Management Accounting Flashcards

What is the difference between a static budget variance and a flexible budget variance?

Answer: A static budget variance compares actual to original budget; a flexible budget variance compares actual to a budget adjusted for actual volume

The static budget variance compares actual results to the original budget at the planned activity level. The flexible budget variance isolates spending and efficiency differences by comparing actual results to what the budget would have been at the actual activity level achieved.

In a process costing system, how are equivalent units calculated under the weighted average method?

Answer: Units completed plus equivalent units in ending work in process, without regard to beginning inventory completion

Under the weighted average method, equivalent units equal units completed and transferred out plus the equivalent units in ending work in process (ending WIP units × percentage complete). Work done in prior periods on beginning WIP is blended with current period work.

A company uses kaizen costing. How does this approach differ from standard costing?

Answer: Kaizen costing targets continuous incremental cost reductions during the production phase

Kaizen costing focuses on continuous improvement during the manufacturing phase by setting progressively tighter cost reduction targets. Unlike standard costing which measures performance against fixed standards, kaizen costing expects standards to improve over time.

What is throughput accounting's definition of throughput?

Answer: Sales revenue minus totally variable costs (primarily direct materials)

In throughput accounting (based on TOC), throughput is defined as sales revenue minus totally variable costs, which typically includes only direct materials. Labor and overhead are considered fixed in the short term and are classified as operating expense.

Which variance measures the difference between actual fixed overhead incurred and the budgeted fixed overhead?

Answer: Fixed overhead spending (budget) variance

The fixed overhead spending (budget) variance is the difference between actual fixed overhead incurred and the budgeted (static) fixed overhead. It identifies whether the company spent more or less on fixed overhead than planned, regardless of production volume.

A company is evaluating whether to continue or drop a product line. The product line has a negative operating income after allocating common fixed costs. The product should be dropped only if:

Answer: Its contribution margin is negative or less than the avoidable fixed costs attributable to it

A product line should be dropped only if its segment margin (contribution margin minus avoidable fixed costs) is negative. Allocated common fixed costs are irrelevant because they will continue regardless. If the product's contribution margin exceeds its avoidable fixed costs, keeping it is beneficial.