Exam 8: Budgetary Control and Variance Analysis

Which of the following items would differ in amount when comparing the master and flexible budgets for a freight company in which actual sales resulted in $2,500,000 based on 8,000 shipments during a period that 7,800 shipments were budgeted? a. Total sales revenue. B) Equipment costs. C) Rent. D) All of the above will differ.

Variances could arise: a. During the normal course of operations because a machine unexpectedly breaks down. B) Because of a permanent change in the firm's operating environment such as a competitor introduces a new product. C) Because budgets or standards are either too tight or too loose. D) Both A and B) e. A, B, and C)

Variance analysis is an important tool because:

The lack of timeliness and specificity in financial variances force organizations to use primarily non-financial controls to ensure that they are meeting organizational objectives.

A variance is the difference between a budgeted amount and a forecasted amount.

Which of the following would lead to a variance resulting from a permanent change in a firm's operating environment? a. An abnormally high incidence of employees calling in sick during a period. B) A new competitor entering the market. C) Upper-level management failing to consult lower level workers and instituting extremely tight budgetary controls. D) A critical machine unexpectedly breaking down for a number of days.

The primary limitations of variance analysis pertain to a. Controllability and budgeting. B) Timeliness and specificity. C) Timeliness and controllability. D) Controllability and specificity. E) Budgeting and controllability.

In a process control chart, observations outside the control limits are likely due to random fluctuations.

In general, financial controls are more useful for evaluating managers at higher levels in an organizational hierarchy, while non financial controls are more useful in monitoring and evaluating employees at lower levels.

Variance analysis is a technique used for determining the profit effect due to differences between the actual and budgeted size of the market for a product.

A favorable materials price variance will occur when:

Which of the following is a method firms used to help track employee performance on a real-time basis? a. Budget reconciliation report. B) Process control charts. C) Labor efficiency variance. D) Spending variance. E) None of the above.

Which of the following would not result in a variance from budget:

Jackie's Jewelry Company reported the following budgeted and actual results based on sales of 100 units of product: The company's total input quantity variance is:

Which of the following statements is not true?

Given the following data, what is the sales mix variance for Rizzo Company? a. 200 Favorable. B) 200 Unfavorable. C) 29,900 Favorable. D) 29,900 Unfavorable. E) 300 Unfavorable.

Which of the following trends in variances may not indicate an inherent problem? a. Marketing personnel overstating costs to give themselves additional leeway in operations. B) Repeatedly having unfavorable labor efficiency variances. C) An unexpected increase in demand. D) A developing problem in the manufacturing process. E) Finding mostly favorable variances over time.

A budget reconciliation is a report that uses variances to reconcile the difference between master budget profit and actual profit.

Which of the following is not a component of the total profit variance?

Variance analysis may be performed to isolate the profit impact of individual input and output factors.