Bec Budgeting, Planning & Control

Front 1

Master Budget

Back 1

A comprehensive plan for the all activities of a company (sales, production, cash management, etc.); this is a static budget: it provides a basis for comparison at a planned level of sales & production and is not usually changed to conform to actual events.

Front 2

Cost Equation

Back 2

The relationship between fixed costs, variable costs, and total costs expressed as a regression equation: y = A + Bx

where: y = Total Costs (dependent variable)
A = Fixed Costs (the y intercept)
B = Variable Cost per Unit (the slope of the line)
x = Number of Units (independent variable)

or Total Costs = Fixed Costs + (Variable Cost per Unit X Number of Units.)

Front 3

Contribution Margin

Back 3

Sales revenue minus variable costs; the portion of the sales price which is available to cover fixed costs and produce a profit

Front 4

Breakeven

Back 4

The sales level at which sales revenues exactly offset total costs, both fixed and variable; the sales level where profit is zero.

Front 5

Overhead Spending Variance

Back 5

A controllable variable overhead variance calculated by multiplying the difference between the actual variable overhead rate and the estimated variable overhead rate by the actual number of units used (hours, gallons, pounds, etc. depending on the allocation base used.)

Front 6

Overhead Efficiency Variance

Back 6

A controllable variable overhead variance calculated by multiplying the difference between the actual allocation base units used (hours, gallons, pounds, etc.) and the estimated allocation base units by the estimated cost per unit

Front 7

Budget variance

Back 7

A controllable fixed overhead variance equal to the difference between the budgeted fixed overhead and the actual fixed overhead; budget variances are the result of unexpected changes in components of fixed overhead (i.e. a change in the salvage value or the estimated life of a piece of manufacturing equipment triggers a change in deprecation expense.)

Front 8

Volume variance

Back 8

An uncontrollable fixed overhead variance equal to the difference between budgeted fixed overhead and fixed overhead applied to production (fixed overhead rate times the standard quantity of units allowed for actual production.)

Front 9

Avoidable costs

Back 9

Costs that can be eliminated by choosing one alternative over the other

Front 10

Irrelevant Costs

Back 10

Future costs which do not differ between alternatives

Front 11

Opportunity cost

Back 11

The benefit that is forgone as a result of making one choice instead of an alternative (in transfer pricing, usually of selling internally rather than selling externally.)

Front 12

TQM: 4 Costs of Quality

Back 12

1. Prevention cost
2. Appraisal cost
3. Internal failure cost
4. External failure cost

Front 13

Internal failure costs

Back 13

Costs of defective components and final products identified prior to delivery to the customer

Front 14

Characteristics of just-in-time inventory management

Back 14

All inventories are significantly reduced or eliminated (raw mats, WIP, finished goods);
Number of raw materials orders increases (more, smaller deliveries);
Number of suppliers generally decreases (fewer, more highly motivated suppliers);
Quality of materials must be very high (extra materials are not available to replace poor materials);
Production process must be highly efficient (production problems immediately affect delivery of orders and thus customer satisfaction)

Front 15

Benchmarking

Back 15

A process in which organizations compare their own processes and performance with the processes and performances of business leaders within or across competing industries

Front 16

Four evaluation perspectives for balanced scorecard

Back 16

1. Financial
2. Customer
3. Internal Business Processes
4. Learning, Innovation, and Growth

Front 17

ROI (Return on Investment)

Back 17

ROI = net income/total assets

Front 18

ROI: DuPont Formula

Back 18

DuPont Formula = Return on Sales (ROS) x Asset Turnover, where
ROS = Net Income / Sales
Asset Turnover = Sales / Total Assets