static budget

a budget prepared for only one level of sales volume

budget performance report

a report that summarizes the actual results, budgeted amounts, and the differences

variance

the difference between an actual amount and the budgeted amount; labeled as favorable if it increases operating income and unfavorable if it decreases operating income

Static Budget Variance

the difference between actual results and the expected results in the static budget

flexible budget

a budget prepared for various levels of sales volume

flexible budget variance

The difference between actual results and the expected results in the flexible budget for the actual units sold.

sales volume variance

the difference between the expected results in the flexible budget for the actual units sold and the static budget

standard

a price, cost, or quantity that is expected under normal conditions

standard cost system

An accounting system that uses standards for product costs- direct materials, direct labor, and manufacturing overhead.

cost variance

measures how well the business keeps unit costs of material and labor inputs within standards

efficiency variance

measures how well the business uses its materials or human resources

direct materials cost variance

The difference between the amount actually paid for direct materials (actual cost) and what should have been paid (standard cost) (AC-SC) x AQ

direct materials efficiency variance

The difference between the direct materials actually used (actual quantity) and the direct materials that should have been used for the actual output (standard quantity) (AQ - SQ) x SC

direct labor cost variance

The difference between the actual amount paid for direct labor (actual cost) and the amount that should have been paid (standard cost) (AC - SC) x AQ

Direct Labor Efficiency Variance

The difference between the actual labor hours (actual quantity) and the labor hours that should have been used (standard quantity). (AQ - SQ) x SC

Variable Overhead Cost Variance

The difference between the actual variable overhead (actual cost) and the standard variable overhead for the actual allocation base incurred (standard cost). (AC - SC) x AQ

Variable Overhead Efficiency Variance

The difference between the actual allocation base (actual quantity) and the amount of the allocation base that should have been used (standard quantity) (AQ - SQ) x SC

Fixed Overhead Cost Variance

Determines the cost associated with the difference between actual fixed overhead and budgeted fixed overhead. Actual fixed overhead - budgeted fixed overhead

Fixed Overhead Volume Variance

Determines the cost associated with the difference between budgeted fixed overhead and the amount of fixed overhead allocated to actual output. Budgeted fixed overhead - allocated fixed overhead

management by exception

when managers concentrate on results that are outside the accepted parameters