1. Standard Cost Card:

   • Definition: A detailed document listing the standard costs of direct materials, direct labor, and manufacturing overhead necessary to produce a unit of a product or service.

   • Types of Standards:

     • Ideal Standards: Represent the perfect level of efficiency with no waste or downtime.

     • Normal Standards: Reflect efficient operating conditions allowing for normal levels of waste and inefficiencies.

2. Comparison of Master Budgets versus Flexible Budgets:

   • Master Budgets:

     • Definition: Comprehensive plans encompassing various budgets like sales, production, cash, and capital budgets, designed for a specific level of activity.

   • Flexible Budgets:

     • Definition: Budgets that adjust for changes in activity levels, providing a more accurate representation of costs and revenues at different activity levels.

3. Volume Variance and Spending Variance:

   • Volume Variance:

     • Definition: The difference between actual fixed overhead costs and budgeted fixed overhead costs based on standard hours for the actual level of activity.

   • Spending Variance:

     • Definition: The difference between actual costs incurred for direct materials, direct labor, or variable overhead, and the standard costs allowed for the actual level of activity.

4. Responsible Persons for Direct Materials Price and Quantity Variances:

   • Direct Materials Price Variance:

     • Responsibility: Typically falls on the purchasing department for the price paid for materials.

   • Direct Materials Quantity Variance:

     • Responsibility: Often attributed to the production department for efficient use of materials during production.

5. Definitions, Interpretations, and Common Causes of Favorable and Unfavorable Variances:

   • Favorable Variances:

     • Definition: Variances that occur when actual costs are lower than standard costs or when actual revenues exceed budgeted revenues.

     • Interpretation: May result from cost savings or higher-than-expected revenues.

     • Common Causes: Efficient use of resources, cost-saving measures, or higher-than-anticipated demand.

   • Unfavorable Variances:

     • Definition: Variances that occur when actual costs are higher than standard costs or when actual revenues fall short of budgeted revenues.

     • Interpretation: May indicate inefficiencies or lower-than-expected revenues.

     • Common Causes: Waste, inefficiencies in production, higher-than-anticipated costs.

Chapter 11:

1. Independent versus Mutually Exclusive Capital Investment Projects:

   • Independent Projects:

     • Definition: Projects whose cash flows are not affected by the acceptance or rejection of other projects.

   • Mutually Exclusive Projects:

     • Definition: Projects where the acceptance of one project precludes the acceptance of another due to resource constraints or similar project objectives.

2. Classifications of Capital Budgeting Methods based on Net Income versus Cash Flow, and Discounted Cash Flow versus Non-discounting Methods:

   • Based on Net Income vs Cash Flow:

     • Net Income Methods: Evaluate projects based on their impact on accounting profits.

     • Cash Flow Methods: Evaluate projects based on their actual cash flows.

   • Discounted Cash Flow vs Non-discounting Methods:

     • Discounted Cash Flow Methods: Consider the time value of money by discounting future cash flows.

     • Non-discounting Methods: Do not consider the time value of money.

3. Definition and Limitations of the Accounting Rate of Return and Payback Period Methods:

   • Accounting Rate of Return (ARR):

     • Definition: Calculates the average accounting profit divided by the initial investment.

     • Limitations: Ignores the time value of money, based on accounting profits rather than cash flows.

   • Payback Period:

     • Definition: Calculates the time taken for a project to recoup its initial investment.

     • Limitations: Ignores cash flows beyond the payback period and the time value of money.

4. Definition of Internal Rate of Return and Comparison between Internal Rate of Return and Required Rate of Return to Determine Whether Net Present Value is Positive/Negative/Zero:

   • Internal Rate of Return (IRR):

     • Definition: The discount rate that makes the net present value of a project's cash flows zero.

     • Comparison: If IRR is greater than the required rate of return, NPV is positive; if less, NPV is negative; if equal, NPV is zero.

5. Definitions of Time Value of Money and Annuity, and How Increasing Interest Rate Affects the Future/Present Value of a Single Amount:

   • Time Value of Money:

     • Definition: The concept that a dollar today is worth more than a dollar in the future due to its potential earning capacity.

   • Annuity:

     • Definition: A series of equal payments made at regular intervals over a specified period.

   • Increasing Interest Rate and Future/Present Value:

     • Increasing interest rates decrease the present value and increase the future value of a single amount.

6. Identification of Different Types of Time Value of Money Problems:

   • Examples: Present value of a single amount, future value of a single amount, present value of an annuity, future value of an annuity.

7. Identification of Capital Budgeting Method to Prioritize Independent Capital Investment Projects:

   • Methods: Net Present Value (NPV), Internal Rate of Return (IRR), Profitability Index (PI).