Accounting Technician Budgeting & Cost Control Flashcards

Which of the following best describes 'budget slack'?

Answer: The deliberate overestimation of costs or underestimation of revenues by managers

Budget slack occurs when managers intentionally build in extra cost allowances or reduce revenue targets to make their budgets easier to achieve.

In absorption costing, which costs are included in the cost of inventory?

Answer: Both fixed and variable production costs

Absorption costing includes both fixed and variable production overheads in product cost, unlike marginal costing which only includes variable production costs.

A labour efficiency variance is calculated as:

Answer: (Standard hours − Actual hours) × Standard rate

Labour efficiency variance = (Standard hours for actual output − Actual hours worked) × Standard labour rate per hour.

What is the purpose of a cash budget?

Answer: To plan and monitor cash inflows and outflows

A cash budget projects expected cash receipts and payments to ensure the business has sufficient liquidity and to identify potential cash shortfalls.

Contribution per unit is calculated as:

Answer: Selling price minus variable cost per unit

Contribution = Selling price per unit − Variable cost per unit; it represents the amount each unit contributes toward covering fixed costs and generating profit.

A company uses activity-based costing (ABC). Which of the following best describes a 'cost driver'?

Answer: A factor that causes a change in the cost of an activity

In ABC, a cost driver is the factor that causes an activity's costs to increase or decrease, such as number of machine setups or purchase orders raised.

When actual fixed overheads exceed absorbed fixed overheads, the result is:

Answer: Under-absorption of overheads

Under-absorption occurs when actual overheads incurred are greater than the overhead absorbed into production, resulting in an adverse variance.