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Acc 272 Conceptual
Acc 272 Conceptual
17
Accounting
Undergraduate 2
04/15/2008

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Term
Benefits to the Organization from Budgeting
Definition

-Communicate to the organization - Better than verbal communication

-Define goals and objectives- Benchmarking & performances evaluations

-Discover positive and negative ares of the firm- Identify the more effective ares and identify problem areas

- Allocate Resources

-Focus on the future - forces the organization to be forward looking

Term
What are standards?
Definition
-Quantity expected to be used given a specific planned or actual production level
-Costs expected to be incurred
Term
Why or when would we want to use standards
Definition
-To assist in the budgeting process
Direct Materials budget
Direct Labor budget
VOH budget
-Evaluation purposes
Management by exception
Term
Ideal versus practical standards
Definition
Ideal- Everything goes perfectly
Practical- Historical Data
Term
Normal versus abnormal inefficiencies
Definition
In ideal budget, any inefficiencies is an abnormal inefficiency. In a practical budget abnormal inefficiencies are the inefficiencies that are greater than alotted
Term
Advantages of Variance Analysis
Definition
-Assists the management-by-exception model
-Facilitates cash planning & inventory control through the budget process
-Promotes economy and efficiency by providing benchmarks
-Simplifies bookkeeping for quarterly financial statement preparation (add up only individual variance. Only to create total??
-Useful tool for responsibility accounting
Term
Disadvantages or problems of Variance Analysis
Definition
-Timeliness and materiality issues- Waisting time on little variances
-Morale issues
-Assumptions about labor force that are not always true (Assume they're variable also machines are involved in labor)
-A favorable variance is a good variance? (Think McDonalds example (big mac)
-Focus on variances at the expense of everything else
-Goal of meeting the standards versus continuous improvement
Term
The Balanced Scorecard
Definition
Integrated set of performance measures specific to each firm because the performance measures are derived from the firm's strategy and support the implementation of that strategy
Term
Advantages of decentralization for a firm
Definition
-Allows lower level managers to make decisions
-Top level management can focus on strategy rather than day-to-day business
-Increase job satisfaction, not being bossed by people unfamiliar
-Allows for better performance evaluation
-Helps train people to move up in a company
Term
Disadvantages of decentralization
Definition
-Lower management might make bad decisions without big picture in mind
-Could start competing against yourself, segments behave independently
Term
Margin;Operating Assets; Turnover
Definition
Margin-% of revenue dollars that become income dollars
Operating Assets- all assets used to generate revenues (not land held for use)
Turnover- How well the assets are used to generate revenue
Term
How does a firm increase ROI
Definition
-Increase Sales
-Reduce expenses
-Reduce operating assets
Term
How does a firm set prices for sales transactions between segments within the company?
Definition
-Negotiate
-Set the price at the cost using either variable or absorption costing
-Set the price at the market price
Term
Benefits and limitations of setting transfer prices
Definition
-Negotiated transfer price
--Preferred Method
--Assumes that both segments negotiate fairly and reasonably
-Transfer prices at cost
--How do we define cost
--Motivation Problem- Lack of Cost Control & no profit
-Transfer prices at market
--Ignores idle capcity
Term
Other types of situations where relevant costing and incremental analysis are useful
Definition
-Introducing a new product/discontinuing an old product
-Accepting special-orders of products
-Working with joint products and sell-or-process-further products
Term
What are intangibles?
Definition
Qualitative benefits from a project that are difficult to measure
ex. Increased reputation, employee morale
Term
How are intangibles measured for the purpose of capital budgeting?
Definition
-If a project has negative NPV
-Determine what additional annual cash flows inflows would make the NPV ZERO
-COuld the intangible
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