Test 3 Flashcards
MATCHING:
Define Organizational Goals
company’s broad objectives established by management that employees work to achieve
MATCHING:
Define Strategic Long-Range Plan
statement detailing steps to take to achieve a company’s goals (3 - 5 year plan)
MATCHING:
Define Master Plan
the financial plan of an organization for the upcoming year
(tactical short-range profit plan, “static budget”)
MATCHING:
Define Budget
a financial plan of the resources needed to carry out activities and meet financial goals
MATCHING:
Define Operating Budget
encompassing budget for operating activities, including:
-Sales Budget
-Production Budget
-COGS Budget
-Marketing and Administrative Budget
-Income Statement Budget
MATCHING:
Define Favorable Variance
when taken alone, INCREASES operating profit
MATCHING:
Define Flexible Budget
budget that indicates revenues, costs, and profits for different levels of activity
-developed for SEVERAL levels of sales volume
-separates the fixed and variable costs
MATCHING:
Define Sales Activity Variance
difference between operating profit in the Master Budget and operating profit in the Flexible Budget that arises because the actual number of units sold is different from the budgeted number
MATCHING:
Define Standard Costing
an accounting method that assigns costs to cost objects at predetermined amounts
MATCHING:
Define Price Variance
difference between ACTUAL costs and BUDGETED costs multiplied by the actual quantity
-PURCHASING DEPT. owns this
(AP-SP) x AQ
MATCHING:
Define Efficiency Variance
difference between ACTUAL quantity and BUDGETED quantity multiplied by the standard price
-PRODUCTION DEPT. owns this
(AQ-SQ) x SP
MATCHING:
Define Production Variance
“Input” variance, consisting of both Price and Efficiency variance
What are the three benefits of budgeting?
- Sets benchmarks for evaluation performance
- Uncovers potential bottlenecks
- Formulates a manager’s planning efforts
A Master Budget is composed of:
- Operating Budgets
- Financial Budgets
Regarding Operating Budgets, which budget is often the MOST DIFFICULT part of budgeting?
Sales Budget (“foundation”) - uses objectivity
What does a Cash Budget emphasize?
emphasizes when cash is RECIEVED and PAID (NOT a restate Income Statement)
On which basis in the Balance Sheet in Financial Budgets?
Accrual Basis
What is a Production Budget?
the production plan of resources needed to meet current sales demand and ensure that inventory levels are sufficient for future sales
What is the Basic Cost Flow Model?
BB + TI = TO + EB
or Beg. Bal + Production - Sales = End. Bal.
T/F: Assembling a Master Budget is a complex process requiring careful coordination of many different organization segments
TRUE
When does the Master Budget process usually start?
several months before year-end (not too early, not too late)
Who formally adopts the Master Budget?
Board of Directors
What is a Variance?
difference between planned result and actual outcome
What is an Unfavorable Variance?
when taken alone, DECREASES operating profit
Is it correct to say that Favorable Variances are “always good” and Unfavorable Variances are “always bad?”
NO - Favorable Variances are not necessarily good and Unfavorable Variances are not necessarily bad
How many levels of sales volume is a Master Budget developed for, and can this be changed after being developed?
Developed for ONE level of sales volume
DOES NOT change after being developed
What is the importance of Sales Activity Variance?
it isolates the change in operating profits caused by the actual sales activity versus the Master Budget (before considering differences in selling prices, variable costs, and fixed costs)
How is Sales Revenue calculated for Sales Activity Variance?
(Actual Units - Budgeted Units) x Budgeted Sales Unit Price
How are Variable Costs calculated for Sales Activity Variance?
(Actual Units - Budgeted Units) x Budgeted Unit Cost
Are there any changes to fixed costs in Sales Activity variance?
NO
When does a Flexible Budget Variance occur?
when sales price/unit, variable cost/unit, and/or fixed cost was different than planned
What is a Sales Price Variance?
(Actual Selling Price - Budgeted Selling Price) x Actual # units sold
T/F: Direct Materials, Direct Labor, and Variable Overhead each have a price and efficiency variance component.
TRUE
Price Variance + Efficiency Variance = _______________
Flexible Budget Variance
Are Fixed Costs period costs or product costs?
Period costs by nature
Does Fixed Overhead have an efficiency variance? Why or Why not?
NO - Fixed Overhead has no input/output relationships
Price Variance for Fixed Overhead is ____________ - ______________.
Actual Fixed OH - Flexible Budget Fixed OH
What is Volume Variance?
the difference between budgeted and applied fixed OH under full absorption costing
it is the variance that arises because the volume used to apply fixed OH differs from the estimated volume used to estimate fixed cost/unit
