1. The relationship between management by exception and variance analysis:
Variance analysis can be used to evaluate a manager’s performance. Variance analysis can assist managers take corrective measures when their costs are too high. It can also help them change their strategy when they are coming in short in sales.
2. The two possible sources of information to compute the budgeted amount in variance analysis:
Data from other companies that use the same process and data form previous accounting periods.
3. One is said to have a favorable variance when the actual costs are less than the standard costs. An unfavorable variance occurs when the actual costs are more than the standard costs.
4. The difference between static and a flexible budget is that the static budget is based on the fixed projected levels at the beginning of the accounting period. A flexible budget is based on actual data and can be tailored based on the current need/activity level.
5. The flexible budget is more informative because it can tell you the activity level and expenses at a specific moment. It can help management plan and take corrective measures to ensure that the static budget levels are met.
6. The steps for developing a flexible budget are: Identify the quantity of output, Calculate the flexible budget for revenue based on the budgeted selling price along with the quantity of output and finally calculate the flexible budget for costs based on variable cost.
7. Four reasons for standard costs are: Budget control, cost awareness, manager and employee performance appraisal and pricing decisions.
8. A manager can take the flexible budget variance and see the difference in actual cost versus the budgeted cost for a specific quantity of materials used for production. Once this number has been found, the actual reason for the variance can then be investigated.
9. Favorable direct materials price can as a result of: Purchasing materials at a cheaper price, purchasing materials at a much higher price due to oversight or purchasing a large quantity of supplies resulting in a discounted price.
10. Unfavorable efficiency variance for direct manufacturing labor could be as a result of: lack of