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

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

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

If flexible budget is based on STANDARD hours

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

is a benefit that differs between alternatives.

are leading indicators of future financial performance.

POHR

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

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

discussions between the selling and buying divisions.

There are three primary approaches to setting transfer prices:

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

underapplied overhead

< less than denominator hours

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

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

are relevant costs

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

costs changein direct proportion to changes in activity.

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

overapplied over head

There are three ways to increase ROI .

irrelevant costs.

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

If flexible budget is based on ACTUAL hours

A future cost that does not differ between the alternatives.

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

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.

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

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

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

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

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

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

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

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

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.

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

ordinarily responsible for financial performance measures not lower level managers.

under and overapplied overhead cost.

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.

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

Vertical Integration - Advantages

are lag indicators that summarize the results of past actions.

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

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

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

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

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

costs remain unchanged within the relevant range.

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

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

prepared fora single, planned level of activity.

results when standard hours allowed for actual output

Two or more products produced from a common input are called

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

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

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

Controlled by managing the overhead cost driver.

> greater than denominator hours

What are the 3 responsible centers?

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

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

5 Typical Capital Budgeting Decisions

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