Managerial Accounting - Ch 10

Front 1

Management by exception

Back 1

A system of management in
which standards are set for
various operating activities that
are then periodically compared
to actual results. Any differences
that are deemed significant are
brought to the attention of
management as “exceptions.”

Front 2

Standard cost record

Back 2

A detailed listing of the standard
amounts of materials, labour,
and overhead that should go
into a unit of product or service,
multiplied by the standard price
or rate that has been set for
each cost element.

Front 3

Ideal standards

Back 3

Standards that allow for no
machine breakdowns or other
work interruptions and that require
peak efficiency at all times.

Front 4

Practical standards

Back 4

Standards that allow for normal
machine downtime and other
work interruptions and can be
attained through reasonable,
although highly efficient, efforts
by the average employee.

Front 5

Standard quantity per unit

Back 5

The amount of materials that
should be required to complete
a single unit of product,
including allowances for normal
waste, spoilage, and other
inefficiencies.

Front 6

Standard price per unit

Back 6

The price that should be paid for
a single unit of materials,
including shipping, receiving,
and other such costs, net of any
discounts allowed.

Front 7

Standard hours per unit

Back 7

The amount of labour time that
should be required to complete
a single unit of product,
including allowances for breaks,
machine downtime, cleanup,
rejects, and other normal
inefficiencies.

Front 8

Standard rate per hour

Back 8

The labour rate that should be
incurred per hour of labour time,
including Employment Insurance,
employee benefits, and other
labour costs.

Front 9

Standard cost per unit

Back 9

The standard cost of a unit of
product as shown on the
standard cost card; it is
computed by multiplying the
standard quantity or hours by
the standard price or rate for
each cost element.

Front 10

Variances

Back 10

The differences between
standard prices and quantities
and actual prices and quantities.

Front 11

Standard quantity allowed

Back 11

The amount of materials that
should have been used to
complete the period’s output, as
computed by multiplying the
actual number of units produced
by the standard quantity per unit.

Front 12

Standard hours allowed

Back 12

The time that should have been
taken to complete the period’s
output, as computed by
multiplying the actual number of
units produced by the standard
hours per unit.

Front 13

Materials price variance

Back 13

A measure of the difference
between the actual unit price
paid for an item and the
standard price, multiplied by the
quantity purchased.

Front 14

Materials quantity variance

Back 14

A measure of the difference
between the actual quantity of
materials used in production and
the standard quantity allowed,
multiplied by the standard price
per unit of materials.

Front 15

Labour rate variance

Back 15

A measure of the difference
between the actual hourly
labour rate and the standard
rate, multiplied by the number of
hours worked during the period.

Front 16

Labour efficiency variance

Back 16

A measure of the difference
between the actual hours taken
to complete a task and the
standard hours allowed,
multiplied by the standard hourly
labour rate.

Front 17

Variable overhead spending
variance

Back 17

The difference between the
actual variable overhead cost
incurred during a period and the
standard cost that should have
been incurred based on the
actual activity of the period.

Front 18

Variable overhead
efficiency variance

Back 18

The difference between the
actual activity (direct labourhours, machine-hours, or some
other base) of a period and the
standard activity allowed,
multiplied by the variable part of
the predetermined overhead rate.

Front 19

Denominator activity

Back 19

The activity figure used to
compute the predetermined
overhead rate.

Front 20

Budget variance

Back 20

A measure of the difference
between the actual fixed
overhead costs incurred during
the period and the budgeted
fixed overhead costs as
contained in the flexible budget.

Front 21

Theoretical capacity

Back 21

The volume of activity resulting
from operations conducted 24
hours per day, 7 days per week,
365 days per year, with no
downtime.

Front 22

Practical capacity

Back 22

The productive capacity possible
after subtracting unavoidable
downtime from theoretical
capacity.

Front 23

Mix variance

Back 23

The dollar effect on total
materials cost of a difference
between the actual mix of
materials inputs and the
standard mix of materials.

Front 24

Yield variance

Back 24

The dollar effect on total
materials costs of the total
quantity of inputs actually used
generating a different output
from what would have been
achieved using standard
quantities of inputs at the
standard mix.

Front 25

Sales price variance

Back 25

Actual sales price minus
budgeted sales price, multiplied
by actual sales quantity.

Front 26

Market share variance

Back 26

Actual sales volume minus the
anticipated portion of the actual
market volume, multiplied by
budgeted contribution margin
per unit.

Front 27

Market volume variance

Back 27

Actual market volume minus
budget market volume, times
anticipated market share,
multiplied by budgeted
contribution margin.

Front 28

Sales mix variance

Back 28

Quantifies the effects on
contribution margin of selling
the two products in a mix that
differs from the original budget.

Front 29

Sales quantity variance

Back 29

Quantifies the effects on
contribution margin of unit sales
differing from the budget,
holding constant the sales mix at
the budgeted proportions.