Exam 8: Budgetary Control and Variance Analysis

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.

Any profit difference between the master and flexible budgets is due solely to the difference between budgeted and actual sales.

Which of the following is not a general rule to follow in a variance investigation?

The Farmington Company has a flexible budget based on direct labor hours.At the 100,000 hours level, the budget shows the following variable overhead costs: Indirect materials $\quad$ $ 16,000 Indirect labor $\quad$$\quad$ $ 44,000 At an activity level of 120,000 hours, total variable costs will be:

Variance analysis is an important tool because:

The controller for Navia, Inc.created a budget prior to the current period.At the end of the period, the controller compared the budget with the actual results.For what purpose is the controller using budgets?

A sales mix variance:

Cost variance analysis in a single-product company differs significantly from a multi-product company.

Given the following data, calculate total profit variance. Master Budget Actual Results Revenue \ 73,000 \ 75,000 Variable costs \ 23,000 \ 20,000 Contribution marg in \ 50,000 \ 55,000 Fixed costs \ 15,000 \ 10,000 Profit before taxes \ 35,000 \ 45,000

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

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

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.

Cheaper ingredients lead to a favorable price variance, but also may lead to unfavorable quantity variances.

Which of the following trends in variances may not indicate an inherent problem?