Chapter 9 (Managerial Accountancy)

Flexible Budget

A report showing estimates of what revenues and costs should have been, given the actual level of activity for the period. (p. 393)

Labor efficiency variance

The difference between the actual hours taken to complete a task and the standard hours allowed for the actual output, multiplied by the standard hourly labor rate. (p. 411)

Labor rate variance

The difference between the actual hourly labor rate and the standard rate, multiplied by the number of hours worked during the period. (p. 410)

Management by exception

A management system in which actual results are compared to a budget. Significant deviations from the budget are flagged as exceptions and investigated further. (p. 392)

Materials price variance

The difference between the actual unit price paid for an item and the standard price, multiplied by the quantity purchased. (p. 408)

Materials quantity variance

 The difference between the actual quantity of materials used in production and the standard quantity allowed for the actual output, multiplied by the standard price per unit of materials. (p. 408)

Planning budget

A budget created at the beginning of the budgeting period that is valid only for the planned level of activity. (p. 393)

Price variance

A variance that is computed by taking the difference between the actual price and the standard price and multiplying the result by the actual quantity of the input. (p. 405) 

Quantity variance

A variance that is computed by taking the difference between the actual quantity of the input used and the amount of the input that should have been used for the actual level of output and multiplying the result by the standard price of the input. (p. 405)

Revenue variance

 The difference between how much the revenue should have been, given the actual level of activity, and the actual revenue for the period. A favorable (unfavorable) revenue variance occurs because the revenue is higher (lower) than expected, given the actual level of activity for the period. (p. 397)

Spending variance

The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost. A favorable (unfavorable) spending variance occurs because the cost is lower (higher) than expected, given the actual level of activity for the period.

Standard cost card

A detailed listing of the standard amounts of inputs and their costs that are required to produce one unit of a specific product. (p. 403)

Standard cost per unit

The standard quantity allowed of an input per unit of a specific product, multiplied by the standard price of the input. (p. 403)

Standard hours allowed for actual output

The time that should have been taken to complete the period’s output. It is computed by multiplying the actual number of units produced by the standard hours per unit. (p. 406)

Standard hours per unit

The amount of direct labor time that should be required to complete a single unit of product, including allowances for breaks, machine downtime, cleanup, rejects, and other normal inefficiencies. (p. 402)

Standard price per unit

The price that should be paid for an input. ( p. 402)

Standard quantity allowed for actual output

The amount of an input that should have been used to complete the period’s actual output. It is computed by multiplying the actual number of units produced by the standard quantity per unit. (p. 406)

Standard quantity per unit

The amount of an input that should be required to complete a single unit of product, including allowances for normal waste, spoilage, rejects, and other normal inefficiencies. (p. 402) 

Standard rate per hour

The labor rate that should be incurred per hour of labor time, including

employment taxes and fringe benefits. (p. 403)

Variable overhead efficiency variance

The difference between the actual level of activity (direct labor-hours, machine-hours, or some other base) and the standard activity allowed, multiplied by the variable part of the predetermined overhead rate. (p. 413)

Variable overhead rate variance

The difference between the actual variable overhead cost incurred during a period and the standard cost that should have been incurred based on the actual activity of the period. (p. 413)

Budget variance

The difference between the actual fixed overhead costs and the budgeted fixed overhead costs for the period. (p. 442)

Denominator activity

The level of activity used to compute the predetermined overhead rate. (p. 441)

Volume variance

The variance that arises whenever the standard hours allowed for the actual output of a period are different from the denominator activity level that was used to compute the predetermined overhead rate. It is computed by multiplying the fixed component of the predetermined overhead rate by the difference between the denominator hours and the standard hours allowed for the actual output. (p. 443)