Management Acc Week 6

22 flashcards · Other · by Daniel F.

1. Variance analysis

   comparing actual with planned results for the period systematic assessment of the impact on Operating Income of differences between actual and budgeted performances high variance triggers an investigation to determine whether a corrective action is necessary

2. purpose of variance analysis

   Directing attention; management by exception - which is the practice of focusing managers attention mostly on the areas that are not operating as expected. Organizational learning; raise awareness to managers on what worked and what didn't Performance evaluation and reward. evalute management based on operating income

3. principle of variance analysis

   In a situation where a firm departs from their budget on one specific aspect, the best way to measure the effect this has on operating income is to simply change that estimate to accommodate the departure of the budget. In order to compare budgeted and actual operating income, you must switch all the parameters one by one from their budgeted to actual values, so that variances can be added up to calculate the overall change in operating income. When switching the parameters as mentioned in prin…

4. Volume variances

   changes in Operating Income due to differences between actual and budgeted volumes of output (i.e., products, services, or more generally cost drivers). Output Q Resource Usage RU

5. Usage variances

   changes in Operating Income due to differences between actual and budgeted consumption of resources (e.g., materials, labor) per unit of output (i.e., product, service, or more generally cost driver). Switched Q to actual from budgeted because we already accounted for it

6. Price variances

   changes in Operating Income due to differences between actual and budgeted prices of either outputs (products or services) or resources (e.g., materials, labor) Q and RU and actual because they have been accounted for

7. why decompose variances

   Every assumption made in the budget is a potential source of variance

8. static budget

   budget based on the level of output initially budgeted adjustments have to made to initially assumed budget

9. static budget variance

   OIa - OIb difference between the actual operating income and the static budget operating income (i.e., the operating income initially budgeted). first level L1 variance not a very meaningful comparison

10. flexible budget OIf

    budget based on the actual volume of activity, budgeted selling prices unit variable costs fixed costs Use this to infer L2 volume variance flexible budget variance

11. volume variance

    variance due to difference in volumes (activity) multiple products complementary substitutes use this to infer L3 market size variance market share variance product mix variance

12. product mix variance

    variance due to differences in product mix

13. flexible budget variance

    change in profit due to everything other than volumes UCMf = UCMb

14. market size variance

    variance due to operating in a market the actual size of which is different from the budgeted one

15. market share variance

    variance due to market share

16. product mix variance in therms of deconstructed volume variance

17. selling price variance

    impact on operating income of a difference between actual and budgeted selling prices

18. resource usage variance

    change in profit due to resource usage

19. resource price variance

    change in profit due to variance of resource price

20. resource cost variance

21. fixed cost variance

22. additional volume variance breakdown