Planning, Control, Analysis

Question 1

Types of budgets - monthly/master/rolling/flexible

Answer 1

Flexible - adjusted to the actual level of activity
Monthly - prepared for one month period
Master - comprehensive
Rolling - continually updating by dropping off the expired period and adding the next period
Activity based - develops amounts by using cost drivers used in the activity base costing system
Zero based - developed from the bottom up
Life cycle - develops a budget for a product from its R&D phase to the last sales of the product

Question 2

What are common fixed costs

Answer 2

Are incurred at one level for the benefit of two or more segments. A common cost arises from operating a facility, operation, or activity that is shared by two or more managers. They cannot be traced directly to production process or individual segment and cannot be influenced by a single segment manager.

Question 3

How is direct material quantity variance calculated? Given actual purchase 6500 lbs, standard allowed 6000lbs, actual price 3.8 and standard price 4

Answer 3

DM Q var = (standard Q X standard P) - (actual Q X standard P)
Only looks for difference in Q, uses same standard P
Answer is 2k unfavorable

Question 4

Company uses static budget. Actual sales are less than budget, where is favorable variance reported?

Answer 4

Sales commission would be reduced and building rent is unaffected.

Question 5

Participative budgeting

Answer 5

Takes more time, but personnel are more motivated, acceptance is increased, and often more accurate.

Question 6

What are committed costs

Answer 6

Costs that establish the present level of operating capacity that cannot be altered in the short run.

Question 7

What is the difference between absorption and variable costing? Given 2k units on hand at end of year with var costs of 100/unit and fixed 30/unit.

Answer 7

Absorption costing carries over 60k (2k x 30) in FIXED costs into ending inventory. It is treated as a product cost, and recognized when the product is sold.
Variable costing expenses this amount in the period incurred.
Thus absorption income would be higher by 60k
The accounting for fixed manufacturing OH differs.
Absorption costing considers all manufacturing related costs to be product costs (incl ALL of DM, DL, other variable costs, depreciation of factory bldg and manufacturing equipment, and other fixed manufacturing OH)
As per GAAP, only absorption costing is used for external reporting.

Question 8

How is price variance calculated? planned 10k at 20/unit, actual 11.2k at 18.5/unit

Answer 8

Price variance = ACTUAL units X (Actual price - standard price)
16.8k favorable

Question 9

After the goals of the company have been established and communicated, what is the next step of the planning process?

Answer 9

Development of the sales budget

Question 10

What is the delphi technique

Answer 10

Involves developing consensus among a group about the future. It is a forecasting method that relies mostly on judgment.

Question 11

How do you calculate break even units?

Answer 11

Divide total fixed costs by the contribution margin per unit.
The CM/unit = Sales/unit - variable costs/unit
Note that the total fixed costs will include factory overhead and general selling and admin. It does NOT include interest on investments.

Question 12

What is the difference between simple and multiple regression

Answer 12

Multiple consists of a function relationship with MULTIPLE INDEPENDENT variables where simple only has one independent variable.

Question 13

What is a flexible budget

Answer 13

It provides budgeted numbers for various activity levels.

NOTE that all budgets allow for modification during the budgeted period.

Question 14

Calculate the cash required to pay for DM purchases during the month of Feb. Given production units for Jan 400k, Feb 380k, Mar 420k. Take all discounts at 2/10. Month end DM inv requirement is 25% of next month’s production requirements. DM cost is $5/unit.

Answer 14

Need to consider the adjustment for beginning and ending DM inventories. Use 380k + ending DM reqs = Total DM needs
Total DM needs - Beg DM inventory = Total DM unit purchases
Where Beg DM inv is 95 = .25 X 380
Where End DM reqs is 105 = .25 X 420
Then X 5 less 2% discount = Feb cash required for DM purchases

Question 15

Find cash disbursements for inventories given:

Sales 1.5M, gross profit 25%, decrease in inventories 70k and decrease in AP for inventories 120k

Answer 15

COGS is 1125k
Purchases on account must have been 1125k-70k = 1055k. It is less 70 since that 70 is already disbursed.
If AP was decreased by 120k, cash disbursements is 1055k + 120k = 1175k. The decrease in AP means 120 more was disbursed.

Question 16

Responsibility accounting

Answer 16

It is used to evaluate manager performance. Performance measure should include only those costs that the manager an influence in the current period.

Question 17

How to calculate current overrun/savings? Given total budget is 3M. Actual is 2.5M for 60% completion.

Answer 17

It uses the budgeted % which is 3M X 60% = 1.8M
Compared to actual gives a 700k overrun
Do NOT compare the total budget to current which is not of total.

Question 18

What is the first step in developing a budget?

Answer 18

Budgeting begins with the sales budget. Forecast sales volume is the first step in determining the amount of sales. NOT determining the price of products-that comes after in the process.

Question 19

Find transfer price. Division A and B. A creates product X sold for 25 and var costs of 15. B could apply +40$ var costs to X and sell for $100.
Div B has a special order for a large amount of Y.
Div A is operating at full capacity. How much does A charge B for X?

Answer 19

If A is operating at full capacity, it can sell all that it can make. Therefore, it should transfer the product at its opportunity cost which is $25, the price it could sell the product to another buyer.

Question 20

Find transfer price.A and B are part of C. A produces X which 20% is sold to B, the other 80 is sold to outside customers. A’s full capacity is 100k units.
Tentative transfer price of 75/unit, to be reduced by the equal sharing of additional GM to A resulting from sales to B at 75 instead of at variable cost.
How would the transfer price have been in the year if GM is -300k, variable costs are 900k, and unit sales are 20k.

Answer 20

Variable costs per unit is 45. Take the selling price of 75 less variable cost of 45. The 30 is split between A and B.
The new selling price/actual transfer price would be 75 less the 15 = 60
Note they split the ADDITIONAL GM, so even though the GM was negative before, the net difference was 600k in total which is the number that is split.