Deck 13: Budgeting and Standard Cost Systems

Question 1

In preparing flexible budgets,the first step is to identify the fixed and variable components of the various costs and expenses being budgeted.

Answer 1

False

Question 2

The budgeted volume of production is based on the sum of (1)the expected sales volume and (2)the desired ending inventory,less (3)the estimated beginning inventory.

Answer 2

True

Question 3

The first budget to be prepared is usually the sales budget.

Answer 3

True

Question 4

When budget goals are set too tight,the budget becomes less effective for planning and controlling operations.

Question 5

A formal written statement of management's plans for the future,expressed in financial terms,is called a budget.

Question 6

Budgets are normally used by both profit-making businesses and nonprofit organizations.

Question 7

The budgeted volume of production is normally computed as the sum of (1)the expected sales volume and (2)the desired ending inventory.

Question 8

The budget procedure that requires all levels of management to start from zero in estimating sales,production,and other operating data is called zero-based budgeting.

Question 9

The first budget to be prepared is usually the production budget.

Question 10

A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future is called continuous budgeting.

Question 11

Once a static budget has been determined,it is changed regularly as the underlying activity changes.

Question 12

The master budget of a small manufacturer would normally include all necessary component budgets except the capital expenditures budget.

Question 13

If Division Inc.expects to sell 300,000 units in 2015,desires ending inventory of 22,000 units,and has 24,000 units on hand as of the beginning of the year,the budgeted volume of production for 2015 is 298,000 units.

Question 14

If Division Inc.expects to sell 200,000 units in 2015,desires ending inventory of 24,000 units,and has 22,000 units on hand as of the beginning of the year,the budgeted volume of production for 2015 is 198,000 units.

Question 15

Employees view budgeting more positively when goals are established for them by senior management.

Question 16

The budgeted direct materials purchases are based on the sum of (1)the materials needed for production and (2)the desired ending materials inventory,less (3)the estimated beginning materials inventory.

Question 17

Goal conflict can be avoided if budget goals are carefully designed for consistency across all areas of the organization.

Question 18

Flexible budgeting builds the effect of changes in level of activity into the budget system.

Question 19

The master budget of a small manufacturer would normally include all component budgets that impact the financial statements.

Question 20

Budgetary slack can be avoided if lower and mid-level managers are requested to support all of their spending requirements with specific operational plans.

Question 21

Financial reporting systems that are guided by the principle of exceptions concept focus attention on variances from standard costs.

Question 22

As a device for measuring efficiency,standard cost systems enables management to determine the causes of differences between what a product should cost and how much it actually costs to produce.

Question 23

Standard costs serve as a device for measuring efficiency.

Question 24

The cash budget summarizes future plans for acquisition of fixed assets.

Question 25

The standard cost is a detailed estimate of how much a product should cost.

Question 26

Supervisor salaries and indirect factory wages would normally appear in the direct labor cost budget.

Question 27

The budgeted direct materials purchases are normally computed as the sum of (1)the materials for production and (2)the desired beginning inventory.

Question 28

The cash budget presents the expected inflow and outflow of cash for a specified period of time.

Question 29

Supervisor salaries,maintenance,and indirect factory wages would normally appear in the selling and administrative expenses budget.

Question 30

The sales budget is the starting point for preparation of the direct labor cost budget.

Question 31

A variable cost system is an accounting system where standards are set for each manufacturing cost element.

Question 32

The capital expenditure budget summarizes future plans for acquisition of fixed assets.

Question 33

Normally standard costs should be revised when labor rates change to incorporate new union contracts.

Question 34

The fact that workers are unable to meet a properly determined direct labor standard is sufficient cause to change the standard.

Question 35

The production budget is the starting point for preparation of the direct labor cost budget.

Question 36

Currently attainable standards allow for unreasonable production difficulties.

Question 37

Supervisor salaries,maintenance,and indirect factory wages would normally appear in the factory overhead cost budget.

Question 38

Ideal standards are developed under conditions that assume no idle time,no machine breakdowns,and no materials spoilage.

Question 39

In most businesses,cost standards are established principally by accountants.

Question 40

Standard costs should be revised when they differ from actual costs.

Question 41

Using a standard costing system for nonmanufacturing expenses is easily administered because the expenses generally relate to a repetitive,measurable output.

Question 42

A budget performance report compares actual results with the budgeted amounts and reports differences for possible investigation.

Question 43

The difference between the standard cost of a product and its actual cost is called a variance.

Question 44

A favorable cost variance occurs when actual cost is less than budgeted cost at actual volumes.

Question 45

Changes in technology,machinery,or production methods may make past cost data irrelevant for future operations.

Question 46

An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost.

Question 47

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12,the direct materials price variance was $800 favorable.

Question 48

Standards are designed to evaluate price and quantity variances separately.

Question 49

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12,the direct materials quantity variance was $2,200 favorable.

Question 50

The direct labor time variance measures the efficiency of the direct labor force.

Question 51

If the standard to produce a given amount of product is 500 direct labor hours at $15 and the actual was 600 hours at $17,the time variance was $1,500 favorable.

Question 52

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12,the direct materials price variance was $1,000 favorable.

Question 53

The difference between the budgeted fixed overhead at 100% of normal capacity and the standard fixed cost for the actual units produced is termed volume variance.

Question 54

If the standard to produce a given amount of product is 900 units of direct materials at $11 and the actual was 800 units at $12,the direct materials quantity variance was $1,100 unfavorable.

Question 55

Nonmanufacturing activities are usually controlled using a static budget rather than a standard costing system.

Question 56

The difference between the actual amount of variable factory overhead cost incurred and the amount of variable factory overhead budgeted for the standard product is termed as variable factory overhead controllable variance.

Question 57

If the standard to produce a given amount of product is 2,000 units of direct materials at $12 and the actual was 1,600 units at $13,the direct materials quantity variance was $4,800 favorable.

Question 58

If the standard to produce a given amount of product is 600 direct labor hours at $17 and the actual was 500 hours at $15,the direct labor time variance was $1,700 favorable.

Question 59

If the standard to produce a given amount of product is 500 direct labor hours at $15 and the actual was 600 hours at $17,the rate variance was $1,200 favorable.

Question 60

Standards are more widely used for nonmanufacturing expenses than for manufacturing costs.

Question 61

Since the controllable variance measures the efficiency of using variable overhead resources,if budgeted variable overhead exceeds actual results,the variance is favorable.

Question 62

If the standard to produce certain quantity of product is 16,000 hours at a factory overhead rate of $5 ($3 fixed,$2 variable),actual variable factory overhead is $26,400,actual fixed factory overhead is $45,000,and 100% of productive capacity is 15,000 hours,the volume variance is $3,000 favorable.

Question 63

A disadvantage of static budgets is that they:

A)start with a clean slate.
B)cannot be used by service companies.
C)do not show possible changes in underlying activity levels.
D)show the expected results of a responsibility center for several levels of activity.

Question 64

The process of developing budget estimates by requiring all levels of management to estimate sales,production,and other operating data as though operations were being initiated for the first time is referred to as:

A)flexible budgeting.
B)continuous budgeting.
C)zero-based budgeting.
D)master budgeting.

Question 65

If the standard to produce a given amount of product is 12,000 hours at a factory overhead rate of $5 ($3 fixed,$2 variable),actual variable factory overhead was $26,400,actual fixed factory overhead was $45,000,and 100% of productive capacity is 15,000 hours,the volume variance was $9,000 favorable.

Question 66

Department managers plan lower goals than possible in order to build in a cushion for unexpected events.This result in:

A)budgetary slack.
B)zero-based budgeting.
C)goal conflict.
D)flexible budgeting.

Question 67

Which of the following are the principal components of a master budget?

A)Production budget
B)Sales budget
C)Capital expenditures budget
D)All of these

Question 68

Microgen Company static budget for 12,000 units of production includes $48,000 for direct materials,$36,000 for direct labor,utilities of $6,000,and supervisor salaries of $18,000.A flexible budget for 14,000 units of production would show:

A)the same cost structure in total.
B)direct materials of $56,000,direct labor of $42,000,utilities of $7,000,and supervisor salaries of $18,000.
C)total variable costs of $126,800.
D)direct materials of $50,000,direct labor of $37,500,utilities of $6,250,and supervisor salaries of $21,000.

Question 69

The first budget customarily prepared as part of an entity's master budget is the:

A)production budget.
B)cash budget.
C)sales budget.
D)direct materials purchases.

Question 70

The most effective means of presenting standard factory overhead cost variance data is through a factory overhead cost variance report.

Question 71

The most effective means of presenting standard factory overhead cost variance data is through a selling overhead cost budget.

Question 72

Which of the following budgets is prepared using the production budget?

A)Selling and administrative expenses
B)Direct materials purchases
C)Sales
D)Capital expenditures

Question 73

Refer to the information provided for Octofic Cans Inc.Budgeted sales for the month are:

A)$97,550.
B)$123,000.
C)$82,750.
D)$81,550.

Question 74

For February,sales revenue is $300,000; sales commissions are 5% of sales; the sales manager's salary is $40,000; advertising expenses are $13,000; shipping expenses total 1% of sales; and miscellaneous selling expenses are $1,100 plus 1/2 of 1% of sales.Total selling expenses for the month of February are:

A)$71,000.
B)$55,000.
C)$58,600.
D)$73,600.

Question 75

Refer to the information provided for Octofic Cans Inc.Budgeted production for aluminum cans during the month is:

A)383,000 units.
B)508,000 units.
C)502,000 units.
D)532,000 units.

Question 76

A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at all times is termed:

A)flexible budgeting.
B)master budgeting.
C)zero-based budgeting.
D)continuous budgeting.

Question 77

The budget process involves all of the following except:

A)establishing specific goals.
B)executing plans to achieve the goals.
C)periodically comparing actual results with the goals.
D)dismissing all managers who fail to achieve operational goals specified in the budget.

Question 78

A series of budgets for varying rates of activity is termed a(n):

A)flexible budget.
B)variable budget.
C)master budget.
D)activity budget.

Question 79

An unfavorable volume variance may be due to a failure of supervisors to maintain an even flow of work.

Question 80

Favorable volume variances are never harmful since achieving them encourages managers to run the factory above normal capacity.