EXAM 3 Review Word Problems

Flexible Budget

A budget that adjusts to the actual level of output, showing expected variable and fixed costs.

Flexible Budget Variance

The difference between the flexible budget amount and the actual results.

Material Price Variance (MPV)

(Actual Price - Standard Price) × Actual Quantity.

Material Quantity Variance (MQV)

Standard Price × (Actual Quantity - Standard Quantity).

Total Material Variance

MPV + MQV.

Labor Rate Variance (LRV)

(Actual Rate - Standard Rate) × Actual Hours Worked.

Labor Efficiency Variance (LEV)

Standard Rate × (Actual Hours Worked - Standard Hours Allowed).

Total Direct Labor Variance

LRV + LEV.

Joint Process

A production process that yields multiple outputs from a single input.

Joint Cost Allocation

Assigns costs to primary outputs based on physical or monetary measures.

By-Product

An incidental product of lesser value than the main product(s).

Cost Center

A responsibility center that focuses on controlling costs.

Revenue Center

A responsibility center that focuses on generating revenue.

Profit Center

A responsibility center that manages both costs and revenues to maximize profit.

Investment Center

A responsibility center responsible for revenues, costs, and asset utilization.

Transfer Pricing

Methodology for setting prices at which transactions occur between units of the same organization.

Centralized System

A management system where top management retains authority.

Decentralized System

A management system that delegates authority to subunits.

Budget Preparation

One of the uses of standard cost systems.

Cost Control

Another use of standard cost systems.

Performance Evaluation

Another important function of standard cost systems.

Variable Overhead Efficiency Variance

Calculated by Standard Rate × (Actual Activity - Standard Activity).

Cost Allocation for Byproducts and Scrap

Typically based on sales value at split-off point or treated as a reduction of overall joint costs.

Incremental Revenues vs. Incremental Costs

Used in decision-making to process further beyond split-off point.