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Performance report
compares actual costs with budgeted costs. Comparison of actual costs with the budgeted costs for the budgeted level of activity. Comparision of actual costs with the actual level of activity.
Static Budget
Budget for a particular level of activity.
Flexible Budget
Enables a firm to compute expected costs for a range of activity levels.
Before the fact (Flexible Budget)
This type of budget helps managers deal with uncertainty by allowing them to see the expected outcomes for a range. Used to generate financial results for a number of scenarios.
After the fact (Flexible Budget)
Type of budget is used to compute what costs should have been for the actual level of activity. Those expected costs are then compared with the actual costs in order to assess performance.
Variable Budgets
Budgeted costs can change because total variable costs go up as output increases. Flexible budgets are sometimes referred to as these.
Variable overhead spending variance
(AVORxAH) – (SVORxAH). AVOR being Actual var. overhead dividied actual hours. SVOR is the standard variable overhead rate. AH is the actual direct labor hours.
Variable overhead efficiency variance
(Actual Hours – Standard Hours)xStandard variable overhead rate.
SH
Unit standard x units of capacity
SFOR
Budgeted fixed overhead costs / practical capacity
Applied fixed overhead
(Budgeted fixed overhead costs/ practical capacity)x Standard Hours.
Activity flexible budgeting
prediction of what activity costs will be as related output changes.
Responsibility center
segment of the business whose manager is accountable for specified sets of activities.
Cost center
Center in which a manager is responsible only for costs.
Revenue center
Center in which a manager is responsible only for sales or revenue.
Profit center
Center in which a manger is responsible for both revenues and costs.
Investment center
center in which a manager is responsible for revenues, costs, and investments.
ROI
Operating income / Average operating assets
Average operating assets
(Begginning assets + ending assets) / 2
Margin
ratio of operating income to sales.
Turnover
different measure found by dividing sales by average operating assets.
Residual income
Operating income – (Minimum rate of return x average operating assets)
Economic value added
Net income minus the total annual cost ofcapital.
Contribution Margin per unit of scarce resource
Contribution margin pet unit/ amount of scarce resource to make one unit.
Price using markup
Cost per unit + (Cost per unit X Markup percentage)
Target cost
Target price – desired profit.
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