Cost Accounting – 12^th Edition

Ch 7 Terms

Benchmarking – the continuous process of comparing the levels of performance in producing products and services and executing activities against the best levels of performance

Effectiveness – the degree to which a predetermined objective or target is met

Efficiency – the relative amount of inputs used to achieve a given output level

Efficiency variance – the difference between the actual quantity of input used and the budgeted quantity of input that should have been used to produce the actual output, multiplied by the budgeted price. Also called usage variance

Favorable variance – variance that has the effect of increasing operating income relative to the budgeted amount

Flexible budget – budget developed using budgeted revenues and budgeted costs based on the actual output level in the budget period

Flexible-budget variance – the difference between an actual result and the corresponding flexible-budget amount based on the actual output level in the budget period

Input-price variance – see price variance

Management by exception – practice of concentrating on areas not operating as expected and giving less attention to areas operating as expected

Price variance – the difference between the actual price and the budgeted price multiplied by the actual quantity of input

Rate variance - the difference between the actual price and the budgeted price multiplied by the actual quantity of input

Sales-volume variance – the difference between a flexible-budget amount and the corresponding static-budget amount

Selling-price variance – the difference between the actual selling price and the budgeted selling price multiplied by the actual units sold

Standard – a carefully predetermined price, cost, or quantity. It is usually expressed on a per unit basis

Standard cost – a carefully determined cost of a unit of output

Standard input – a carefully predetermined quantity of input required for one unit of output

Standard price – a carefully determined price that a company expects to pay for a unit of input

Static budget – budget based on the level of output planned at the start of the budget period

Static-budget variance – difference between an actual result and the corresponding budgeted amount in the static budget

Unfavorable variance – variance that has the effect of decreasing operating income relative to the budgeted amount

Usage variance – see efficiency variance

Variance – the difference between an amount based on an actual result and the corresponding budgeted amount