prepared fora single, planned level of activity.

difficult when actual activity differs from the planned level of activity.

costs changein direct proportion to changes in activity.

costs remain unchanged within the relevant range.

3 important factors in selecting an activity base for an overhead flexiable budget

If flexible budget is based on ACTUAL hours

If flexible budget is based on STANDARD hours

Controlled by managing the overhead cost driver.

can be used when multiple activity bases drive variable overhead costs.

are assigned to products and services using a predetermined overhead rate (POHR):

POHR

2 PHOR - useful for preparing and analyzing variable overhead variances.

2 POHR - is useful for preparing and analyzing fixed overhead variances.

system, overhead is applied to work in process based on the actual number of hours worked in the period.

system, overhead is applied to work in process based on the standard hours allowed for the output of the period.

Results from paying more or less than expected for overhead items and from excessive usage of overhead items.

Results from spending more or less than expected for fixed overhead items.

results when standard hours allowed for actual output

< less than denominator hours

> greater than denominator hours

under and overapplied overhead cost.

underapplied overhead

overapplied over head

A segment whose manager has control over costs, but not over revenues or investment funds

A segment whose manager has control over both costs and revenues, but no control over investment funds.

A segment whose manager has control over costs, revenues, and investments in operating assets.

is any part or activity of an organization about which a manager seeks cost, revenue, or profit data.  

should be used because it separates fixed from variable costs and it enables the calculation of a contribution margin.

should be separated from common fixed costs to enable the calculation of a segment margin.

arise because of the existence of a particular segment and would disappear over time if the segment itself disappeared.

arise because of the overall operation of the company and would not disappear if any particular segment were eliminated.

which is computed by subtracting the traceable fixed costs of a segment from its contribution margin, is the best gauge of the long-run profitability of a segment.

There are three ways to increase ROI .

are lag indicators that summarize the results of past actions.

are leading indicators of future financial performance.

ordinarily responsible for financial performance measures not lower level managers.

are more likely to be understood and controlled by lower level managers.

is the price charged when one segment of a company provides goods or services to another segment of the company.

There are three primary approaches to setting transfer prices:

discussions between the selling and buying divisions.

is often regarded as the best approach to the transfer pricing problem.

works best when the product or service is sold in its present form to outside customers and the selling division has no idle capacity.

does not work well when the selling division has idle capacity.

What are the 3 responsible centers?

5 Typical Capital Budgeting Decisions

Whenever possible, variable and fixed service department costs should be charged separately.

is a cost that differs between alternativesis a cost that differs between alternatives

is a benefit that differs between alternatives.

a cost that can be eliminated, in whole or in part, by choosing one alternative over another.

A future cost that does not differ between the alternatives.

that are relevant in one decision situation may not be relevant in another context. Thus, in each decision situation, the manager must examine the data at hand and isolate the relevant costs.

can also be obtained by preparing comparative income statements showing results with and without the digital watch segment.

Vertical Integration - Advantages

factor can be appealing, a company must be careful to retain control over activities that are essential to maintaining its competitive position.

is the benefit that is foregone as a result of pursuing some course of action

not actual cash outlays and are not recorded in the formal accounts of an organization.

is a one-time order that is not considered part of the company’s normal ongoing business.

The machine or process that is limiting overall output – it is the constraint.

These methods and ideas are all consistent with the which was introduced in Chapter 1.

Two or more products produced from a common input are called

The point in the manufacturing process where each joint product can be recognized as a separate product is called

are traditionally allocated among different products at the split-off point.

are irrelevant in decisions regarding what to do with a product from the split-off point forward. Therefore, these costs should not be allocated to end products for decision-making purposes.

is to allocate joint costs according to the relative sales value of the end products.

are relevant costs

irrelevant costs.