Management Accounting Flashcards

Which budgeting approach starts from a zero base each period and requires all expenditures to be justified?

Answer: Zero-based budgeting

Zero-based budgeting (ZBB) requires managers to justify every expense from scratch each period rather than adjusting prior-year figures.

A flexible budget is most useful for:

Answer: Comparing actual costs to expected costs at actual activity level

A flexible budget adjusts budgeted costs to the actual level of activity achieved, providing a like-for-like comparison with actual results.

In a job costing system, overhead is typically applied using:

Answer: A predetermined overhead absorption rate

A predetermined overhead absorption rate (OAR) is calculated before the period begins and applied to jobs based on a chosen activity base.

When a machine hour rate is used to absorb production overhead, the rate is calculated as:

Answer: Budgeted overhead ÷ Budgeted machine hours

The predetermined overhead absorption rate = Budgeted overhead ÷ Budgeted machine hours, both established at the start of the period.

Which variance measures the difference between the actual hours worked and the standard hours allowed for actual output, valued at the standard labor rate?

Answer: Labor efficiency variance

The labor efficiency variance = (Standard hours for actual output − Actual hours worked) × Standard rate.

The net present value (NPV) method of investment appraisal discounts cash flows at:

Answer: The company's cost of capital

NPV discounts future cash flows at the company's cost of capital (required rate of return) to determine whether the investment creates value.

Under throughput accounting, 'totally variable costs' typically refers to:

Answer: Direct materials only

Throughput accounting treats direct materials as the only truly variable cost; labor is considered fixed in the short term.