Master Budget Basics
This budget is the starting point of the master budget.
What is the sales budget?
This variance measures the difference between actual price and standard price.
What is price (cost) variance?
For costs, when actual cost is lower than standard, this occurs.
What is a favorable variance?
This is the formula for sales revenue.
What is units × selling price?
This type of center is evaluated using ROI and residual income.
What is an investment center?
This budget determines how much inventory must be purchased.
What is the inventory (purchases) budget?
This variance measures how efficiently inputs were used.
What is quantity (usage) variance?
For sales, when actual revenue exceeds expected revenue, this occurs.
What is a favorable variance?
This is the formula for inventory purchases.
What is COGS + ending inventory – beginning inventory?
This measure is expressed as a percentage.
What is ROI?
This budget includes depreciation and other operating expenses.
What is the selling & administrative budget?
The formula (AP – SP) × AQ calculates this.
What is price variance?
If actual materials used exceeds standard allowed, this is ______.
What is unfavorable?
This is the formula for ROI.
What is operating income ÷ operating assets?
This measure is expressed in dollars.
What is residual income?
This budget combines all cash inflows and outflows.
What is the cash budget?
The formula (AQ – SQ) × SP calculates this.
What is quantity variance?
Paying less than expected for materials results in this type of variance.
What is favorable?
This is the formula for residual income.
What is operating income – (operating assets × required rate)?
This problem occurs when managers reject profitable projects due to percentage concerns.
What is ROI discouraging investment?
These two financial statements are produced at the end of the master budget.
What are the pro forma income statement and balance sheet?
These two components always make up total variance.
What are price variance and quantity variance?
Using more labor hours than expected results in this.
What is an unfavorable variance?
This formula isolates the price effect only in variance analysis.
What is (AP – SP) × AQ?
This method fixes the ROI issue by focusing on minimum required return.
What is residual income?