Flexible Budgets and Standard Cost Systems

These flashcards cover essential vocabulary and concepts from the lecture notes on flexible budgets and standard cost systems.

Flexible Budget

A budget that summarizes revenues and expenses for various levels of sales volume within a relevant range.

Static Budget

A budget that is prepared for only one level of sales volume.

Variance

The difference between actual amounts and budgeted amounts.

Favorable Variance

Occurs when actual revenue exceeds budgeted revenue or actual expenses are less than budgeted expenses.

Unfavorable Variance

Occurs when actual revenue is less than budgeted revenue or actual expenses exceed budgeted expenses.

Standard Cost System

An accounting system that uses standards for product costs.

Direct Materials Cost Variance

The difference between the actual cost of materials used and the budgeted cost based on standard costs.

Direct Labor Efficiency Variance

The difference between the actual hours worked and the standard hours allowed for the actual production.

Fixed Overhead Cost Variance

The difference between actual fixed overhead costs incurred and the budgeted fixed overhead costs.

Variable Overhead Variance

The difference between the actual variable overhead costs incurred and the budgeted variable overhead costs based on standard costs.

Performance Report

A report that compares budgeted amounts to actual amounts.

Standard Costing

A technique that helps managers prepare budgets, set performance standards, and control costs.

Management by Exception

A strategy where managers focus their attention on significant variances from budgeted performance.

Efficiency Standards

Standards set for production efficiency based on best practices.

Cost Variance

The difference in costs of an input multiplied by the actual quantity used of the input.

Budgeting

The process of creating a plan to spend your money.

Sales Volume

The number of units sold or services provided during a specific period.

Relevant Range

The range of activity over which the organization expects to operate and within which assumptions about variable and fixed costs are valid.

Budgeted Expenses

The planned amount of costs expected to be incurred during a specific period.

Actual Revenue

The amount of revenue that is actually earned by the company during a specific period.