Acc 213 Final Exam

Front 1

A budget created at the beginning of the budgeting period that is valid only for the planned level of activity

Back 1

planning budget

Front 2

A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period

Back 2

flexible budget

Front 3

A flexible budget approach recognizes that a budget can be adjusted to show?

Back 3

what costs should be for the actual level of activity

Front 4

proportional to activity

Back 4

variable

Front 5

does not depend on the level of activity

Back 5

fixed

Front 6

What is a common error for flexible budgets and performance analysis?

Back 6

Assuming that all costs are fixed

Front 7

What is a common error when comparing budgets to actual results?

Back 7

Assume that all costs are variable

Front 8

a benchmark or "norm" for measuring performance

Back 8

standard

Front 9

a management system in which standards are set for various activities, with actual results compared to these standards. Significant deviations from standards are flagged as exceptions.

Back 9

management by exception

Front 10

The process of preparing standard cost performance report, analyzing variances, identifying questions, receiving explanations, taking corrective actions, and conducting next period's operations

Back 10

variance analysis cycle

Front 11

Who uses standard costs?

Back 11

everyone

Front 12

standards that assume peak efficiency at all times

Back 12

ideal standards

Front 13

standards that allow for normal machine downtime and other work interruptions and that can be attained through reasonable, though highly efficient, efforts by the average worker

Back 13

practical standards

Front 14

A price variance is called this in the case of direct materials

Back 14

materials price variance

Front 15

Should variances be isolated?

Back 15

Yes; They should be isolated and brought to the attention of management as quickly as possible

Front 16

most significant variances

Back 16

"red flags"

Front 17

can result from faulty machines, inferior materials quality, untrained workers, and poor supervision

Back 17

excessive materials usage

Front 18

What are the 4 Advantages of Standard Costs?

Back 18

1. Key element in a management by exception approach

2. Standards that are viewed as reasonable by employees can promote economy and efficiency

3. Can greatly simplify bookkeeping

4. Fit naturally in an integrated system of "responsibility accounting"

Front 19

6 Potential Problems with the Use of Standard Costs?

Back 19

1. Standard cost variance reports are usually outdated

2. If managers are insensitive and use variance reports as a club, morale will suffer

3. Labor quantity standards and efficiency variances assume that the production process is labor-paced and labor is a variable cost

4. In some cases, a "favorable" variance can be as bad or worse than an "unfavorable" variance

5. Too much emphasis on meeting the standards may overshadow other important objectives

6. Just meeting standards may not be sufficient; techniques such as Six Sigma may be necessary to survive in a competitive environment

Front 20

the amount of time required to turn raw materials into completed products

Back 20

throughput time

Front 21

process (value-added) time as a percentage of throughput time

Back 21

manufacturing cycle efficiency

Front 22

an organization in which decision-making authority is not confined to a few top executives but rather is spread throughout the organization

Back 22

decentralized organization

Front 23

5 Advantages of Decentralization?

Back 23

1. Top management can focus on bigger issues

2. Puts decision-making authority in hands of those who tend to have the most detailed and up-to-date information about day-to-day operations

3. Organizations can respond more quickly to customers and to changes in the operating environment

4. Helps train lower-level managers for higher-level positions

5. Can increase lower-level manager's motivation and job satisfaction

Front 24

4 Disadvantages of Decentralization?

Back 24

1. Lower-level managers may make decisions without fully understanding the situation

2. If lower-level managers make their own decisions, coordination may be lacking

3. Lower-level managers may have objectives that clash with the objectives of the entire organization

4. Spreading innovative ideas may be difficult

Front 25

a business segment whose manager has control over cost but has no control over revenue or investments in operating assets

Back 25

cost center

Front 26

a business segment whose manager has control over cost and revenue but has no control over investments in operating assets

Back 26

profit center

Front 27

a business segment whose manager has control over cost, revenue, and investments in operating assets

Back 27

investment center

Front 28

a fixed cost that is incurred because of the existence of a particular business segment and that would be eliminated if the segment were eliminated

Back 28

traceable fixed cost

Front 29

a fixed cost that supports more than one business segment, but is not traceable in whole or in part to any one of the business segments

Back 29

common fixed cost

Front 30

The general guideline is to treat as traceable costs?

Back 30

only those costs that would disappear over time if the segment itself disappeared

Front 31

Any allocation of common costs to segments?

Back 31

reduces the value of the segment margin as a measure of long-run segment profitability and segment performance

Front 32

is the best gauge of the long-run profitability of a segment

Back 32

segment margin

Front 33

The costs assigned to a segment should include all costs attributable to that segment from?

Back 33

the company's entire value chain

Front 34

Costs that can be traced directly to a specific segment should be charged?

Back 34

directly to that segment and should not be allocated to other segments

Front 35

Costs should be allocated to segments for internal decision-making purposes only when?

Back 35

the allocation base actually drives the cost being allocated

Front 36

Margin x Turnover

Back 36

Return on investment (ROI)

Front 37

net operating income / sales

Back 37

margin

Front 38

sales / average operating assets

Back 38

turnover

Front 39

3 Criticisms of ROI?

Back 39

1. Just telling managers to increase ROI may not be enough

2. A manager who takes over a business segment typically inherits many committed costs over which the manager has no control

3. A manager who is evaluated based on ROI may reject investment opportunities that are profitable for the whole company but that would have a negative impact on the manager's performance evaluation

Front 40

A concept similar to residual income in which a variety of adjustments may be made to GAAP financial statements for performance evaluation purposes

Back 40

economic value added (EVA)

Front 41

encourages managers to make investments that are profitable for the entire company but that would be rejected by managers who are evaluated using the ROI formula

Back 41

residual income approach

Front 42

What should you focus on when comparing investment centers?

Back 42

percentage change in residual income from year to year

Front 43

top management translates its strategy into performance measures that employees can understand and influence

Back 43

balance scorecard approach

Front 44

2 Reasons why financial performance measures should be integrated with non-financial measures in a well-designed balanced scorecard?

Back 44

1. Financial measures are lag indicators that report on the results of past actions

2. Top managers are ordinarily responsible for the financial performance measures - not lower-level managers

Front 45

In essence, the balanced scorecard lays out a theory of how the company?

Back 45

can take concrete actions to attain its desired outcomes

Front 46

Advantage of Timely and Graphic Feedback for the performance measures under the balanced scorecard approach?

Back 46

managers focus on trends in the performance measures over time

Front 47

a cost that differs between alternatives in a decision

Back 47

relevant cost

Front 48

a cost that can be eliminated by choosing one alternative over another in a decision

Back 48

avoidable cost

Front 49

any cost that has already been incurred and that cannot be changed by any decision made now or in the future

Back 49

sunk cost

Front 50

any cost that differs between alternatives in a decision-making situation

Back 50

differential cost

Front 51

two or more products that are produced from a common input

Back 51

joint products

Front 52

that point in the manufacturing process where some or all of the joint products can be recognized as individual products

Back 52

split-off point

Front 53

costs that are incurred up to the split-off point in a process that produces joint products

Back 53

joint costs