Expense Management & Cost Control Flashcards

A company notices its overhead absorption rate is significantly higher than actual overhead incurred. This situation is known as:

Answer: Over-absorbed overhead

Over-absorbed overhead occurs when the absorbed (applied) overhead exceeds actual overhead costs incurred during the period.

Which cost control technique involves setting detailed standards for materials, labor, and overhead and then measuring deviations from those standards?

Answer: Standard costing

Standard costing establishes predetermined benchmarks and measures actual performance against them through variance analysis.

A department's actual material cost was $45,000 versus a budgeted $40,000. The $5,000 difference is called a:

Answer: Adverse (unfavorable) variance

When actual costs exceed budgeted costs, the resulting variance is unfavorable (adverse) because it negatively impacts profit.

The 'economic order quantity' (EOQ) model is primarily used to minimize which combination of costs?

Answer: Ordering and holding (carrying) costs

EOQ finds the optimal order quantity that minimizes the total of ordering costs and inventory holding (carrying) costs.

Which expense reporting practice helps organizations identify and eliminate 'expense creep' over time?

Answer: Rolling 12-month trend analysis of expense categories

Rolling 12-month trend analysis reveals gradual cost increases (expense creep) that single-period comparisons might miss.

A cost that remains constant per unit but varies in total with production volume is classified as a:

Answer: Variable cost

Variable costs have a constant per-unit amount but their total changes proportionally with changes in activity level.

Under a flexible budget, what happens to the budgeted fixed cost per unit when production volume increases?

Answer: It decreases per unit

Fixed costs remain constant in total, so as volume increases, the fixed cost per unit decreases (spread across more units).