Actual cost refers to the tangible expenditure incurred in carrying out specific activities of an organization, as opposed to budgeted or standard costs. It represents the real outlay of funds, including invoices paid, wages, materials, and other expenses.
Administer refers to the management actions of planning, directing, budgeting, and implementing necessary to achieve organizational objectives. It involves activities such as managing resources, overseeing projects, and ensuring efficient operations.
Administration Cost Variance is the difference between the administration overheads budgeted for in an accounting period and those actually incurred. This variance helps in evaluating and controlling administrative costs in an organization.
Alternative budgets, also known as financial or quantitative budgets, are additional budgets created for consideration by management alongside their primary budget. These budgets reflect different policies that the organization might pursue in the future.
Attainable standard refers to a cost or income standard set at a level that is achievable by operators under realistic conditions during the relevant cost period.
A Balanced Budget is a financial plan where total revenues are equal to or greater than total expenditures, ensuring no deficits incurred during a particular accounting period.
A cost or income standard set in standard costing to form the basis on which other standards are set. It is a foundational metric from which other variances and standards can be derived.
A budget expenditure head is a method of analyzing a budget and presenting financial statements under major headings, each of which is managed by a particular manager responsible for overseeing the budgeting and control within their area.
A budget period is a designated timeframe during which a specific budget is planned and implemented, aligning closely with the accounting periods utilized by the organization. Typically, this period spans a year but can be broken down into shorter control periods like months or quarters for enhanced financial oversight.
A cost included in a budget representing the expected expenses to be incurred by a budget center, cost center, cost unit, product, process, or job.
The Capital Budget, also known as the capital expenditure budget or capital investment budget, is part of the master budget that outlines the anticipated capital expenditures an organization plans to make within a given budget period.
Cash disbursement refers to the amount of money paid out by a business or individual during a specific period for expenses, purchases, or other financial obligations.
A cash-flow budget is a tool that summarizes expected cash inflows and outflows of an organization over a budget period, usually prepared monthly. It serves as a planning aid to determine cash availability for investment or to identify cash deficits requiring additional finance.
A control period is the span of time for which budgeted figures are compared with actual results. Splitting up the financial year into control periods makes control of the financial figures more manageable.
Controllable costs are expenses that can be directly influenced and managed by a particular level of management. Responsibility is assigned to specific personnel who can influence these costs within an organization.
Corporate modelling involves the use of simulation models to assist the management of an organization in planning and decision-making. A budget is a quintessential example of a corporate model.
Cost estimating involves determining the total costs of labor, materials, capital, and professional fees required for a proposed product. This process is crucial in project management, construction, manufacturing, and other sectors where budgeting and financial planning are essential.
A cost objective is the budget limit set for an activity, task, or project, intended to constrain spending within predefined financial boundaries to ensure financial discipline and project feasibility.
A cost overrun occurs when the actual cost of a project exceeds the project budget, requiring additional funding to cover the shortfall. This situation necessitates revisiting financial planning and resource allocation.
Cost prediction involves forecasting future cost levels based on historical cost behavior using various statistical techniques, such as linear regression, to inform budgeting, decision-making, and strategic planning.
The Cost-of-Living Index is a tool that measures the relative cost of living over time or between different locations. It is typically used to compare the expense required to maintain a certain standard of living across various cities or countries.
A Decision Package is a crucial procedure in Zero-Base Budgeting (ZBB) where a manager details recommended and alternative ways to undertake a proposed project, specifying the associated costs and time requirements.
Direct Labour Efficiency Variance is an essential component in a standard costing system that evaluates the efficiency of labour in completing a given task. It compares the actual labour hours used to the standard hours expected and calculates the variance in cost using the standard direct labour rate.
In a standard costing system, a variance arising as part of the direct labour total cost variance. It compares the actual rate paid to direct labour for an activity with the standard rate of pay allowed for that activity for the actual hours worked. The resultant adverse or favourable variance is the amount by which the budgeted profit is affected by differences in direct labour rates of pay.
The spending capability that is not mandated by law or required automatically within the system, allowing individuals or organizations to allocate their funds according to their choices and preferences.
Engineered costs involve calculating expected expenditures for a production process by constructing synthetic costs based on detailed analysis and logical considerations. This method is often used in standard costing, budgeting, and planning where estimated unit costs are necessary before production.
Enterprise Performance Management (EPM) refers to the process-based framework and software modules that help businesses manage and improve performance through analysis, planning, monitoring, and control mechanisms. Specifically, EPM encompasses budgeting, forecasting, financial reporting, and scorecarding techniques.
Ex Ante is a Latin term meaning 'before the event,' often used in finance and economics referring to predictions, forecasts, or estimations about future events.
An expenditure code is a unique identifier used in accounting to categorize and record expenses based on their nature and function within an organization, allowing for efficient budgeting and financial reporting.
Expenditure variance measures the difference between actual spending and budgeted spending. This metric can help businesses understand financial discrepancies, control costs, and improve budgeting processes.
An Expense Budget outlines the estimated costs that are expected to be incurred by an organization or individual over a specified future period. It serves as a financial plan, helping to allocate resources efficiently and set spending limits to achieve financial goals.
A financial plan is a comprehensive strategy designed to help individuals or businesses achieve specific financial goals, both short and long-term. Financial planning covers aspects such as budgeting, investments, savings, taxes, and retirement planning.
A budget that outlines in both financial and quantitative terms the planned levels of finished goods at various points during the budget period.
In the operation of a business, fixed expenses are those that remain constant regardless of production or sales levels. These are crucial for budgeting and financial planning, and they contrast with variable expenses, which fluctuate with the level of production or sales.
A fixed fee is a set price agreed upon for the completion of a project, representing a predetermined total cost regardless of the incurred expenses. This arrangement can provide budget certainty for clients while imposing some financial risk for contractors.
In a system of standard costing, the fixed overhead total variance represents the difference between the standard fixed overhead absorbed for the actual units produced and the actual fixed overhead expenditure incurred.
Flexed Budget Allowance refers to the budgeted expenditure level for each of the variable cost items adjusted to the level of activity actually achieved. This concept is crucial for adjusting budgetary figures based on actual performance.
A flexible budget adjusts budgeted income and expenditure based on changing circumstances and actual activity levels, allowing for a more accurate financial planning and performance measurement.
A functional budget is a financial or quantitative statement prepared for a specific function of an organization. It summarizes the policies and the expected level of performance to be achieved by that function over a budget period.
In state and local governments, 'General Revenue' refers to the total revenue received, excluding revenue from utilities, sales of alcoholic beverages, and insurance trusts.
An income standard in standard costing refers to the predetermined level of income expected to be generated by an item to be sold. It is often applied to a budgeted quantity to determine the budgeted revenue.
A job cost sheet is a detailed record of the budgeted or actual costs of materials and labor required to produce a specific product. It plays a critical role in job costing systems used primarily in manufacturing.
Level debt service is a provision in a municipal charter stipulating that payments on municipal debt be approximately equal every year, making it easier to project the amount of tax revenue needed to meet obligations.
A linear cost function captures cost behavior that, when plotted on a graph against activity levels, results in a straight line. This function simplifies the relationship between costs and activity levels, essential for cost estimation and budgeting in business.
Manufacturing expenses, often referred to as manufacturing costs, encompass all the financial expenditures required to produce goods. These costs are crucial for businesses as they significantly impact pricing, budgeting, and overall profitability.
Marketing Cost Variance refers to the difference between the budgeted marketing costs and the actual marketing costs incurred during a specific period. This metric helps evaluate the efficiency of marketing expenditure and can be either favorable or unfavorable.
The master budget is the final coordinated overall budget for an organization, which includes functional budgets, the capital budget, the cash-flow budget, and the budgeted profit and loss account and balance sheet for a specific period.
The analysis of economic behavior at the level of individual market participants, mainly individual firms or consumers.
In accounting, a normal standard represents an average standard that is used in standard costing. It is set to be applied over a future period during which conditions are expected to remain relatively stable.
An operating budget is a comprehensive financial statement displaying projected revenues and expenses in a business. This budget helps in day-to-day decision-making and ensuring the effective allocation of resources.
Overhead cost absorbed refers to the overhead costs allocated to the actual production during a period, calculated by multiplying actual production by the budgeted overhead absorption rate.
The overhead distribution summary provides an overview of how indirect costs are allocated across various departments or cost centers within an organization. It is a crucial aspect of cost accounting that helps in accurate product costing and budgeting.
The Overhead Efficiency Variance measures the difference between the standard overhead cost allocated based on standard hours and the actual overhead cost incurred based on actual hours worked.
Participative budgeting is a budgeting process where various levels of management are involved in setting the budget. This method aims to boost ownership and accountability, ensuring that performance benchmarks reflect the input of those who are responsible for meeting them.
Personal financial planning software assists users in examining revenue and expenses, comparing actual to budget, monitoring assets and liabilities, conducting goal analysis, investment portfolio analysis, tax planning, and retirement planning.
Planning variance refers to the difference between what was originally planned and what was actually achieved in a project or financial projection. It often serves as an indicator of the effectiveness of the planning process and helps identify areas for improvement.
A budgeting system developed particularly for use in non-profit organizations, such as national and local government. The system is based on the grouping together of activities with common objectives and a long-term plan relating to the objectives of the organization as a whole, which is subdivided into programs. Conventional annual expenditure budgeting procedures are applied within this framework.
A predetermined overhead rate is an estimated rate used to allocate overhead costs to products or job orders before actual costs are known. This rate is usually computed in advance of operations and often covers a fiscal year.
Price variance is a common term in cost accounting that represents the difference between the actual cost of acquiring an asset or service and the budgeted or standard cost. It highlights whether an organization is paying more or less than previously anticipated for a particular expense.
The principal budget factor, also known as the limiting factor or constraint, refers to the element or resource that imposes a limitation on the organization’s budgeting process and overall production capabilities.
Production forecasting is the process of judging how much production is required to meet estimated sales in a particular forecasting period. Considerations include previous sales, the general state of the economy, consumer preferences, and competitive products. Production forecasting decisions affect budgetary and scheduling decisions.
Productivity variance measures the differences between expected and actual output levels and efficiency, helping businesses refine production processes.
In standard costing, the variance consisting of the difference between the standard operating profit budgeted to be made on the items sold and the actual profits made. The analysis of the profit variance into its constituent sales, direct labor, direct material, and overhead variances provides the management of the organization with information regarding the source of the gains and losses compared to the predetermined standard.
Program budgeting is a method of budgeting expenditures to meet programmatic objectives rather than using a line-item basis. It focuses on specific performance objectives and systematically formulates costs for all related functions, providing a clear link between expenditures and outcomes.
A revolving fund is an account or sum of money designed to be replenished to its original balance after use, enabling it to be spent or loaned repeatedly for ongoing financial activities.
A rolling budget, also known as a continuous budget, is a financial planning method that is regularly updated by adding a further budget period, such as a month or a quarter, while concurrently excluding the earliest month or quarter.
Sales Margin Volume Variance, often referred to as Sales Volume Variance, in standard costing, measures the adverse or favorable variance arising from the difference between the actual number of units sold and those budgeted, valued at the standard profit margin.
Sales volume variance is the difference between the budgeted sales quantity and the actual sales quantity, valued at the standard profit per unit or standard contribution margin per unit. It measures the impact of sales volume fluctuation on the financial performance of a business.
Selling Price Variance is a financial metric that measures the difference between the actual selling price of a product and its budgeted or standard selling price, multiplied by the actual number of units sold.
Standard cost refers to the predetermined unit cost of a product or service within a standard costing system. It is used for budgeting, performance evaluation, and cost control by providing a basis for comparison against actual costs.
Under a standard costing system, the standard cost allowance refers to the level of expenditure permitted for variable costs, based on actual levels of activity. It helps in budgeting and controlling costs efficiently.
Standard costing involves assigning a predetermined cost to products or services, which serves as a benchmark for measuring performance and cost control.
A predetermined rate of pay for direct labour operators used for establishing standard direct labour costs in a standard costing system, providing a basis for comparison with actual direct labour rates paid.
In standard costing, the standard cost derived from the standard quantity of materials allowed for the production of a product and the standard direct materials price for the materials specified for that product.
In standard costing, a predetermined price for direct materials used for establishing standard direct materials costs in order to provide a basis for comparison with the actual direct material prices paid.
Standard Marginal Costing involves the determination and control of predetermined standards for marginal costs and income that are used for products and operations, with periodic comparisons to actual outcomes to identify and analyze variances.
The total of all the standard cost allowances for the actual level of activity achieved by an organization. It serves as a benchmark guide to manage and control the costs within an organization.
The standard price is a predetermined cost established for a product or service, commonly used as a benchmark for budgeting, costing, and performance evaluation in manufacturing and other industries.
A static budget is a type of budget that remains unaltered even as the activity levels or revenue and expense volumes change throughout the budget period. It is commonly used for fixed costs and for assessing management performance.
In planning and budgeting, strategic misrepresentation involves knowingly understating costs and overstating benefits to secure project approval. Distinct from optimism bias, it is a deliberate policy often justified as part of the negotiation process.
A term used to describe a person or purchase characterized by being frugal, economical, or sparing. A thrifty buy or product is one where the consumer gets good value for the price.
Variance Analysis identifies the deviations in financial performance by analyzing the differences between planned financial outcomes and actual results, helping organizations make informed decisions and improve their operations.
In certain systems of budgetary control, virement is an agreed practice allowing for the transfer of funds from one part of the budget to another within the financial year. This can help manage projected surpluses and deficits across different budget heads.
Volume variances refer to the differences between the actual volume of sales or production and the expected (budgeted or planned) volume. These variances can be further divided into specific categories like fixed overhead volume variance and sales margin volume variance.
