Deck 8: Budgetary Control and Variance Analysis

Question 1

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

Answer 1

False

Question 2

Total Profit Variance = Actual Profit - Master Budget Profit.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

Small variances probably indicate random factors at work while large variances could signal a permanent change in the operating environment.

Question 5

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

Question 6

If sales volume exceeds expectations, actual profit will always be higher than budgeted profit.

Question 7

The primary limitations of variance analysis pertain to relevance and feedback.

Question 8

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.

Question 9

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.

Question 10

A good plan is the foundation for effective control.

Question 11

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

Question 12

The input quantity variance is also referred to as the input efficiency variance because it captures the efficiency of input resource use.

Question 13

If a materials input price is higher than budgeted, the result is an unfavorable materials efficiency variance.

Question 14

Many firms use process control charts and statistical control methods to help employees track performance on a real-time basis.

Question 15

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

Question 16

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

Question 17

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.

Question 18

For most organizations, a budget is the benchmark for evaluating actual performance.

Question 19

Sales Volume Variance = (Actual Sales Quantity - Budgeted Sales Quantity) x Actual Unit Contribution Margin

Question 20

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

Question 21

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

A)Sales volume variance.
B)Flexible budget variance.
C)Sales price variance.
D)Market size and share variance.
E)All of the above are components of the total profit variance.

Question 22

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:

A)$19,200
B)$60,000
C)$52,800
D)$72,000

Question 23

Jackie's Jewelry Company reported the following budgeted and actual results based on sales of 100 units of product: $\begin{array}{llll}&\text { Flexible Budget }&\text { "As if" Budget }&\text { Actual Results }\\\text { Direct Labor } & \$ 800 & \$ 700 & \$ 850 \\\text { Direct Materials } & \$ 400 & \$ 450 & \$ 450 \\\text { Overhead } & \$ 600 & \$ 600 & \$ 610\end{array}$ The company's total input quantity variance is:

A)$50 favorable.
B)$160 unfavorable.
C)$150 favorable.
D)$50 unfavorable.

Question 24

If the labor efficiency variance is $1,000unfavorable, then:

A)Budgeted labor rate exceeded actual labor rate.
B)Actual labor rate exceeded budgeted labor rate.
C)Budgeted labor input exceeded actual labor input.
D)Actual labor input exceeded budgeted labor input.
E)None of the above.

Question 25

The formula for the sales volume variance is:

A)(Actual Sales Quantity - Budgeted Sales Quantity) x Actual Unit Contribution Margin
B)(Budgeted Sales Quantity - Actual Sales Quantity) x Total Profit Variance
C)Flexible Budget Profit - Master Budget Profit.
D)(Budgeted Sales Quantity - Actual Sales Quantity) ÷ Total Profit Variance
E)(Actual Sales Quantity - Budgeted Sales Quantity) ÷ Actual Unit Contribution Margin

Question 26

PVC Pro produces PVC pipe in 12 foot lengths.The following information was provided concerning its labor and materials $$\begin{array} { | l | c | } \hline { \text { Actual Data } } \\\hline \text { Produced } & 12,200 \text { units } \\\hline \text { Materials used } & \text { 4,650 lbs. @ \$7.00 per pound } \\\hline \text { Labor worked } & 7,450 \text { hrs. costing \$80,460 } \\\hline\end{array}$$ $$\begin{array} { | l | r | } \hline { \text { Budget Data } } \\\hline \text { Budgeted units } & 12,000 \text { units } \\\hline \text { Budgeted materials per pipe } & 0.40 \mathrm { lb } . \mid @ \$ 7.10 \text { per pound } \\\hline \text { Budgeted labor per pipe } & 0.60 \text { hours @ } \$ 11.00 \text { per hour } \\\hline\end{array}$$
How much is the materials price variance?

A)$1,530 F
B)$465 F
C)$1,050 F
D)$1,065 F

Question 27

The formula for calculating an input price variance is:

A)(Actual volume less budgeted volume) x actual price.
B)(Budgeted volume less actual volume) x budgeted price.
C)(Budgeted price less actual price) x actual volume.
D)(Actual price less budgeted price) x budgeted volume,

Question 28

A favorable materials price variance will occur when:

A)Actual costs of materials were less than budgeted
B)More material was used than was budgeted
C)Actual cost of materials were greater than budgeted
D)Less material was used than was budgeted

Question 29

The two major components of the total profit variance are:

A)Sales volume variance and flexible budget variance.
B)Price variance and quantity variance.
C)Sales volume variance and sales mix variance.
D)Flexible budget variance and quantity variance.
E)None of the above.

Question 30

The starting point for preparing a monthly budget is:

A)Projecting sales.
B)Projecting production.
C)Projecting cash inflows.
D)Projecting cash outflows.
E)Projecting material needs.

Question 31

The purpose of creating a flexible budget is to:

A)Determine how much of the difference between actual and budgeted profits was due strictly to the difference between budgeted and actual sales.
B)Determine how much of the difference between actual and budgeted profits was due strictly to the difference between budgeted and actual variable costs.
C)Determine how much of the difference between actual and budgeted profits was due strictly to the difference between budgeted and actual fixed costs.
D)Determine which department is responsible for the overall budget variance.

Question 32

Sales commissions for the Grant Company are budgeted based on a percent of sales.The sales department budgeted sales of $150,000 for total commissions of $4,500.If actual sales totaled $170,000 the flexible budget will show total commissions of:

A)$24,500
B)$5,100
C)$4,500
D)$15,500

Question 33

The following material budgets have been developed for the Criders Company. $\begin{array}{ll}\text { Price per pound } & \$ 6.50 \\\text { Pounds per unit } & 1 \\\text { Purchase price variance } & \$ 3,200 \text { unfavorable }\end{array}$ If the company purchased 16,000 units, the actual price per pound of material purchased must have been:

A)$6.70
B)$5.00
C)$6.30
D)$5.80

Question 34

Variance analysis is an important tool because:

A)It helps management determine where bottlenecks in the production process occurred
B)It helps management determine better pricing strategies
C)It helps management determine why actual profits varied from budgeted profits
D)It helps management determine which department operated most efficiently.

Question 35

Which of the following statements is not true?

A)If actual sales are greater than budgeted sales, the result is a favorable variance.
B)If actual cost is greater than budgeted cost, the result is an unfavorable variance.
C)If budgeted sales are greater than actual sales, the result is an unfavorable variance.
D)If budgeted cost is greater than actual cost, the result is an unfavorable variance.
E)If actual cost is less than budgeted cost, the result is a favorable variance.

Question 36

For what purpose is a flexible budget used?

A)To provide various possible outcomes for management to consider.
B)To adjust input prices so that future variances are eliminated.
C)To insure that profit does not drop below a predetermined level.
D)To identify the sources of variances.

Question 37

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)Coordination
B)Control
C)Variances
D)Planning

Question 38

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.

Question 39

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

A)$2,000 Favorable.
B)$2,000 Unfavorable.
C)$10,000 Unfavorable.
D)$10,000 Favorable.
E)$5,000 Favorable.

Question 40

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

A)A machine breaks down.
B)Budgets are set in a manner making them difficult to achieve.
C)A supplier raises prices.
D)The Chief Executive Officer takes a week of vacation.

Question 41

In comparison to financial measures, nonfinancial measures tend to be?

A)Less timely, less specific.
B)More timely, less specific.
C)Less timely, more specific.
D)More timely, more specific.

Question 42

Given the following data, what is the sales mix variance for Rizzo Company? $$\begin{array} { l r } \text { Actual total sales } & \$ 7,475 \\\text { Budgeted total sales } & \$ 7,500 \\\text { Weighted unit contribution margin in the flexible budget } & \$ 12 \\\text { Weighted unit contribution margin in the master budget } & \$ 8\end{array}$$

A)200 Favorable.
B)200 Unfavorable.
C)29,900 Favorable.
D)29,900 Unfavorable.
E)300 Unfavorable.

Question 43

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.

Question 44

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.

Question 45

A company may experience a favorable labor rate variance but an unfavorable labor efficiency variance when:

A)Sales lagged behind the budgeted amounts of the sales department.
B)There were breakdowns in machinery.
C)The product mix changed during the period.
D)The company experienced a high amount of turnover in its workforce.

Question 46

The Parsons Company has budgeted to capture 25% of the market in which they operate which currently contains 1,000 stores.The budgeted contribution margin per unit sold is $4.50.If they were actually able to capture only 20% of the market, but their actual contribution margin was $5.00 per unit, their market share variance was:

A)$250 favorable
B)$225 unfavorable
C)$250 unfavorable
D)$225 favorable

Question 47

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.

Question 48

A spending variance results when there is a difference between actual and budgeted:

A)Fixed costs
B)Variable costs
C)Sales Revenue
D)Unit sales

Question 49

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

A)Adjust budgeted amounts to agree with actual amounts.
B)Investigate all significant variances, whether favorable or unfavorable.
C)Examine trends.
D)Consider the total picture.
E)All of the above are general rules to follow.

Question 50

A sales mix variance:

A)If unfavorable, indicates that a greater percentage of products with higher contribution margins are being sold than were budgeted.
B)Indicates which products are having a negative impact on profits.
C)Reports the effect on profits due to a change in the sales mix from the master budget.
D)Reports the effect on profits due to an overall change in sales quantity.

Question 51

Firms use non-financial measures to:

A)Identify problems with their processes.
B)Help align goals.
C)Provide on-going feedback to employees.
D)Evaluate employees.
E)All of the above.

Question 52

Cico Buckets had budgeted unit sales of 41,600 buckets.Actual sales during May totaled 42,000 buckets at $4.25 per bucket.Its budgeted sales price was $4.00 per bucket.The master budget contribution margin totaled $62,400 and the budgeted variable cost per unit was $2.50.How much is Haslo's sales volume variance?

A)$600 F
B)$100 F
C)$1,600 F
D)$1,700 F

Question 53

Thurston Company's budget allows for one pound of material to be used for each unit produced.The budget indicates that the material costs $2.50 per pound.Actual units produced totaled 8,000.The company used a total of 8,200 pounds of material at an actual cost of $2.40 per pound.There were no beginning or ending inventories of raw materials.The input price and input quantity variances, respectively, would be:

Question 54

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.