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MGMT 201: Exam 3 Notes

by: Zach Weinkauf

MGMT 201: Exam 3 Notes MGMT 201

Zach Weinkauf

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These notes cover lecture material and computational help for Exam 3.
Managerial accounting
David Scott
Study Guide
Accounting, Management
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This 6 page Study Guide was uploaded by Zach Weinkauf on Monday April 11, 2016. The Study Guide belongs to MGMT 201 at Purdue University taught by David Scott in Spring 2016. Since its upload, it has received 220 views. For similar materials see Managerial accounting in Business, management at Purdue University.

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Date Created: 04/11/16
Exam 3 Review Chapter 9: Financial Planning and Analysis: The Master Budget Financial Planning and Analysis System – helps managers assess the company’s future and know if they are reaching their performance goals.  FP&A system includes subsystems for: o Planning o Measuring and Recording Results o Evaluating Performance  Master Budget – the planning component of the FP&A system. o The master budget is intended to help ensure that plans are consistent and yield a result that makes sense for the organization. Budget Systems  Budget – a detailed plan, expressed in quantitative terms, that specifies how resources will be acquired and used during a specified period of time. o Purposes:  Planning  Facilitating Communication and Coordination  Allocating Resources  Controlling Profit and Operations  Evaluating Performance and Providing Incentives o Types:  Master Budget – covers all phases of company’s operations  Sales Budget  Production Budget  Materials Budget  Capital Budget – plan for the acquisition of capital assets, such as buildings and equipment.  Financing Budget – plan that shows how the organization will acquire its financial resources, such as through the issuance of stock or incurrence of debt.  Rolling Budget – this budget is usually a 12 month budget that rolls forward 1 month as the current month is completed. o Purchases are from the Direct Materials Budget Chapter 10: Standard Costing and Analysis of Direct Costs  At that time, managers use the budget as a benchmark against which to compare the results of actual operations  Standard Costing and Variance Analysis – tools used by accountants and managers for analyzing. The Cost Control System:  Three basic parts - A predetermined or standard performance level - A measure of actual performance - A comparison between standard and actual performance  Any difference between the budgeted and standard costs are called a cost variance, which is then used in controlling costs. Managers focus on quantities and costs that exceed standards Cost standards are set by:  Analysis of historical data  Task Analysis Practical standards should be set at levels that are currently attainable with reasonable and effiecient effort. Perfection standards are unattainable and therefore discouraging to most employees Cost Variance Analysis:  Standard cost variance o Price Variance – the difference between the actual price and the standard price.  = Actual Quantity(Actual Price – Standard Price) o Quantity Variance – the difference between the actual quantity and the standard quantity.  = Standard Price(Actual Quantity – Standard Quantity) Computational: DMPV = Direct Material Price Variance DLPV = Direct Labor Price Variance DMQV =Direct Material Quantity Variance DLQV = Direct Labor Quantity Variance AQ = Actual Quantity AP = Actual Price SQ = Standard Quantity SP = Standard Price  If Actual Material/Labor Cost > Projected Material/Labor Cost = DMPV/DLPV Unfavorable, and vice versa.  If Projected Material/Labor Cost > Standard Material/Labor Cost = DMQV/DLPV Unfavorable, and vice versa.  DMPV/DLPV=AQ(AP-SP)  DMQV/DLQV = SP(AQ-SQ)  DMV = DMPV +/- DMQV  DMPPV = AQ Purchased(AP-SP) The purchasing manager is responsible for direct material price variances The production manager is responsible for direct material quantity variances Chapter 11: Flexible Budgeting and Analysis of Overhead Costs We use flexible budgets because static budgets don’t give enough information. Flexible Budgets  Central Concept o If you can tell me what your activity was for the period, I will tell you what your costs and revenue should have been.  Advantages: o Show revenues and expenses that should have occurred at the actual level of activity. o May be prepared for any activity level in the relevant range. o Reveal variances due to good cost control or lack of. o Improve performance evaluation.  There is no flex in the fixed costs, variable costs have a standard cost and changes by amount of hours. (Budgeted variable overhead cost per unit * Total Activity Units) + Budgeted fixed overhead cost Total Budgeted Overhead Cost  Flexible budget is prepared for the same activity level as actually achieved.  Spending Variance – results from paying more or less than expected for overhead items and from excessive usage of overhead items.  Efficiency Variance – a function of the selected cost driver – does not reflect overhead control.  Budget Variance – results from paying more or less than expected for fixed overhead items. Computational Formulas: Variable Overhead Variances: AH = Actual Hours of Activity AR = Actual Variable Overhead Rate SVR = Standard Variable Overhead Rate SH = Standard Hours Allowed 1 Actual Variable Overhead Incurred = AH * AR 2 Flexible Budget for Variable Overhead at Actual Hours = AH * SVR 3 Flexible Budget for Variable Overhead at Standard Hours = SH * SVR 4 Spending Variance = #1 above - #2 above = AH*(AR – SVR) a If positive = Unfavorable b If negative = Favorable 5 Efficiency Variance = #2 above - #3 above = SVR*(AH-SH) a If positive = Unfavorable b If negative = Favorable Fixed Overhead Variances: PFOHR = Predetermined Fixed Overhead Rate SH = Standard Hours Allowed 1 PFOHR = Budgeted Fixed Overhead / Planned Activity in Hours 2 Fixed Overhead Applied = SH * PFOHR 3 Budget Variance = Actual Fixed Overhead Incurred – Fixed Overhead Budget a If positive = Unfavorable b If negative = Favorable 4 Volume Variance = Fixed Overhead Budget – Fixed Overhead Applied (SH * PFOHR) a If positive = Unfavorable b If negative = Favorable Additional Info for Exam 3 Chapter 9: 4 Conceptual – 6 Computational Chapter 10: 5 Conceptual – 5 Computational Chapter 11: 6 Conceptual – 4 Computational Order of Budgets: 1. Sales Budget 2. Production Budget 3. Direct Materials Budget 4. Manufacturing Overhead Budget 5. Cash Receipts Budget Computational Chapter 9: Sales + Desired Ending Inventory - Beginning Inventory PQ(AP-SP) = Direct Material Purchase Price Chapter 10: Advantages of Standard Costing:  Sensible Cost Comparisons  Management by Exception  Performance Evaluation  Employee Motivation  More Stable Product Costs Criticisms of Standard Costing:  Too Aggregated and Too Late  Not Specific  Too Much Focus on Direct Labor  Stable Production Process Required  Shorter Product Life Cycles  Narrow Definition  Too Much Focus on Cost Minimization


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