Term
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Definition
| A static budget is a budget developed at the beginning of soe period of time based on input standards, price standards, and expected sales and production volume. |
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Term
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Definition
| A carefully determined price, cost, or quantity used as a benchmark for judging performance. |
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Term
| What is a direct material price standard? |
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Definition
| Expected price paid to purchase direct materials. |
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Term
| What is a direct material input standard? |
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Definition
| Expected quantity of direct material used per unit of product. |
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Term
| What is a direct material cost standard? |
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Definition
| Expected direct material cost of one unit of product as determined by the price and input standard. Cost standard = input standard x price standard |
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Term
| What is a direct labor price standard? |
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Definition
| Expected price paid for each hour of direct labor. |
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Term
| What is a direct labor input standard? |
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Definition
| Expected quantity of direct labor used per unit of product. |
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Term
| What is a direct labor cost standard? |
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Definition
| Expected direct labor cost of one unit of product as determined by the price and input standard. Cost standard = input standard x price standard |
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Term
| What is a variable overhead standard, or allocation rate? |
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Definition
Expected price paid for each unit of allocation base |
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Term
| What is a variable overhead input standard? |
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Definition
| Expected quantity of allocation based used per unit of product. |
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Term
| What is a variable overhead cost standard? |
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Definition
| Expected variable overhead cost of one unit of product as determined by the price and input standard. Cost standard = input standard x price standard |
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Term
| What is a flexible budget? |
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Definition
| A flexible budget is a budget developed using the same standards that were used to created the static budget but based on actual production. It is essentially the budget that would have been developed had the actual sales and production output been known. |
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Term
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Definition
| The difference between an actual result and expected performance. |
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Term
| Why is it useful to measures and evaluate variances? |
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Definition
| They are helpful in explaining why actual income differs from budgeted income. |
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Term
| What makes a variance favorable or unfavorable? |
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Definition
| A favorable variance has the effect of increasing income relative to the budgeted amount |
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Term
| What is management by exception? |
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Definition
| A practice where managers focus their attention on understanding and addressing areas that are not operating as expected. |
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Term
| What does each variance tell management? |
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Definition
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Term
| What can cause a material price variance? |
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Definition
| Anything that causes the purchase price of the material to change. Ex. Purchase discount for bulk purchase, higher or lower quality material. |
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Term
| What can cause a material efficience variance? |
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Definition
| Anything that causes more or less material to be used per unit of output. Better machines, better quality material or better trained labor workers could all lead to a favorable material efficiency variance. |
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Term
| What can cause a labor price variance? |
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Definition
| Anything that causes the average labor wage to change. Ex. Raises, contract negotiations, new hires. |
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Term
| What can cause a labor efficience variance? |
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Definition
| Anything that causes more or less labor hours to be used per unit of output. Better machines, better quality material or better trained labor workers could all lead to a favorable labor efficiency variance. |
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Term
| What can cause a variable overhead spending variance? |
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Definition
| Anything that causes the actual variable overhead head rate to differ from the budgeted variable overhead head. Ex. Different indirect labor cosst rates, different utility rates, different indirect labor rates. |
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Term
| What can cause a variable overhead efficience variance? |
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Definition
| Anything that causes more or less of the cost driver (allocation base) to be used per unit of output. If the cost driver is labor hours, better machines, better quality material or better trained labor workers could all lead to a favorable labor efficiency variance. |
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Term
| What can cause a fixed overhead spending variance? |
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Definition
| Anything that causes the actual fixed overhead expensed to differ from the budgeted fixed overhead head. |
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Term
| What can cause a production volume variance? |
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Definition
| Actual sales volume that differs from budgeted sales volume. |
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Term
| What are the assumptions of CVP analysis? |
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Definition
Changes in revenue and costs are due to changes in volume
Cost can be separated into fixed and variable costs
Total costs and revenues are linear
Selling price, variable cost pr unit, total fixed cost are constant
and known.
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Term
| How much does selling a single unit if a product contribute to your fixed cost or operating income? |
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Definition
| The increase will be the contribution margin of that unit. |
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Term
| What is the breakeven point? |
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Definition
| It is the point at which total revenues equals total costs. At the breakeven point, net income = 0 and total contribution margin = fixed costs. |
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Term
| What the impact of increasing taxes on the breakeven point? |
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Definition
Since income is 0 at breakeven, the taxe rate has no effect on the breakeven point
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Term
| What is the benefit of sale mix CVP? |
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Definition
| It allows companies to consider CVP changes when there is more than one product. |
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Term
| What additional assumption is required for sale mix? |
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Definition
| There is a constant proportion of sales of one product compared to the other. |
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Term
| What does margin of saftey in units tell us? |
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Definition
| The difference between expect sales volume and the sales volume required to breakeven. |
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Term
| What does margin of saftey in dollars tell us? |
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Definition
The difference between expect sales revenue and the sales revenue required to breakeven.
Note: Sales revenue at breakeven is not 0.
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Term
| Describe the decision model used by the book? |
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Definition
1. Identify the “problem” or the potential decision
2. Obtain information
3. Make predictions about the future
4. Make decisions by choosing among alternatives using the relevant information.
5. Implement the decision.
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Term
| Does the decision model consider quantitative information, qualitative informatin or both? |
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Definition
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Term
| What is a relevant revenue? |
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Definition
| Expected future revenue that differs among alternative courses of action. |
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Term
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Definition
| Expected future costs that differ among alternative courses of action. |
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Term
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Definition
| Irrelevant past costs that that are unavoidable because they cannot be changed by any course of action. |
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Term
| What is an opportunity cost? |
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Definition
| Foregone contribution to operating income by not using a resource in its next best alternative use. |
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