Cost Accounting Exam 2

Front 1

What is a price variance?

Back 1

Subdivided from flexible-budget variance: Difference between an actual input price and a budgeted input price, multiplied by actual input quantity such as direct material purchased or used.
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Front 2

What is a favorable variance?

Back 2

Has the effect of increasing operating income relative to the budgeted amount.

-For revenues, favorable means actual revenues > budgeted revenues.

-For costs, favorable means actual costs are < than budgeted costs.

- Calculated by doing: Actual result - Static-budget amount.

Front 3

What is an unfavorable variance?

Back 3

Effect of decreasing operating income relative to the budgeted amount.

- Calculated by doing: Actual result - Static-budget amount.

Front 4

What is a efficiency variance?

Back 4

The difference between the flexible budget and the "actual input at budgeted price."

(Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Budgeted price of input.

Front 5

For absorption costing, what's different about beginning and ending inventory?

Back 5

For the ending inventory, you do the end inventory units x (Variable Manufacturing cost/unit + Fixed manufac. Cost/unit!)

- The VC/unit +FC/unit = new unit to use each year with ending inventory.

Front 6

What is a significant difference between absorption costing and variable costing?

Back 6

One of the main differences is solely due to moving fixed manufacturing costs into inventories as inventories increase and out of inventories as they decrease.

Front 7

What is a variance?

Back 7

The difference between actual results and expected performance.

- Expected performance is also called budgeted performance.

Front 8

What is a static budget?

Back 8

A master budget based on the level of output planned at the start of the budget period.

Front 9

For absorption costing, how do you find the allocated fixed manufacturing cost?

Back 9

1. Find the Fixed manufacturing cost per unit.
- Formula: Budgeted Fixed manufacturing cost/ Budgeted production units

2. Use the Fixed cost manufacturing cost/unit x Actual production units = Allocated fixed manufacturing cost.

Front 10

What is absorption costing?

Back 10

A method of inventory costing in which all variable manufacturing costs and all fixed manufacturing costs are included as inventoriable costs.

Front 11

What is variable costing?

Back 11

A method of inventory costing in which all variable manufacturing costs (direct and indirect) are included as inventoriable costs.

- All fixed manufacturing costs and variable non-manufacturing costs are excluded from inventoriable costs and are instead treated as costs of the period in which they are incurred.

Front 12

What is throughput costing?

Back 12

An extreme form of variable costing in which only direct material costs are included as inventoriable costs.

- All other costs are costs of the period in which they are incurred.

Ex: Variable direct labor and overhead costs are period costs and deducted as expenses.

Front 13

For throughput costing, how do you find the manufacturing costs and other operating costs?

Back 13

1. For manufacturing costs:
Use formula: (Variable manufacturing cost/unit x Units produced) + Fixed manufacturing cost - (Direct material cost/unit x units produced).

2. For operating cost:
Formula: (Variable operating cost/unit sold x units sold) + Fixed operating costs.

Front 14

What's the difference between the high-low method and the regression method?

Back 14

The regression method is more accurate than the high-low method because the regression equation estimates costs using information observations.

Front 15

What is the static-budget variance?

Back 15

Difference between the actual result and the corresponding budget amount in the static budget.

Front 16

What is a flexible budget?

Back 16

Calculates budgeted revenues and budgeted costs based on the actual output in the budgeted period.

- Prepared at the end of the period after actual output is known.

Formula: ([Budgeted qty allowed x units produced] x Budgeted cost)

Front 17

What is the sales-volume variance?

Back 17

The difference between the static-budget and the flexible budget amounts.

Because it arises solely from difference between actual output and budgeted output units.

Front 18

What is a standard input?

Back 18

A carefully determined quantity of input - such as square yards of cloth or direct manufacturing labor-hrs.

Front 19

What is a standard price?

Back 19

A carefully determined price that a company expects to pay for a unit of input.

Front 20

What is a standard cost?

Back 20

Carefully determined cost of a unit of output - ex: Standard input allowed/output unit x Std. Price/input unit = Std. Cost/output unit for each variable direct-cost input.

Front 21

What's different about variable and fixed overhead?

Back 21

Variable overhead doesn't have a production-volume variance while fixed overhead doesn't have an efficiency variance.

Also for Fixed overhead: The actual qty. x budget price amount is equal to the flex. budget. This is called the Same budgeted lump sum regardless of output level.

Formula for the ^ is: Budgeted qty. x budgeted price.

Sometimes the budgeted qty. is made up of [Actual qty. units produced x Budgeted labor-hrs, kilos, etc.]

- Only fixed overhead has a production-volume variance.

Front 22

What's the items in order for an variable costing income statement?

Back 22

Revenues - Variable COGS: [Beginning inventory + Var. Manufacturing Costs = Cost of Goods Available for Sale - Ending inventory] - Variable Operating costs = Contribution Margin - Fixed manufacturing costs - Fixed non-manufacturing costs = Operating Income.

Front 23

For variable and fixed overhead, how do you find the allocated overhead?

Back 23

Formula: (Actual qty. x Budgeted rate.)

Actual qty can be made up of (budgeted labor-hrs/unit x actual units completed)

Same as flexible budget number for Variable overhead.