Managerial Accounting: final exam – Flashcards
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Spending Variance
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§ The difference between howmuch a cost should have bee, given the actual level of activity, and the actualamount of the cost§ A favorable (unfavorable)spending variance occurs because the cost is lower (higher) than expected,given the actual level of activity for the period
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Ideal Standards
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§ Standards that assume peakefficiency at all times
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Labor Efficiency Variance
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§ The difference between theactual hourly rate and the standard rate, multiplied by the number of hoursworked during the period
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Materials Price Variance
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§ The difference between theactual hourly rate and the standard rate, multiplied by the number of hoursworked during the period
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Materials Quantity Variance
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§ The difference between theactual quantity of materials used in production and the standard quantityallowed for the actual output, multiplied by the standard price per unit ofmaterials
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Price Variance
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§ A variance that is computedby taking the difference between the actual price and the standard price andmultiplying the result by the actual quantity of the input
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Standard Cost Per Unit
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§ The standard quantityallowed of an input per unit of a specific product, multiplied by the standardprice of the unit
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Standard Hours Allowed
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§ The time that should havebeen taken to complete the period's output§ It is computed bymultiplying the actual number of units produced by the standard hours per unit
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Standard hours per unit
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§ The amount of direct labortime that should be required to complete a single unit of product, includingallowances for breaks, machine downtime, cleanup, rejects, and other normalinefficiencies
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Standard Price Per Unit
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§ The price that should bepaid for an input
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Standard quantity allowed
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§ The amount of an input thatshould have been used to complete the period's actual outputIt is computed by multiplying the actual number ofunits produced by the standard quantity per unit
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Standard quantity per unit
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§ The amount of an input thatshould be required to complete a single unit of product, including allowancesfor normal waste, spoilage, rejects, and other normal inefficiencies
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Standard Rate Per Hour
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§ The labor rate that shouldbe incurred per hour of labor time, including employment taxes and fringebenefits
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Variable Overhead Efficiency Variance
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§ The difference between theactual level of activity (direct labor-hours, machine-hours, or some otherbase) and the standard activity allowed, multiplied by the variable part of thepredetermined overhead rate
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Variable overhead rate variance
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§ The difference between theactual variable overhead cost incurred during a period and the standard costthat should have been incurred based on the actual activity of the period
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Cost of Capital
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§ The average rate of returna company must pay to its long-term creditors and shareholders for the use oftheir funds
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Internal Rate of Return
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§ The discount rate at whichthe net present value of an investment project is zero; § the rate of return of aproject over its useful life
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Net Present Value
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§ The difference between thepresent value of an investment project's cash inflows and the present value ofits cash outflows
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Out-of-pocket costs
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§ Actual cash outlays forsalaries, advertising, repairs, and similar costs
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Payback Period
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§ The length of time that ittakes for a project to fully recover its initial cost out of the net cashinflows that it generates
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Project Profitability Index
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§ The ratio of the netpresent value of a project's cash flows to the investment required
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Working Capital
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§ Current assets less current liabilities
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Relaxing (or elevating) the constraint
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§ An action that increasesthe amount of a constrained resource§ Equivalently, an actionthat increases the capacity of the bottleneck
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Total Contribution Margin
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Total Revenue - Total Variable Costs
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Total Contribution Margin (on a unit basis)
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Sales Price - Unit Variable Costs
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Total Profit
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Total Revenue - Total Costs
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Total Revenue
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Sales Price x Number of Units Sold
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Total Costs
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Total Variable Costs + Total Fixed Costs
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Total Variable Costs
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Unit Variable Costs x Number of Units Solds
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Break-Even (in units)
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(Total Fixed Costs)/ (CM per Unit)
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Break-Even (in dollars)
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(Total Fixed Costs)/ (CM %)
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Target Profit (in units)
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(Total Fixed Costs + Total Profit)/ (CM per Unit)
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Target Profit (in dollars)
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(Total Fixed Costs + Total Profit)/ (CM %)
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After Tax Profit
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Before Tax Profit - Before Tax Profit (Tax Rate)
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Operating Leverage
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Contribution Margin/Net Operating Income
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Margin of Safety (in $$)
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Projected Sales - Break Even Sales
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Total Sales
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Budgeted Sales in Units * Selling Price per Unit
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Total Cash Collections
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A/R Beginnning Balance + Q1 Sales + Q2 Sales + Q3 Sales + Q4 Sales
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Total Needs
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Budgeted Unit Sales + Desired Ending FGI
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Required Production (in units)
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Total Needs - Beginning FGI or Budgeted Unit Sales + Desired Ending FGI - Beginning FGI
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Required Purchases
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Budgeted COGS + Desired Ending Merchandise Inventory - Beginning Merchandise Inventory
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Raw Materials Needed to meet Production Schedule
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Required Production of units of Finished Goods * Raw Materials required per unit of Finished Goods
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Total Raw Material Needs
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Raw Materials Needed to meet production schedule + Desired Ending RMI
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Raw Materials to be purchased
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Total Raw Material Needs - Beginning RMI or Raw materials needed to meet production schedule + Desired ending RMI - Beginning RMI
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Cost of Raw Materials to be purchased
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Raw Materials to be Purchased * Unit cost of raw materials
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Total Cash Disbursements for Materials
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A/P Beginning Balance + Q1 Purchases + Q2 Purchases + Q3 Purchases + Q4 Purchases
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Total DL Hours Needed
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Required Unit Production * DL-hours per unit
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Total DL Cost
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Total DL Hours Needed x DL Cost Per hour or Required Unit Production x DL Hours per unit x DL cost per hour
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Variable MOH
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Budgeted Cost Driver * Variable MOH Rate
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Total MOH
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variable MOH + Fixed MOH
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Cash Disbursements for MOH
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Total MOH - Depreciation OR Variable MOH + Fixed MOH - Depreciation
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Variable S&A Expense
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Budgeted Unit Sales * Variable S&A Expense per unit
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Total Fixed S&A Expenses
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Advertising + Exec. Salaries + Insurance + Property Taxes + Depreciation
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Total S&A Expenses
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Variable S&A Expense + Total Fixed S&A Expense
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Cash Disbursements for S&A Expenses
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Total S&A Expenses - Depreciation OR Variable S&A + Fixed S&A - Depreciation
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Total Cash Available
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Cash Balance, Beg. + Receipts (like Collections from Customers)
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Total Disbursements
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Direct Materials + Direct Labor + MOH + S&A + Equipment Purchases + Dividends
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Excess (Deficiency) of cash available over disbursements
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Total Cash Available + Total Disbursements
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Total Financing
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+ Borrowings (@ beginning of quarter) - Repayments (@ end of year) - Interest
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Cash Balance, Ending
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Excess (deficiency) of Cash available over disbursements +/- Total Financing OR Total Cash Available - Disbursements +/- Total Financing
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Minimum Required Borrowings (Required Balance at Beginning of Quarter)
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Desired Ending Cash Balance + Deficiency of Cash available over disbursements
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Total Interest accrued
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Interest on ___ borrowed @ beg. of Q1 + Interest on ___ borrowed @ beg. of Q2 + Interest on ___ borrowed @ beg. of Q3 + Interest on ___ borrowed @ beg. of Q4
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Gross Margin
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Sales - COGS
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Net Operating Income
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Gross Margin - S&A Expenses OR Sales - COGS - S&A Expenses
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Net Income
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Net Operating Income - Interest Expense OR Sales - COGS - S&A Expense - Interest Expense
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Flexible Budget Performance Report
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Revenue - Expenses = Net Operating Income 1
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Activity Variance
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Planning vs. Flexible
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Spending Variance
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Flexible vs. Actual
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Quantity/Usage Variance
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Flexible vs. Actual @ Standard
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Price/Rate Variance
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Actual @ Standard vs. Actual
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No Spending Variance When...
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Amount Purchased =/= Amount Used!
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Remove Depreciation for Statements:
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Statements of Cash Flows
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Remove Depreciation for Budgets:
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MOH Expense S&A Expense
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Working Capital (cash on hand)
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Current Assets - Current Liabilities (not taxed)
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Internal Rate of Return
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Investment Required / Annual Incremental Change in Cash Flows
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Payback Period
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Investment / Net Annual Incremental Cash Flows
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Net Present Value
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Annual Cash Flows * Annuity One-time inflow * Present Value $$
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Net Annual Cash Inflow
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Net Operating Income + Depreciation
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Present Value of Cash Flows = Positive
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GOOD
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Present Value of Cash Flows = Negative
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BAD
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Present Value of Cash Flows = Zero
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GOOD
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Order of Columns in Total Cost Budgeting
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Item Year Amount of Cash Inflows NPV Factor NPV of Cash Flows
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Depreciation: Payback Period
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Ignore!
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Depreciation: Internal Rate of Return
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Ignore!
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Net Cash Inflow
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Cash Receipts - Yearly Cash Operating Expenses
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Depreciation: Net Cash Flow
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Subtract Out!
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After-Tax Cost (Net Cash Outflow)
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(1 - Tax Rate) * Tax-Deductible Cash Expense
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After-Tax Benefit (Net Cash Outflow)
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(1 - Tax Rate) * Taxable Cash Receipt
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Tax Savings from the Depreciation Tax Shield
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Tax Rate * Depreciation Deduction
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Capital Budgeting: Tax-Deductible Cash Expense After-Tax Cost
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Multiply by (1 - Tax Rate)
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Capital Budgeting: Taxable Cash Receipt After-Tax Cash Inflow
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Multiply by (1 - Tax Rate)
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Capital Budgeting: Depreciation Deduction Tax Savings from the Depreciation Tax Shield
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Multiply by the Tax Rate
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Net Present Value: Columns incl. Taxes
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Items Year Amount Tax Effect After-Tax Cash Flows (Amount * Tax Effect) PV Factor Present Value of Cash Flows
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When variance is negative for Revenue, variance is ___
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UNFAVORABLE
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When variance is negative for Expenses, variance is _____
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FAVORABLE
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When Variance is negative for Net Operating Income, variance is ____
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UNFAVORABLE
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Order in which I like to compute Standard Cost Variances
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Quantity Price Output
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Variance Categories: Flexible
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Standard Quantity Standard Price Actual Output
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Variance Categories: Actual @ Standard
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Actual Quantity Standard Price Actual Output
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Variance Categories: Actual
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Actual Quantity Actual Price Actual Output
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Variance Categories: Purchased
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Quantity Purchased Amount Paid
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Naomi calls FGI Budget ....
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STANDARD COST BUDGET
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Standard Cost (in units) =
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DM + DL + MOH per unit
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(DM + DL + MOH) * number of units in FGI
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COGS! (on Budgeted Income Statement)
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Statement for Accrual
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Budgeted Income Statement
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Statement for Cash Basis
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Cash Budget!
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Question for dropping a line!
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Is the cost avoidable? (Traceable) (Specific) Is the cost unavoidable? (allocated) (untraceable) (common)
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What's a sunk cost?
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You've already spent it. Cost isn't relevant to the conversation. Odds are, it's Depreciation!
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If net contribution margin is NEGATIVE, do you drop the line?
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NO!
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If net contribution margin is POSITIVE, do you drop the line?
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YES!
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If net contribution margin is ZERO, do you drop the line?
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Use qualitative factors to make the decision. (Probably keep it.)
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Dropping a line math:
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- (Contribution Margin) + (Costs) = Net Contribution Margin
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How much $$ are you making PER UNIT of Constrained Resource?
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Find the Contribution Margin (in dollars) PER UNIT of the Constrained Resource of the different options
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Taxable: Gains/Losses?
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Yes! multiply by tax rate
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Taxable: Cash Expenses/Receipts?
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Yes! Multiply by (1 - Tax Rate)
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Taxable: Selling Machine?
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Yes! Multiply by (1 - Tax Rate)
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Taxable: Depreciation?
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Yes! Multiply by (tax rate)
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Taxable: Working Capital?
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No!
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Taxable: Release of Working Capital?
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No!
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Taxable: Initial Investment/Purchase of Equipment?
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No!
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Net Cash after a LOSS
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Cash Outflow + (Loss x Tax Rate) = Net Cash
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Net Cash after a GAIN
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Cash Inflow - (Gain x Tax Rate) = Net Cash
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Revenue Variance
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Change in Selling Price
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