Acct 2102 - Test 3

Front 1

planning budget

Back 1

develops objectives for acquisition of resources

Front 2

control budget

Back 2

steps taken by mgmt. to ensure that objectives are attained

Front 3

purpose of budgets

Back 3

- formalize mgmt.'s plans in quantative terms
- express plans for coming periods
- cause managers to anticipate results and act to correct poor ones
- increase motivation to achieve stated goals

Front 4

benefits of budgets

Back 4

- creates cost conciousness
- communcation of plans
- develops a more visionary mgmt.
- mgmt. by exception
- facilitates review and revision of plans
- coordination of activities

Front 5

considerations in preparing a budget

Back 5

- mgmt. assumptions
1. econ. conditions for the planing period
2. adding, deleting, or changing product lines
4. effects of govt. regulation
- useful acct. data from past periods adjusted for future expectiations

Front 6

general budgeting principals

Back 6

1. coordination of fin. and nonfin. planning
2. top mgmt. support
3. employee participation
4. effective communication
5. flexibility
6. follow-up

Front 7

participatory budget system

Back 7

flow of data:
supervisors >>> middle mgmt. >>> upper mgmt.

Front 8

master budget

Back 8

summary of all phases of plans for the company
detailed budgets from: sales, prod. costs, selling and admin. expenses, other expenses, cash
master budget consists of income stat. and proj. balance sheet

Front 9

sales budget

Back 9

detailed schedule showing expected sales for the coming periods expressed in units and dollars

forecast: stat. forecasts, compilation of forecasts from staff, econ. models, mgmt. intuition

Front 10

production budget

Back 10

budgeted sales in units
+ desired product units in end. inv.
---
= total product units needed
- product units in beg. inv.
---
= product units to produce

** must be adequate to meet budgeted sales and provide sufficient ending inventory

Front 11

production budget - material pruchases

Back 11

** based on production qty. and desired material inv. levels

units to produce
* material needed per unit
---
= material needed for units to produce
+ desired uits or material in ending inv.
---
= total units of material needed
- units of material in beg. inv.
---
= units of material to purchase

Front 12

selling and administrative expense budget

Back 12

selling exp. budget contains both var. and fixed terms
- var. terms: shipping costs and sales commissions
- fixed terms: ad. and sales salaries

admin. expense budgets contain mostly fixed items -- exec. salaries and depreciation

Front 13

just-in-time inventory

Back 13

inventories are reduced
- units produced approximate units sold
- materials purchases approximate materials used

Front 14

zero-base budgeting

Back 14

mgmt. starts each yr. w/ 0 budget levels and must justify each dollar appearing on the budget

Front 15

standard costs

Back 15

-based on carefully predetermined amts.
- used for planning labor, material, and O/H reqs.
- expected level of performance
- benchmarks for measuring performance

Front 16

standard cost variance

Back 16

amt. by which an actual cost differs from the standard cost:
- unfav. if actual cost exceeds std. cost
- fav. if actual cost is less than std. cost

importance: they point out problems and areas for improvement, trigger investigations in depts. responsible for incurring costs

practice where managers focus on qty. and costs and differ from the std.

Front 17

practical standards

Back 17

set at levels that are currently attainable with reasonable and efficient effort

Front 18

ideal standards

Back 18

based on perfection and usually unattainable; can be discouraging because they are so difficult to meet

Front 19

setting direct materials

Back 19

price: usually based on competitive bids for the qty. and quality desired

usage (qty): based on the product design specs.

standard material cost for one unit:

std. price for 1 unit * std. qty. required for 1 unit of product

Front 20

setting direct labor standards

Back 20

rate: based on wage surveys and labor contracts

efficiency: based on time and motion studies for operations

standard cost for one unit of product:

standard wage rate/hr. * std. # of hrs. for one unit of product

Front 21

use of standard cost in developing budgets

Back 21

standard: expected cost for one unit

budget: expected cost for all units

Front 22

advantages in standard costs

Back 22

- improved cost control and performance evaluation
- better info. for planning and decision making
- possible reductions in production costs
- more reasonable and easier inventory measurements
- cost savings in record keeping

Front 23

disadvantages of standard costs

Back 23

- emphasis on negative exceptions can lower morale
- it may be difficult to determine which variances are significant
- emphasis on negative exceptions may lead to under-reporting

Front 24

price variance

Back 24

difference b/t actual price and standard price

Front 25

qty. variance

Back 25

difference b/t actual qty. and standard qty.

Front 26

price variance

Back 26

AQ(AP- SP)


** recorded at time of purchase

Front 27

usage variance

Back 27

SP(AQ-SQ)

Front 28

material variance

Back 28

price variance

qty. variance

Front 29

labor variance

Back 29

rate variance

efficiency variance

Front 30

rate variance

Back 30

AH(AR - SR)

Front 31

efficiency variance

Back 31

SR(AH - SH)

Front 32

overhead variances

Back 32

applied to goods produced using a std. O/H rate

O/H is set prior to start of period

Front 33

std. O/H rate

Back 33

= total budgeted O/H cost/est. activity

- contains a fixed O/H rate which declines as activity level increases
- contains a variable unit rate which stays constant at all levels of activity
- function of std. activity level chosen to determine rate

Front 34

budget variance

Back 34

AOH - BOH

shows how economically O/H services were purchased and how efficiently they were used

contains both fixed and variable costs

Front 35

volume variance

Back 35

FOHR(BH - SH)

caused by producing at a level other than that used for computing std. O/H rate

contains only fixed costs

Front 36

mgmt. by exception

Back 36

in deciding which variances investigate, possible guidelines include:

- dollar amt. or percentage of std.
- controllability of the cost variance

Front 37

disposing of variances

Back 37

attainable std.: variance is due to inefficient operation; treat as a loss and close to income summary

unattainable std.: charge to COGS or prorate to COGS, WIP, and finished goods

Front 38

nonfinancial performance measures

Back 38

- quality control
- material control
- inventory control
- customer complaints
- delivery performance

the focus is on the costumer service rather than meeting a certain standard