MANAGERIAL ACCOUNTING - EXAM 3
QUESTIONS & ANSWERS(RATED A+)
Chapter 9: Variance Analysis Cycle - ANSWER1. Prepare Performance Report
2. Analyze Variances
3. Raise Questions
4. Identify Root Causes
5. Take Actions
6. Conduct next Period's Operations
Favorable Variance - ANSWERthat occurs when actual revenue is greater than
budgeted revenue
that occurs when actual costs are less than budgeted costs
Unfavorable Variance - ANSWERoccurs when actual costs are greater than
budgeted costs
Flexible Budget - ANSWERA report showing estimates of what revenues and costs
should have been, given the actual level of activity for the period.
Activity Variance - ANSWERarises solely due tot he difference in the actual level of
activity and the level of activity included in the planning budget
Revenue Variance - ANSWERthe difference between the actual total revenue and
what the total revenue should have been, given the actual level of activity for the
period
Spending Variance - ANSWERthe difference between how much a cost should have
been, given the actual level of activity, and the actual amount of the cost
Chapter 10: Price Standards - ANSWERspecify how much should be paid for each
unit of the input
Quantity Standards - ANSWERspecify how much of an input should be used to
make a product or provide a service
Bill of Materials - ANSWERA document that shows the quantity of each type of direct
material required to make a product.
Chapter 11: Decentralized Organization - ANSWERAn organization in which lower-
level managers make important decisions
Advantages of Decentralized Organization - ANSWER- Top management freed to
concentrate on strategy
- Lower-level decisions often based on better information
- Lower-level managers can respond quickly to customers
, - Lower-level managers gain experience in decision-making
- Decision-making authority leads to job satisfaction
Price Variance (DM, DL, OH) - ANSWERdifference between actual price and
standard price
Quantity Variance (DM, DL, OH) - ANSWERdifference between actual quantity and
standard quantity
Advantages of Standard Costs - ANSWER- Standard costs are a key element of the
management by exception approach.
- Standards can provide benchmarks that promote economy and efficiency.
- Standards can greatly simplify bookkeeping.
- Standards can support responsibility accounting systems.
Disadvantages of Standard Costs - ANSWER- Standard cost variance reports are
usually prepared on a monthly basis and may contain information that is outdated
- If variances are misused as a club to negatively reinforce employees, morale may
suffer and employees may make dysfunctional decisions
- Labor variances assume that the production process is labor-paced and that labor
is a variable cost. These assumptions are often invalid in today's automated
manufacturing environment where employees are essentially a fixed-cost
- Just meeting standards may not be sufficient; continuous improvement may be
necessary to survive in a competitive environment
- In some cases, a "favorable" variance can be as bad or worse than an unfavorable
variance
- Excessive emphasis on meeting the standards may overshadow other important
objectives such as maintaining and improving quality, on-time delivery, and customer
satisfaction
Disadvantages of Decentralized Organization - ANSWER- Lower-level amangers
may make decisions without seeing the "big picture"
- May be a lack of coordination among autonomous managers
- Lower-level manager's objectives may not be those of the organization
- May be difficult to spread innovative ideas in the organization
Responsibility Accounting - ANSWERManagers are held responsible for those items
—and only those items—that the manager can actually control to a significant extent.
Responsibility Center - ANSWERused for any part of an organization whose
manager has control over and is accountable for cost, profit, or investments
Cost Center - ANSWERA segment whose manager has control over costs, but not
over revenues or investment funds.
Profit Center - ANSWERa segment whose manager has control over both costs and
revenues, but no control over investment funds
Investment Center - ANSWERA segment whose manager has control over costs,
revenues, and investments in operating assets.
QUESTIONS & ANSWERS(RATED A+)
Chapter 9: Variance Analysis Cycle - ANSWER1. Prepare Performance Report
2. Analyze Variances
3. Raise Questions
4. Identify Root Causes
5. Take Actions
6. Conduct next Period's Operations
Favorable Variance - ANSWERthat occurs when actual revenue is greater than
budgeted revenue
that occurs when actual costs are less than budgeted costs
Unfavorable Variance - ANSWERoccurs when actual costs are greater than
budgeted costs
Flexible Budget - ANSWERA report showing estimates of what revenues and costs
should have been, given the actual level of activity for the period.
Activity Variance - ANSWERarises solely due tot he difference in the actual level of
activity and the level of activity included in the planning budget
Revenue Variance - ANSWERthe difference between the actual total revenue and
what the total revenue should have been, given the actual level of activity for the
period
Spending Variance - ANSWERthe difference between how much a cost should have
been, given the actual level of activity, and the actual amount of the cost
Chapter 10: Price Standards - ANSWERspecify how much should be paid for each
unit of the input
Quantity Standards - ANSWERspecify how much of an input should be used to
make a product or provide a service
Bill of Materials - ANSWERA document that shows the quantity of each type of direct
material required to make a product.
Chapter 11: Decentralized Organization - ANSWERAn organization in which lower-
level managers make important decisions
Advantages of Decentralized Organization - ANSWER- Top management freed to
concentrate on strategy
- Lower-level decisions often based on better information
- Lower-level managers can respond quickly to customers
, - Lower-level managers gain experience in decision-making
- Decision-making authority leads to job satisfaction
Price Variance (DM, DL, OH) - ANSWERdifference between actual price and
standard price
Quantity Variance (DM, DL, OH) - ANSWERdifference between actual quantity and
standard quantity
Advantages of Standard Costs - ANSWER- Standard costs are a key element of the
management by exception approach.
- Standards can provide benchmarks that promote economy and efficiency.
- Standards can greatly simplify bookkeeping.
- Standards can support responsibility accounting systems.
Disadvantages of Standard Costs - ANSWER- Standard cost variance reports are
usually prepared on a monthly basis and may contain information that is outdated
- If variances are misused as a club to negatively reinforce employees, morale may
suffer and employees may make dysfunctional decisions
- Labor variances assume that the production process is labor-paced and that labor
is a variable cost. These assumptions are often invalid in today's automated
manufacturing environment where employees are essentially a fixed-cost
- Just meeting standards may not be sufficient; continuous improvement may be
necessary to survive in a competitive environment
- In some cases, a "favorable" variance can be as bad or worse than an unfavorable
variance
- Excessive emphasis on meeting the standards may overshadow other important
objectives such as maintaining and improving quality, on-time delivery, and customer
satisfaction
Disadvantages of Decentralized Organization - ANSWER- Lower-level amangers
may make decisions without seeing the "big picture"
- May be a lack of coordination among autonomous managers
- Lower-level manager's objectives may not be those of the organization
- May be difficult to spread innovative ideas in the organization
Responsibility Accounting - ANSWERManagers are held responsible for those items
—and only those items—that the manager can actually control to a significant extent.
Responsibility Center - ANSWERused for any part of an organization whose
manager has control over and is accountable for cost, profit, or investments
Cost Center - ANSWERA segment whose manager has control over costs, but not
over revenues or investment funds.
Profit Center - ANSWERa segment whose manager has control over both costs and
revenues, but no control over investment funds
Investment Center - ANSWERA segment whose manager has control over costs,
revenues, and investments in operating assets.
