cost accounting test 3

Variable Costing formula

revenue - variable cogs - contribution margin - fixed costs

Absorption Costing formula

revenue - cogs ( with variance)  - gross margin- operating costs - operating income

Throughput Costing formula

revenue - direct material sold - throughput margin - all other costs - operating income

Contribution Margin

revenue - all variable costs

Gross Margin

revenue - cogs

Throughput Margin

revenue - direct materials cogs

Theoretical Capacity

The most a plant could produce if everything ran at full speed, nonstop, with zero issues.

Practical Capacity

Theoretical capacity minus unavoidable interruptions (holiday shutdowns)

Normal Capacity Utilization

Production level needed to meet average customer demand over long run

Master - Budget Capacity Utilization

Production level managers expect to need for current budget period

Budget

the quantitative expression of a proposed plan of action by management for a specified period

Controllability

the degree of influence a specific manager has over costs, revenues, or related items for which they are responsible

Controllable Cost

any cost primarily subject to the influence of a given responsibility center manager for a given period

Budgetary Slack

the practice of underestimating budgeted revenues or overestimating budgeted costs to make targets easier to achieve

Stretch Targets

challenging but achievable levels of expected performance, intended to create a little discomfort

Kaizen Budgeting

explicitly incorporates continuous improvement anticipated during the budget period in the budget numbers

Variance

 the difference between actual results and expected performance

Management by Exception

the practice of focusing attention on areas not operating as expected 

A Static (master) Budget

based on the level of output planned at the start of the budget period

A Static budget variance

the difference between the actual result and the corresponding static budget amount

Favorable Variance

has the effect when considered in isolation, of increasing operating income relative to the budget amount

Unfavorable Variance

has the effect when considered in isolation, of decreasing operating income relative to the budget amount

Flexible Budget

calculates budgeted revenues and budgeted costs based on the actual output

Sales Volume Variance

the difference between the static budget and the flexible budget amounts

Price Variance Formula

[Actual price - budgeted price] x actual quantity

Efficiency Variance Formula

[Actual quantity - budgeted quantity ] x budgeted price

Benchmarking

 the continuous process of comparing your firm's performance levels against the best levels of performance in competing companies

throughput costing inventories:

inventories only direct materials

variable costing inventories:

inventories all variable manufacturing costs

absorption costing inventories

inventories all manufacturing costs (variable & fixed)