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What is the primary purpose for which managerial accounting information is used?

Managerial accounting is used for internal purposes, such as planning, directing, and controlling business operations.

For which audience is managerial accounting information primarily intended?

The information from managerial accounting is intended for an internal audience, including managers and decision-makers within the organization.

What is the primary purpose for which financial accounting information is used?

Financial accounting is used for external purposes, providing information to stakeholders outside the organization like investors and creditors.

Who are the main users of the information produced by financial accounting?

The main users are external parties, such as shareholders, lenders, and regulatory agencies, to make investment and credit decisions.

Define a 'static budget'.

A static budget is a financial plan developed for a single, fixed level of operating activity.

What type of budget is prepared based on a planned, predetermined level of production or sales?

This type of financial plan is known as a static budget.

What is a 'flexible budget'?

A flexible budget is a financial plan that presents costs given the actual level of activity for the period.

What kind of budget adjusts to show what costs should have been for the actual level of output achieved?

This is known as a flexible budget, which adapts to the actual activity level.

What does the 'master budget' represent in an organization?

The master budget is a comprehensive set of integrated budgets that serves as the overall financial and operating plan for a specific period.

Which budget is considered the culmination of all individual departmental and activity budgets for a company?

The master budget is the comprehensive plan that consolidates all other budgets.

What is an 'operating budget'?

An operating budget is a component of the master budget that includes budgets for sales, production, and various manufacturing and operating expenses.

Which part of the master budget focuses on the income-generating activities of a firm?

The operating budget focuses on these activities, detailing revenues and the costs required to generate them.

What is the function of a 'sales budget'?

A sales budget is the first step in the master budget, providing a detailed forecast of expected sales revenue for a period.

Which budget serves as the starting point for the entire master budget process?

The sales budget is the foundational budget, as it drives all subsequent production and cost planning.

Define a 'production budget'.

A production budget details the number of units that must be produced to meet sales needs and provide for desired ending inventory.

What information does the production budget provide?

It specifies how many units to make, calculated based on forecasted sales, desired ending inventory, and beginning inventory levels.

What is the purpose of a 'direct material budget'?

A direct material budget details the quantity and cost of direct materials to be purchased to meet production needs.

Which budget outlines the raw materials that must be bought during a period?

The direct material budget specifies the required purchases based on the production budget.

Define the 'direct labor budget'.

The direct labor budget shows the total direct labor hours and cost needed to produce the number of units specified in the production budget.

What does the direct labor budget calculate?

It calculates the cost of hiring labor, based on production needs, labor hours per unit, and the wage rate.

What is the 'manufacturing overhead budget'?

The manufacturing overhead budget lists all expected production costs other than direct materials and direct labor.

Which budget estimates all factory costs not classified as direct materials or direct labor?

The manufacturing overhead budget provides this estimation, including both variable and fixed components.

What is a 'standard cost' in managerial accounting?

A standard cost is a predetermined or budgeted cost of manufacturing a single unit or performing a single service.

In performance evaluation, what term describes the expected cost per unit of production?

This benchmark cost is referred to as the standard cost.

Define 'cost variance'.

A cost variance is the difference between the actual costs incurred and the standard costs that should have been incurred.

What is the term for the discrepancy between what a cost actually was and what it was expected to be?

This difference is known as a cost variance.

What does a 'favorable variance' indicate?

A favorable variance indicates that actual costs were lower than standard costs, which is considered good news for the company.

If the actual cost incurred is less than the budgeted or standard cost, what is this variance called?

This is called a favorable variance.

What does an 'unfavorable variance' indicate?

An unfavorable variance indicates that actual costs were higher than standard costs, which is considered bad news for the company.

If the actual cost is greater than the standard cost, how is this variance described?

This is described as an unfavorable variance.

What does the 'direct material price variance' measure?

It measures the difference between the actual price paid for materials and the standard price that should have been paid.

Which variance is caused by paying more or less for raw materials than the expected standard?

This is the direct material price variance.

What does the 'direct material efficiency variance' measure?

It measures the difference between the actual quantity of materials used in production and the standard quantity that should have been used.

Which variance arises from using more or less raw material than the standard allowance for actual output?

This is the direct material efficiency variance, also known as the usage or quantity variance.

What does the 'direct labor rate variance' measure?

It measures the difference between the actual hourly wage rate paid to labor and the standard hourly wage rate.

Which variance is caused by a difference between the actual and standard pay rates for labor?

This is the direct labor rate variance.

What does the 'direct labor efficiency variance' measure?

It measures the difference between the actual hours worked and the standard hours allowed for the actual output.

Which variance arises when workers take more or less time to produce a unit than the standard allows?

This is the direct labor efficiency variance.

What does the 'variable overhead spending variance' measure?

It measures the difference between the actual variable overhead cost and the amount that should have been incurred based on the actual hours worked.

Which variance is caused by the rate difference between actual variable overhead and standard variable overhead?

This is the variable overhead spending variance.

What does the 'variable overhead efficiency variance' measure?

It measures the efficiency of using the activity base (e.g., labor hours) that is used to apply variable overhead.

Which variance is caused by the quantity difference between the actual activity base used and the standard activity base allowed for production?

This is the variable overhead efficiency variance.

Define the 'split-off point' in a production process.

The split-off point is the stage in a joint production process where separate, identifiable products emerge.

What is the term for the point in manufacturing where joint products can be recognized as individual items?

This juncture is known as the split-off point.

What are 'joint products'?

Joint products are the key or primary outputs of a joint production process.

In a process that yields multiple outputs simultaneously, what are the main, high-value products called?

These principal outputs are referred to as joint products.

What are 'by-products' in manufacturing?

By-products are outputs of a joint production process that are salable but are not considered a key output.

How are secondary products with some market value that emerge from a joint process classified?

They are classified as by-products.

Define 'scrap' in a production context.

Scrap is an output of a process that is salable but has a lower selling price than a by-product.

What is the term for residual material from a production process that has minimal but realizable sales value?

This material is referred to as scrap.

What is 'waste' in a manufacturing process?

Waste is an output of a production process that has no sales value.

How is an output with zero market value from a production process classified?

It is classified as waste.

What are 'joint costs'?

Joint costs are the costs incurred in a production process up to the split-off point, where multiple products are produced simultaneously.

Which costs are associated with a common production process that yields several products and cannot be traced to individual products?

These are known as joint costs.

What is a 'separate cost' in the context of joint production?

A separate cost is a cost incurred in later stages of production, after the split-off point, that is assignable to specific primary products.

Which type of cost is incurred after the split-off point and can be traced directly to an individual product?

This is referred to as a separate cost or an incremental processing cost.

Provide a general definition of 'quality'.

Quality is the sum of all characteristics of a product or service that influence its ability to meet the stated or implied needs of the customer.

What term encompasses all features of a product that determine its capacity to satisfy customer needs?

This term is quality.

What is the 'production view of quality'?

The production view of quality focuses on the totality of internal processes that generate a product or service, emphasizing conformance to specifications.

Which perspective on quality centers on internal processes and meeting design standards?

This is the production view of quality.

What is the 'consumer view of quality'?

The consumer view of quality is based on customer satisfaction with a product or service.

Which perspective on quality is defined by how well a product meets the expectations and satisfaction of the end user?

This is the consumer view of quality.

What is a 'control chart' used for in quality management?

A control chart is used to graph process results and indicate upper and lower control limits to monitor process variation.

Which statistical tool graphically displays process data over time to show whether the process is 'in control'?

This tool is a control chart.

What is 'internal benchmarking'?

Internal benchmarking is a process that addresses how and why one unit within an organization is performing better than another.

Which type of benchmarking involves comparing performance between different departments or divisions of the same company?

This practice is known as internal benchmarking.

What is 'process benchmarking'?

Process benchmarking seeks information from functional areas within a particular industry to compare similar processes.

Which type of benchmarking involves comparing a company's specific business processes against those of best-in-class organizations?

This is referred to as process benchmarking.

Define 'Total Quality Management' (TQM).

TQM is a management approach centered on quality, based on the full participation of all members of an organization, aiming for long-term success through customer satisfaction.

What management philosophy is dedicated to continuous improvement and involves all employees in the quality process?

This philosophy is Total Quality Management (TQM).

What does 'purchasing cost' include for an inventory item?

Purchasing cost is the quoted purchase price minus any discounts, plus any shipping charges.

Which inventory cost represents the net price paid to acquire goods, including freight?

This is the purchasing cost.

What is 'ordering cost' in the context of inventory?

Ordering cost is the cost of an activity performed for each purchase order placed, such as clerical work and processing.

Which category of inventory costs includes the expenses associated with placing and receiving an order?

These expenses are known as ordering costs.

Define 'carrying cost' for inventory.

Carrying cost is the total variable cost of holding one unit of inventory in stock for one year, including storage, insurance, and the opportunity cost of capital.

What are the costs associated with storing inventory for a period of time called?

These are called carrying costs or holding costs.

What is a 'stockout cost'?

A stockout cost is the cost incurred because inventory is not available upon need or request, such as lost sales or expedited shipping.

Which cost arises from not having an item in inventory when it is demanded by a customer?

This is known as a stockout cost.

Describe an inventory 'push system'.

A push system is one where inventory is produced in anticipation of customer orders based on forecasts, and then stored until needed.

What is the inventory strategy where production is driven by demand forecasts rather than actual orders?

This strategy is a push system.

Describe an inventory 'pull system'.

A pull system is one where inventory is delivered or produced only as it is needed by the next work center in the value chain.

What is the inventory strategy where production is initiated by actual customer orders or consumption at the next stage?

This strategy is a pull system.

What does the 'Economic Order Quantity' (EOQ) represent?

EOQ represents the least costly number of units to order, indicating the optimal balance between ordering and carrying costs.

Which inventory model identifies the ideal order size to minimize the sum of ordering and holding costs?

This model is the Economic Order Quantity (EOQ).

What is 'JIT Manufacturing'?

JIT (Just-in-Time) Manufacturing is a pull-system approach that attempts to acquire components and produce inventory units only as they are needed.

What production philosophy aims to reduce waste and inventory levels by producing goods only when required?

This philosophy is known as JIT (Just-in-Time) Manufacturing.

What does 'inventory turnover' measure?

Inventory turnover measures the number of times on average that inventory was sold during a period.

Which performance metric indicates how frequently a company's inventory is sold and replaced over a given time frame?

This metric is inventory turnover.

In the context of joint costs, what are 'sunk costs'?

Joint costs are considered sunk costs in the decision to process further, as they have already been incurred and cannot be changed.

Which term describes costs that have already been incurred and are irrelevant to future decisions, such as joint costs at the split-off point?

These are referred to as sunk costs.