accounting exam 3

ESG components

environmental, social, governance

environmental(component of esg)

conservation of natural world

social(component of esg)

consideration of people and relationships

governance(component of esg)

standards for running a company

environmental examples

climate change, biodiversity, waste management

social examples

Customer satisfaction, employee engagement, human rightsgov

governance examples

board composition, lobbying, audit committee structure

externality

side effects to the environment as a result of commercial activity

positive externality example

If a company reduces their greenhouse gas emissions from their supply chain, they are reducing their contribution to global emissions and positively benefiting stakeholders

negative externality example

If a company uses pesticides within the production of food products, they are polluting nearby water sources which is negatively affecting stakeholders

Materiality Assessment Map content

The process of identifying how important an ESG issue is to a business and its stakeholders through research and stakeholder input

Materiality Map axis

impact on x axis, interest on y axis

budget

detailed plan for acquiring/using financial & other resources over a specified upcoming time

period

operating budget

covers a one-year period corresponding to its fiscal year

perpetual budget

As one period ends, a new period is added to the end of the budget, ensuring there is always a budget for a specified future period, typically 12 months. 

self imposed budget

Prepared with the full cooperation and participation of managers at all levels

two purposes of budgets

planning and control

master budget

made up of 10 different parts (or schedules), each covering a different aspect of the company's finances (like sales, production, expenses, etc.).

benefits of budgeting

Define goals and objectives

• Think about and plan for the future

• Means of allocating resources

• Uncover potential bottlenecks

• Coordinate activities

• Community plans

• Improve efficiency

• Evaluate and reward employeesand departments' performance.

Budgeted financial statements are prepared under

GAAP

variance analysis cycle

Plan → Compare → Analyze → Improve.

static budgets

prepared for a single, planned level of activity

static budget defenciency

Performance evaluation is difficult when actual activity differs from planned level

flexible budget

Prepared for any activity level in the relevant range

variable cost

should in per unit format

fixed csot

should be in total format

standard cost

benchmarks for measuring performance

quantity standards

how much used

price standards

how much paid

price an quantity standards are separate because

• Different managers handle buying (price) and using (quantity).

• Purchases and use happen at different times (inventory delay).

material price variance(MPV) equation

AQ(AP-SP)

M quantity variance(MQV)

SP(AQ-SQ)

variance always positve

variance is always positive

MPV function

measures the difference between the actual price paid for materials and the standard price expected.

MQV function

This variance measures the difference between the actual quantity of materials used and the standard quantity expected for the production output, adjusted by the standard price.

Labor rate variance(LRV) equation

AH(AR-SR)

Labor efficiency variance(LEV) eqaution

SR(AH-SH)

relevant costs

differ between alternatives; always considered in decision making

differential cost

future cost or revenue that differs between two alternatives

incremental cost

an increase in cost between two alternatives

avoidable cost

cost that can be eliminated by choosing one alternative over another

opportunity cost

potential benefit that is given up when one alternative is selected over another

irrelevant costs

do not differ between alternatives; never consider in decision making

sunk costs

cost that has already been incurred and cannot be changed regardless of the decision

Add or drop equation

cm lost-avoidable fixed costs

constraint

When a limited resource of some type restricts the company’s ability to satisfy demand

bottleneck

The machine or process that is limiting overall output

how allocated fixed costs impacts decisions

Our allocations can make a segment look less profitable than it really is.

joint costs

shared expenses incurred in a production process that cannot be directly tied to a single product or service

split off point

Point in manufacturing process where each joint product can be recognized separately

add/dropping segments equation

cm lost-avoidable fixed costs

make or buy

compare purchase costs to avoidable fixed costs of making

special orders equation

rev-variable costs-extra fixed costs

constrained resource

CM/CR high to low

sell or process further equation

sales from processing further-cost of process further processing- sales value at split off

AH, SH, AQ, SQ

also in total format

AP, SP, SR, AR

also in per unit format

AQ for MPV

actual quanity purchased

AQ for MQV

actual quantity used