Performance Management and Control Flashcards

In standard costing, what does an 'adverse variance' indicate?

Answer: Actual performance was worse than standard, increasing costs or reducing profits

An adverse (unfavorable) variance indicates actual performance was worse than standard, either through higher costs or lower revenues than planned.

Which budgeting approach requires managers to justify all expenditures from scratch each period, rather than basing the budget on previous years?

Answer: Zero-based budgeting

Zero-based budgeting requires all expenditures to be justified from zero each budget period, eliminating the assumption that prior spending levels are appropriate.

What is 'throughput accounting' primarily focused on?

Answer: Maximizing throughput (sales minus direct materials) while managing operating expenses and inventory

Throughput accounting focuses on maximizing throughput contribution (sales less direct material costs) while keeping operating expenses and inventory as low as possible.

A 'flexible budget' differs from a 'fixed budget' in that it:

Answer: Adjusts expenditure allowances to reflect actual activity levels

A flexible budget adjusts cost allowances to the actual level of activity achieved, enabling more meaningful variance analysis.

In the context of responsibility accounting, what is a 'profit center'?

Answer: A unit accountable for both revenues and costs, and therefore profit

A profit center is a responsibility center where the manager is accountable for both revenues and costs, and therefore for the profit earned.

Which performance measurement concept links financial and non-financial KPIs to strategic objectives?

Answer: Balanced scorecard

The balanced scorecard links financial and non-financial KPIs across four perspectives (financial, customer, internal process, learning and growth) to strategic objectives.