Acct 307 Exam 3 Review

Acct 307 Exam 3 Review - Acct 307 Exam #3 Review Chapter...

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Acct 307 Exam #3 Review Chapter 10: Variance Analysis – a Tool for Cost Control and Performance Evaluation Control – involves the motivation and monitoring of employees and the evaluation of people and other resources used in the operations of the organization The purpose of the control function in management is to make sure that the goals of the organization are being attained Variance analysis – allows managers to see whether sales, production, and manufacturing costs are higher or lower than planned and, more important, why actual sales, production, and costs differ from budgets Management by exception – the process of taking action only when actual results deviate significantly from planned results Management by exception is the key to effective variance analysis Standard cost – a budget for a single unit of product or service Standard quantity – the budgeted amount of material, labor, or overhead for each product Standard price – the budgeted price of the material, labor, or overhead for each unit Task analysis – a method of setting standards that also examines the production process in detail to determine what it should cost to produce a product Ideal standard – a standard that is attained only when near-perfect conditions are present Practical standard – a standard that should be attained under normal, efficient operating conditions Sales volume variance – the difference between the actual sales volume and the budgeted sales volume times the budgeted contribution margin Flexible budget variance – the difference between the flexible budget operating income and actual operating income Sales price variance – computed by comparing the actual sales price to the flexible budget sales price times the actual sales volume Price variance – the difference between the actual price and the standard price times the actual volume purchased
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Usage variance – the difference between the actual quantity and the standard quantity times the standard price The variable overhead efficiency variance does not measure the efficient use of overhead but rather the efficient use of the cost driver, or allocation base, used in the flexible budget Budget variance – the difference between the amount of fixed overhead actually incurred and the flexible budget amount; also known as the spending variance Volume variance – the difference between the flexible budget and the fixed overhead applied to a product The fixed overhead volume variance should not be interpreted as favorable or unfavorable or as a measure of the efficient utilization of facilities The advantages of variance analysis for overhead costs are enhanced in companies using activity-based costing (ABC) Variance analysis is most effective in stable companies with mature production environments and has a number of drawbacks when used in many modern manufacturing environments “Favorable” and “unfavorable” designations for variances do not always
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This note was uploaded on 04/07/2008 for the course ACCT 307 taught by Professor Littleson during the Spring '08 term at Clemson.

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Acct 307 Exam 3 Review - Acct 307 Exam #3 Review Chapter...

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