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Chapter 8-12


Department
Administrative Studies
Course Code
ADMS 2510
Professor
Geoff Lawrence

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Ch 8
Absorption- manufacturing cost: product cost (DM, DL, VOH, FOH) & period cost (S&A)
-Cost functions/category, fixed expenses are avoidable, external users
Variable Costing- variable manufacturing: product (DM, DL, VOH) & period cost (FOH, S&A)
-Cost behaviour/category, fixed expenses are unavoidable, internal users
Avoidable Cost- VC that are related to product line eliminating that can be avoided
Unavoidable- cost cannot be eliminated, even if closure of dept. or no production
Segment margin = segment CM traceable FC
Absorption & Variable relationship Operating Income
Product & Sales Inventory Effect Operating Income
Production = Sales no effect Absorption = Variable
Production > Sales increase Absorption > Variable
Production < Sales decrease Absorption < Variable
Ch 9
Budget- predict future revenue/costs to compare with actual revenue/cost
Strategic Budget- long term budget to achieve company goal
Tactical Budget- short term to acheve strategic plan
Imposed Budget- top mgmt imposes for organization to follow, good for starting business
(Pro: faster to impose, no coordination, has mgr goals | Con: unrealistic, reduce moral)
Participatory Budget- both top and bottom mgmt. created budget, good for large companies
(Pro: realistic/front line mgrs, increase teamwork | Con: time consuming, budget slack)
Master Budget (Static)- fixed budget, volume is static (cash budget)
Flexible Budget- volume stays flexible to actual volume
Traditional Budget- budget starts from previous years (qualitative)
Zero-Based Budget- based on past year and makes a few changes
Continuous (Rolling/Perpetual)-12-month budget, adds new month as each month expires
Budget Slack- reports lower budget sales then expected, so at end of year when target sales are
higher, mgr will look good for achieving higher
Bottleneck- machine/activity limits total outputs because operating at capacity
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