Lecture 8

Question 1

Moral hazard

Answer 1

In economics, a moral hazard is a situation where an economic actor has an incentive to increase its exposure to risk because it does not bear the full costs of that risk. For example, when a corporation is insured, it may take on higher risk knowing that its insurance will pay the associated costs.

Question 2

what is Hidden action

Answer 2

when some action taken by one party to an exchange is not known or cannot be verified by the other. For example, the employer cannot know (or cannot verify) how hard the worker they have employed is actually working.

Question 3

Variance meaning

Answer 3

It just mean difference

Question 4

Budgeted can also just mean

Answer 4

standard

Question 5

another formula Flexible budgeting variance

Answer 5

Flexible budgeting variance = price variance + efficiency variance

Question 5

Applied budget can also mean

Answer 5

allocated budget

Question 6

Static-budget variance

Answer 6

= Actual result – Budgeted result

Question 7

Sales-volume variance

Answer 7

Sales-volume variance = Flexible budget amount – Static budget amount

Question 8

Selling price variance

Answer 8

Selling price variance = (Actual selling price – Budgeted selling price) * Actual units sold

Question 9

(revenue and spending variance) ;

Flexible-budget variance

Answer 9

(revenue and spending variance) ;

Flexible-budget variance = Actual results – Flexible budget amount.

Question 10

(Input) Price variance =

Answer 10

(Input) Price variance = (Actual price of input – Budgeted price of input) * Actual quantity of input

Question 11

(Input) (also known as quantity variance):

Efficiency variance

Answer 11

(Input) (also known as quantity variance):

Efficiency variance = (Actual quantity of input used – Budgeted quantity of input allowed for actual output units) * Budgeted price of input

Question 12

Variable overhead (VOH) efficiency variance

Answer 12

Variable overhead (VOH) efficiency variance = (Actual units of VOH cost allocation base used for actual output units achieved - Budgeted units of VOH cost allocation base allowed for actual output units achieved) * Budgeted VOH cost per unit of VOH cost allocation base

Question 13

VOH spending variance =

Answer 13

VOH spending variance = (Actual VOH cost per unit of cost allocation base – Budgeted VOH cost per unit of VOH cost allocation base) * Actual units of VOH cost allocation base used for actual output units achieved

Question 14

Fixed overhead (FOH) spending variance

Answer 14

Fixed overhead (FOH) spending variance = Actual FOH incurred – Budgeted FOH

Question 15

Production-volume variance

Answer 15

Production-volume variance = Budgeted FOH – Allocated FOH

which also mean

Production-volume variance

= Budgeted FOH – (Budgeted units of FOH cost allocation base allowed for actual output units achieved * Budgeted FOH cost per unit of FOH cost allocation base)

Question 16

What are the Responsibility Centers

Answer 16

1. Cost — accountable for costs only
2. Revenue — accountable for revenues only
3. Profit — accountable for revenues and costs
4. Investment — accountable for investments, revenues, and costs

Budgets coupled with responsibility centres provide a framework of reference for performance evaluation and feedback (based on variance analysis).

Question 17

Flexible budget variance

Answer 17

= price variance + efficiency variance