Study Guide for Test 3
Study Guide for Test 3 Acct 3323
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This 5 page Study Guide was uploaded by Laura Notetaker on Monday October 26, 2015. The Study Guide belongs to Acct 3323 at University of Texas at El Paso taught by Marjorie A Marinovic in Fall 2015. Since its upload, it has received 45 views. For similar materials see Cost Accounting in Accounting at University of Texas at El Paso.
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Date Created: 10/26/15
Study Guide Test 3 Chapter 7 Variance is the difference between the actual results and the expected performance Budgeted performance is another name for expected performance Management by exception is the practice whereby managers focus more closely on the areas that are not operating as expected and less closely on the are areas that are Uses of variances They bring together the planning and control functions of management and facilitate management by exception They evaluate performance and they motivate managers They suggest that the company should consider a change in strategy Static Budget The number of units manufactured is the cost driver for direct materials direct labor and variable overhead Static budget is the also called the master budget based on the level of output planned at the start of the budget period Staticbudget variance is the difference between the actual result and the budgeted amount in the static budget Favorable variance is when the actual costs are less than the ones budgeted It increases operating income relative to the budgeted amount Actual revenues exceed budgeted revenues Unfavorable variance is when there is a decreasing operating income relative to the budgeted amount and it is also called adverse variances Flexible budget Flexible budget calculates budgeted revenues and budgeted costs based on the actual output in the budget period It is prepared at the end of the period Steps 1 Identify the actual quantity of output 2 Calculate the flexible budget for revenues based on the budgeted selling price and actual quantity of output 3 Calculate the flexible budget for costs based on the budgeted variable cost per output unit actual quantity of output and budgeted fixed costs Salesvolume variance Sales volume variance is the difference between flexible budget and the static budget amount Flexible budget variance is the difference between an actual result and flexible budget amount Study Guide Test 3 Reasons for an unfavorable sales volume variance Failure to execute sales plans Weaker demand than expected Competitors taking away the market share Changes in customer tastes and preferences Quality problems leading to customer dissatisfaction Selling price variance is the flexible budget variance it arises solely from the difference between actual selling price and budgeted selling price Standard costs Standard input determined quantity of input required for one unit of output Standard price determined price a company expects to pay for unit of input Standard cost determined cost of a unit of output Price and efficiency variances Price variance is the difference between actual price and budgeted price times the actual input quantity Also called the rate variance Efficiency variance is the difference between actual quantity and budgeted quantity times budgeted price Also called usage variance Reasons for a favorable price variance Manager negotiated the direct materials more skillfully than was planned for the budget Lower price supplier Larger quantities were ordered than budgeted Direct materials prices decrease because oversupply Budgeted prices were too high Favorable prices were to accepted by unfavorable terms such as lower quality Reasons for unfavorable efficiency variance Workers took longer because they worked slower or there was some reworking Hiring under skilled workers Inefficient scheduled work Maintenance department didn t properly maintain the machines Budgeted time standards were too tight Journal entries Direct materials control Actual input x budgeted price Direct materials price variance if favorable gt credited f unfavorable gt debited Study Guide Test 3 Account payable control the actual costs incurred Work in process flexible budget amount Direct materials efficiency variance if favorable gt credited f unfavorable gt debited Direct materials control Actual quantity x budget price Work in process Flexible Budget Direct labor price variance Direct labor efficiency variance Wages payable actual costs incurred Chapter 8 Planning fixed and variable overhead Variable overhead focuses on activities that a add value and eliminate those that don t They are determined daytoday Fixed overhead chooses the appropriate level of capacity that will benefit in the long run They are determined at the start of the budget period Standard costing Standard costing traces the direct costs to output produced by multiplying standard cost by the standard quantities of inputs t allocated overhead on standard overhead cost rates times standard quantities It is computed at the start of the budget period Developing budgeted variable overhead rates 1 Choose the period to be used for the budget 2 Select the costallocation bases to use in allocating the variable overhead costs to the output produced 3 Identify the variable overhead costs associated with each costallocation base 4 Compute the rate per unit of each costallocation base used to allocate the variable overhead costs to the output produced Developing budgeted fixed overhead rates 1 Choose the period to be used for the budget 2 Select the costallocation bases to use in allocating the fixed overhead costs to the output produced 3 Identify the fixed overhead costs associated with each costallocation base Study Guide Test 3 4 Compute the rate per unit of each costallocation base used to allocate the fixed overhead costs to the output produced Variable overhead variances Variable overhead flexible budget variance is the difference between actual variable overhead costs incurred and flexible budget variable overhead amounts Variable efficiency variance is the difference between actual quantity and budgeted quantity time the budgeted variable overhead variable overhead cost per unit Variable spending variance is the difference between actual variable overhead cost per unit and budgeted variable overhead cost per unit times the actual quantity Journal entries Variable overhead control actual costs Accounts payable actual costs Work in process control flexible budget Variable overhead allocated flexible budget Variable overhead allocated flexible budget Variable overhead efficiency variance Variable overhead control actual costs Variable spending variance Fixed overhead cost variances Fixed overhead flexible budget variance is the difference between actual fixed overhead costs and fixed cost in the flexible budget Fixed spending variance is the same amount as the fixed overhead flexible budget Production volume variance is only for fixed costs It is the difference between budgeted fixed overhead and fixed overhead allocated Journal entries Fixed overhead control actual costs Wages payable actual costs Study Guide Test 3 Work in process control flexible budget Fixed overhead allocated flexible budget Fixed overhead allocated flexible budget Fixed overhead productionvolume variance Fixed overhead control actual costs Fixed spending variance Integrated analysis Variable overhead has no productionvolume variance Fixed overhead has no efficiency variance
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