Chapter 24- Flexible Budgets & Standard Costs

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Key Terms & definitions

Benchmarking

Practice of compaing & analyzing company financial performace or position with other companies

Budget Report

Report comparing actual results to planned objectives; sometimes used as a progess report

Budgetary Control

Management use of budgets to monitor & control company operations

Controllable Variance

Combination of both overhead spending variances (variable & fixed) & the variable overhead efficiency variance

Cost Variance

Difference between the actual incurred cost & the standard cost

Efficiency Variance

Difference between the actual quantity of an input & the standard quantity of that input

Favorable Variance

Difference in actual revenues or expenses fromthe budgeted amount that contributes to a higher income

Fixed Budget

Planning budget based on a single predicted amount of volume; unsuitable for evaluations if the actual volum diffrs from predicted volume

Fixed Buget Performance Report

Report that compares actual revenues and costs with fixed budgeted amounts and identifies the differences as favorable or unfavorable variances

Flexible Budget

Budget prepared (using actual volume) once a period is complete that helps managers evaluate past performance; uses fixed and variable costs in determining total costs

Flexible Budget Performance Report

Report that compares actual revenues and costs with their variable budgeted amounts based on actual sales volume (or other level of activity) and identifies the differences as variances

Management by Exception

Management process to focus on significant variances and give less attention to areas where performance is close to the standard

Overhead Cost Variance

Difference between the total overhead cost applied to products and the total overhead cost actually incurred

Price Variance

Difference between actual and budgeted revenue or cost caused by the difference between the actual price per unit and the budgeted price per unit

Quantity Variance

Difference between actual and budgeted revenue or cost caused by the difference between the actual number of units and the budgeted number of units

Spending Variance

DIfference between the actual price of an item and its standard price

Standard Costs

Costs that should be incurred under normal conditions to produce a product or component or to perform a service

Unfavorable Variance

Difference in revenues or costs, when the actual amount is compared to the budgeted amount, that contributes to a lower income

Variance Analysis

Process of examining differences between actual and budgeted revenues or costs and describing them in terms of price and quantity differences

Volume Variance

Difference between two dollar amounts of fixed overhead cost; one amount is the total budgeted overhead cost, and the other is the overhead cost allocated to products using the predetermined fixed overhead rate

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