Cost Accounting & Management Flashcards
6 cards from real CFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Cost Accounting & Management flashcards as text
A favorable variance in standard costing means:
Answer: Actual costs were less than standard costs, resulting in better-than-expected performance
A favorable variance occurs when actual costs are lower than standard costs (or actual revenues exceed budgeted revenues), indicating better-than-planned financial performance.
What is the purpose of a flexible budget?
Answer: To adjust budgeted amounts based on actual activity levels, enabling meaningful performance comparisons
A flexible budget adjusts cost expectations to the actual volume achieved, allowing management to isolate spending variances from volume variances.
What is the direct material price variance?
Answer: The difference between actual price paid and standard price, multiplied by actual quantity purchased
The direct material price variance = (Actual Price − Standard Price) × Actual Quantity purchased, measuring the cost impact of paying a different price than planned.
What does return on investment (ROI) measure in divisional performance?
Answer: Net operating income divided by average invested assets, measuring how efficiently assets generate profit
ROI measures divisional efficiency by comparing net operating income to the average assets employed, indicating how effectively the division uses its asset base.
What is economic value added (EVA)?
Answer: Net operating profit after tax minus a capital charge (WACC × invested capital)
EVA measures economic profit by subtracting the cost of capital (WACC × invested capital) from NOPAT, showing whether a company earns more than its cost of capital.
What is a transfer price?
Answer: The internal price charged when one division of a company sells goods or services to another division
Transfer prices govern internal transactions between divisions, affecting each division's reported profitability and may be set at market price, cost, or a negotiated amount.