BUS A202
EXAM 3 REVIEW SHEET

CHAPTER 8: Flexible Budgets, Standard Costs, and Variance Analysis
Distinguish between static and flexible budgets.
Understand the disadvantage of evaluating performance based on a static budget.
Be able to prepare a flexible budget and compute revenue, and spending variances.
Definition of standard costs.
Know factors to consider when setting standard costs for materials (e.g., allowance for rejects, freight costs) and direct labor (e.g. allowance for machine downtime, fringe benefits).
Compute and interpret the direct material variances (DMV): direct material price variance (DMPV) and direct material quantity variance (DMQV). You need to be able to compute these variances when material purchases do not equal usage (i.e., 4-line approach as discussed in class).
Be able to compute and interpret the direct labor variances (DLV): direct labor rate variance (DLRV) and direct labor efficiency variance (DLEV)
.
Know the names of the manufacturing overhead variances: variable manufacturing overhead rate variance (VMOHRV), variable manufacturing overhead efficiency variance (VMOHEV), fixed manufacturing budget variance (FMOHBV), and fixed manufacturing overhead volume (FMOHVV). Also know that these four overhead variances in combination explain the over or underapplied manufacturing overhead from Chapter 2. You can ignore the appendices.

CHAPTER 9: Performance Measurement in Decentralized Organizations
Advantages and disadvantages of decentralization.
Distinguish between traceable fixed costs and common fixed costs.
Calculation and interpretation of rate of return and residual income.


CHAPTER 10: Differential Analysis: The Key to Decision Making
Distinguish between relevant (differential, opportunity, avoidable) costs and irrelevant (nondifferential, sunk, unavoidable) costs in various decision making contexts.
Be able to support a decision through the use of accounting information in the following contexts: drop, retain, or add a product line or segment; make or buy components; accept or reject special orders; utilization of scarce resources (bottlenecks); and sell or process further decisions with joint costs..
Understand what practical issues might also need to be considered before making a decision based solely on the accounting answer computed above.

CHAPTER 11: Capital Budgeting Decisions (including Appendix A)
The previous chapter ignored the time value of money even when looking at decisions that were long term; this chapter represents a better way to evaluate these types of decisions taking into the time value of money (present value). Capital budgeting focuses on the cash flows and the timing of those cash flows when making a decision.
Be able to calculate and interpret the net present value of various options. Exhibits 11B-1 and 11B-2 from your textbook will be be provided with your exam for those wishing to use that approach.
Calculation and interpretation of profitability index and payback period.

COMPREHENSIVE SECTION: Chapters 1-11
There will be 10 comprehensive multiple choice questions worth one half point bonus each related to the entire course. The instructor will discuss in class how you can best prepare for these questions.