Ch 7 404 - Chapter 7: Flexible Budgets, Direct-cost...

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Chapter 7: Flexible Budgets, Direct-cost Variances, and Management Control Benchmarking The continuous process of comparing the levels of performance in producing products and services and executing activities against the best levels of performance in competing companies or in companies having similar processes Budgeted performance Expected performance or a point of reference to compare actual results Effectiveness The degree to which a predetermined objective or target is met Efficiency The relative amount of inputs used to achieve a given output level Efficiency variance The difference between actual input quantity used and budgeted input quantity allowed for actual output, multiplied by budgeted price. Also called usage variance Favorable variance Variance that has the effect of increasing operating income relative to the budgeted amount. Denoted F Flexible budget Budget developed using budgeted revenues and budgeted costs based on the actual output in the budget period Flexible-budget variance The difference between an actual result and the corresponding flexible- budget amount based on the actual output level in the budget period Input-price variance See price variance Management by exception Practice of focusing management attention on areas not operating as expected and giving less attention to areas operating as expected Price variance The difference between actual price and budgeted price multiplied by actual quantity of input. Also called input-price variance or rate variance Rate variance See price variance Sales-volume variance The difference between a flexible-budget amount and the corresponding static-budget amount Selling-price variance The difference between the actual selling price and the budgeted selling price multiplied by the actual units sold
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Ch 7 404 - Chapter 7: Flexible Budgets, Direct-cost...

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