Managerial Accounting Chapter 9: Flexible Budgets and Variance Analysis

These flashcards cover key concepts related to flexible budgeting, standard costs, and variance analysis in managerial accounting.

Flexible Budget

A budget that adjusts to the actual level of activity.

Variance Analysis

The process of comparing actual results to standard costs to identify differences.

Standard Costs

Costs that should have been incurred per unit, prepared at the start of the period.

Management by Exception

A management system that identifies and investigates significant deviations from the budget.

Favorable Variance

A variance where actual costs are less than budgeted costs.

Unfavorable Variance

A variance where actual costs exceed budgeted costs.

Direct Material Cost

The cost of raw materials used in production.

Direct Labor Cost

The cost of labor directly involved in manufacturing a product.

Variable Overhead Cost

Costs that change with the level of production activity.

Static Planning Budget

A budget prepared for a single planned level of activity.

Performance Report

A report that summarizes actual costs and compares them to budgeted costs.

Cost Driver

A factor that causes changes in the cost of an activity.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead to individual units of production.

Materials Price Variance (MPV)

Calculated as MPV = AQ (AP - SP), where AQ is actual quantity, AP is actual price, and SP is standard price.

Labor Rate Variance (LRV)

Calculated as LRV = AH (AR - SR), where AH is actual hours, AR is actual rate, and SR is standard rate.

Labor Efficiency Variance (LEV)

Calculated as LEV = SR (AH - SH), where SH is standard hours.

Variable Overhead Efficiency Variance (VMEV)

Calculated as VMEV = SR (AH - SH) for variable manufacturing overhead.

Materials Quantity Variance (MQV)

Calculated as MQV = SP (AQ - SQ), showing the difference due to quantity used.

Who uses standard costing?

Manufacturing and Service companies