75 × 52,500) – ($0.75 × 3 × 17,000) = $1,125 unfavorable
A difference between actual and standard labor costs per hour results in a direct labor ____ variance
price
Unfavorable direct labor efficiency variances can be caused by
-poor m____ or t___ workers are ___ productive
-poor m____
-poor su____
-poor motivated or trained workers are less productive
-poor materials
-poor supervision
Given the following information, calculate the variable overhead efficiency variance assuming that overhead is applied based on direct labor hours.
Actual production in units
17,000
Standard variable overheard cost per unit
1/2 direct labor hour @ $15 per hour
Actual variable overhead cost
$187,500
Actual labor hours worked
12,750 hours
($15 × 12,750) – ($15 × 17,000 × 1/2 hour) = $63,750 unfavorable
The variable overhead standard rate was derived. from two-step estimation of
- Costs at 1) va__ le__of a___
- The relationship between those estimated 2) c___ and the 3) b___
1) various levels of activity
2) costs
3) basis
Variance treats fixed production costs and variable production costs 1) ____
because fixed costs are 2) ____ when volume 3) ____, the amount budgeted for fixed overhead is the same in both the 4) ____ and ___ budgets
1) differently
2) unchanged
3) changes
5) master and flexible
SB 16-3
Income statements prepared as variable costing, means there’s no absorption of 1) __ costs by units of production.
All fixed manufacturing OH is charged to income in the period 2) i___
Fixed OH has 3) n___ __-___put relationships, meaning no 4) ef___ v_____
1) fixed
2) incurred
3) no input-output
4) efficiency variance
There is no fixed overhead efficiency variance when a company uses ______ costing.
variable
The difference between the flexible budget and the actual fixed overhead is a 1) ___ that’s also called 2) ___ or ___ variance
1) price variance
2) spending or budget variance
Abosorption Costing: The Production Volume Variance
We have assumed that fixed manufacturing costs are treated as 1) p____ costs, which is 3) co__ with variable costing.
If fixed manufacturing costs are unitized and treated as product costs, another variance is computed. This occurs when companies use 3) ___ ab___, 4) s___ costing.
1) period
2) consistent
3) full absorption
4) standard
When fixed manufacturing costs are treated as ______ costs, an additional variance is computed
product
Define production volume variance
Variance that arises because the volume used to apply 1) ___ overhead differs from the 2) es___ ___e used to estimate 3) f___ costs per unit.
1) fixed
2) estimated volume
3) fixed
An additional fixed manufacturing overhead variance is computed when a company uses ______ costing
absorption
Produciton Volume Variance
The difference between 1) bu____ and 2) ap____ ___ overhead
1) budgeted
2) applied fixed
The production volume variance applies to 1)__ costs only.
It doesn’t represent resources 2) sp__ or s__. This is unique to full absorption costing. The benefits of calculating the variance for control purposes are 3) q____
Although the production volume variance signals a difference between expected and actual production levels, so does a simple production report of actual V expected production quantities
1) fixed costs
2) spent or save
3) questionable
The method of computing OH variances is the ___-___ analysis of ____ variances
four-way analysis of OH variances
The four-way analysis of OH variances computes
-price and 1) ef____ for 2) v___ OH
-price and 3) pro___ v___ for 4) f____ OH
1) efficiency
2) variable
3) production volume
4) fixed
Several points regarding OH variances are important
-the variable OH efficiency variance measures the efficiency in using the 1) al___ b___ (ex. DL hours)
-the production volume variance occurs only when 2) ____ costs is 3) un___ (ex. when using 4) f___ ab___ costing). Furthermore, the budgeted fixed OH might 5)___ equal the amount applied to units 6) pr___
-there’s 6) n____ ef_____ __ for fixed production costs. Don’t confuse production volume variance with efficiency variance
1) allocation base
2) fixed
3) unitized
4) full absorption
5) not
6) produced
6) no efficiency variance
Define standard costing
Accounting method that assigns 1) c___ to cost 2) o___ at 3) pr____ amounts.
costs transferred through the production process
1) costs
2) objects
3) predetermined
Standard Costing
Costs transferred through the 1) ___ process. This means that the entry debiting 2) ___ at standard cost could be made 3) b___ a___ costs are 4) ___
In process costing, units transferred between 5) ___ are valued at 6)__ costs
1) production
2) WIP
3) before actual
4) known
5) departments
6) standard
Standard Costing
-Work-in-process inventory is 1) ___ when 2) ___ and 3) __ are used at 4) s___
-Work-in-process inventory is 5) ___ when 6) m____ ___ is applied at 7) s___.
-When the units are finished, WIP inventory is 9) __ and FG inventory is 11) __.
-Variances are usually 13) c___to 14) ___
1) debited
2) DM
3) DL
4) standard
5) debited
6) manu OH
7) standard
9) credited
11) debited
13) closed
14) COGS
Credit , 10,890
debit to Work-in-Process Inventory for $168,750
(18,000 x $12.50 x 3/4 hr)
Actual production in units
17,000
Standard labor cost per unit
1/2 hour @ $20 per hour
Actual cost for labor
$216,750 for 12,750 hours
The journal entry to record labor costs using a standard cost system would include a (debit/credit) _____ to Wages Payable for ______
Credit, 216,750
