Term
| Benefits to the Organization from Budgeting |
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Definition
-Communicate to the organization - Better than verbal communication -Define goals and objectives- Benchmarking & performances evaluations -Discover positive and negative ares of the firm- Identify the more effective ares and identify problem areas - Allocate Resources -Focus on the future - forces the organization to be forward looking |
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Term
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Definition
-Quantity expected to be used given a specific planned or actual production level -Costs expected to be incurred |
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Term
| Why or when would we want to use standards |
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Definition
-To assist in the budgeting process
Direct Materials budget
Direct Labor budget
VOH budget
-Evaluation purposes
Management by exception |
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Term
| Ideal versus practical standards |
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Definition
Ideal- Everything goes perfectly
Practical- Historical Data |
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Term
| Normal versus abnormal inefficiencies |
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Definition
| In ideal budget, any inefficiencies is an abnormal inefficiency. In a practical budget abnormal inefficiencies are the inefficiencies that are greater than alotted |
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Term
| Advantages of Variance Analysis |
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Definition
-Assists the management-by-exception model
-Facilitates cash planning & inventory control through the budget process
-Promotes economy and efficiency by providing benchmarks
-Simplifies bookkeeping for quarterly financial statement preparation (add up only individual variance. Only to create total??
-Useful tool for responsibility accounting |
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Term
| Disadvantages or problems of Variance Analysis |
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Definition
-Timeliness and materiality issues- Waisting time on little variances
-Morale issues
-Assumptions about labor force that are not always true (Assume they're variable also machines are involved in labor)
-A favorable variance is a good variance? (Think McDonalds example (big mac)
-Focus on variances at the expense of everything else
-Goal of meeting the standards versus continuous improvement |
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Term
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Definition
| Integrated set of performance measures specific to each firm because the performance measures are derived from the firm's strategy and support the implementation of that strategy |
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Term
| Advantages of decentralization for a firm |
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Definition
-Allows lower level managers to make decisions
-Top level management can focus on strategy rather than day-to-day business
-Increase job satisfaction, not being bossed by people unfamiliar
-Allows for better performance evaluation
-Helps train people to move up in a company |
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Term
| Disadvantages of decentralization |
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Definition
-Lower management might make bad decisions without big picture in mind
-Could start competing against yourself, segments behave independently |
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Term
| Margin;Operating Assets; Turnover |
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Definition
Margin-% of revenue dollars that become income dollars
Operating Assets- all assets used to generate revenues (not land held for use)
Turnover- How well the assets are used to generate revenue |
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Term
| How does a firm increase ROI |
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Definition
-Increase Sales
-Reduce expenses
-Reduce operating assets |
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Term
| How does a firm set prices for sales transactions between segments within the company? |
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Definition
-Negotiate
-Set the price at the cost using either variable or absorption costing
-Set the price at the market price |
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Term
| Benefits and limitations of setting transfer prices |
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Definition
-Negotiated transfer price
--Preferred Method
--Assumes that both segments negotiate fairly and reasonably
-Transfer prices at cost
--How do we define cost
--Motivation Problem- Lack of Cost Control & no profit
-Transfer prices at market
--Ignores idle capcity |
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Term
| Other types of situations where relevant costing and incremental analysis are useful |
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Definition
-Introducing a new product/discontinuing an old product
-Accepting special-orders of products
-Working with joint products and sell-or-process-further products |
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Term
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Definition
Qualitative benefits from a project that are difficult to measure
ex. Increased reputation, employee morale |
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Term
| How are intangibles measured for the purpose of capital budgeting? |
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Definition
-If a project has negative NPV
-Determine what additional annual cash flows inflows would make the NPV ZERO
-COuld the intangible |
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