accounting 202 ch 21 – Flashcards
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The comparison of differences between actual and planned results
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appears on periodic budget reports.
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A static budget
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shows planned results at the original budgeted activity level.
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Top management's reaction to a difference between budgeted and actual sales often depends on
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the materiality of the difference.
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If costs are not responsive to changes in activity level, then these costs can be best described as
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fixed.
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What is the primary difference between a static budget and a flexible budget?
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The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.
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A flexible budget
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projects budget data for various levels of activity.
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What budgeted amounts appear on the flexible budget?
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Budgeted amounts for the actual activity level achieved
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The flexible budget
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is a series of static budgets at different levels of activity
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Another name for the static budget is
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master budget.
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Within the relevant range of activity, the behavior of total costs is assumed to be
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linear and upward sloping.
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Management by exception
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means that material differences will be investigated.
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Under management by exception, which differences between planned and actual results should be investigated?
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Material and controllable
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The activity index used in preparing the flexible budget
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should significantly influence the costs that are being budgeted.
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A static budget is not appropriate in evaluating a manager's effectiveness if a company has
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substantial variable costs
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The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called
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responsibility accounting
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A cost is considered controllable at a given level of managerial responsibility if
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the manager has the power to incur the cost within a given time period.
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As one moves up to each higher level of managerial responsibility
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a greater number of costs are controllable.
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A responsibility report should
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show only those costs that a manager can control
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Performance reports for cost centers compare actual
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controllable costs with flexible budget data
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In the performance report for cost centers
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no distinction is made between fixed and variable costs
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