Deck 8: Flexible Budgets and Variance Analysis

Question 1

If actual expenses are less than expected expenses,the expense variance will be unfavorable.

Answer 1

False

Question 2

Differences between actual results and the static budget at the original planned level of output are ________ variances.

A)flexible budget
B)financial budget
C)operating budget
D)static budget

Answer 2

D

Question 3

Today Company has the following information: Assume the cost driver of product costs is units of production.What is the flexible budget variance for operating income?

A)$5,000 Unfavorable
B)$11,000 Unfavorable
C)$16,000 Unfavorable
D)$16,000 Favorable

Answer 3

C

Question 4

A static budget is prepared for one expected level of activity.

Question 5

The type of budget that serves as the original benchmark for evaluating performance is called a ________ budget.

A)strategic
B)long-range
C)flexible
D)static

Question 6

Flexible budget variances are more useful for evaluating ________ than static budget variances.

A)fixed costs
B)variable costs
C)mixed costs
D)step costs

Question 7

A budget prepared for one expected level of activity is called a ________.

A)flexible budget
B)static budget
C)variable budget
D)rolling budget

Question 8

Tomorrow Company has the following information available: The cost driver of product costs is units of output.What is the static budget variance for direct material costs?

A)$20,000 Unfavorable
B)$20,000 Favorable
C)$60,000 Favorable
D)$60,000 Unfavorable

Question 9

The static budget variance is the difference between actual results and the static budget.

Question 10

Jeff Olson Company has the following information available: The cost driver of product costs is units of output.What is the flexible budget variance for direct material costs?

A)$20,000 Unfavorable
B)$20,000 Favorable
C)$60,000 Favorable
D)$60,000 Unfavorable

Question 11

Farmers Insurance Company had a static budgeted operating income of $8.6 million.Actual operating income was $6.4 million.What is the static-budget variance of operating income?

A)$2.2 million Favorable
B)$2.2 million Unfavorable
C)$6.4 million Favorable
D)$8.6 million Unfavorable

Question 12

A budget prepared for different levels of activity is called a ________.

A)rolling budget
B)operating budget
C)flexible budget
D)static budget

Question 13

An example of a favorable variance is ________.

A)actual revenues are less than expected revenues
B)actual expenses are less than expected expenses
C)actual material prices are greater than expected material prices
D)expected labor costs are less than actual labor costs

Question 14

Yesterday Company has the following information: Assume units of output is the cost driver for product costs.What is the static budget variance for operating income?

A)$11,000 Unfavorable
B)$12,000 Unfavorable
C)$23,000 Unfavorable
D)$23,000 Favorable

Question 15

For the current year,John Company's static budget sales were $225,000.Actual sales for the current year were $220,000.Actual sales last year were $219,000.Expected sales last year were $225,000.What is the static budget variance for sales in the current year?

A)$5,000 Favorable
B)$5,000 Unfavorable
C)$6,000 Favorable
D)$6,000 Unfavorable

Question 16

A budget that can be changed to reflect different levels of activity is called a ________ budget.

A)rolling
B)continuous
C)flexible
D)static

Question 17

Differences between the actual results and the flexible budget at the actual level of output achieved are ________ variances.

A)static budget
B)activity budget
C)flexible budget
D)operating budget

Question 18

The static budget is based on the ________ level of output and the flexible budget is based on the ________ level of output.

A)actual; expected
B)expected; actual
C)expected; planned
D)actual; projected

Question 19

A variance is the difference between ________.

A)a budgeted amount and a benchmark amount
B)the required number of inputs for the number of outputs
C)an actual amount and a budgeted amount
D)a budgeted amount and a standard amount

Question 20

An unfavorable static budget variance for operating income may be due to ________ or ________.

A)unfavorable revenue variance; unfavorable cost variance
B)unfavorable revenue variance; favorable cost variance
C)favorable revenue variance; unfavorable cost variance
D)all of the above

Question 21

A company that has an activity-based costing system with multiple cost drivers will prepare a(n)________ budget.

A)financial planning
B)short-range planning
C)activity-based flexible
D)strategic

Question 22

When should a company use an activity-based flexible budget with multiple cost drivers instead of a simple flexible budget with one cost driver?

A)when a significant portion of costs vary with only one cost driver
B)when a significant portion of costs vary with the number of units of output
C)when a significant portion of costs vary with the number of units of sales
D)when a significant portion of costs vary with several different cost drivers

Question 23

When preparing a flexible budget income statement,________ costs are constant at different levels of activity.

A)variable
B)step
C)contributed
D)fixed

Question 24

The Footy Company currently produces sandals in an automated process.Expected production per month is 20,000 units.The required direct materials cost is $1.50 per unit.Fixed overhead costs are $30,000 per month.The cost driver is units of production.What is the expected manufacturing cost of 15,000 units for one month?

A)$22,500
B)$45,000
C)$52,500
D)$88,000

Question 25

Divine Intervention Company uses activity-based costing.The company is trying to estimate the costs of the processing activity in the factory.The company has developed the following flexible budget formula: Y = $10.50X + $13,000
Where: Y = Total processing cost per quarter and X = Number of machine hours
What are the expected total processing costs if 10,000 machine hours are expected next quarter?

A)$13,000
B)$105,000
C)$113,000
D)$118,000

Question 26

To calculate the numbers in a flexible budget,managers use ________.

A)cost functions developed from regression analysis
B)flexible budget formulas
C)cost functions obtained from the high-low method
D)all of the above

Question 27

A flexible budget is different from a variable budget.

Question 28

Which of the following statements is FALSE?

A)Flexible budgets are prepared for a range of activity.
B)Flexible budgets are matched to actual levels of activity.
C)Flexible budgets facilitate management by exception.
D)Flexible budgets are based on different assumptions about cost behavior than those used for static budgets.

Question 29

Fill in the blanks to complete the flexible budget for Meier Company.
Variable costs:
Fixed costs:

Question 30

A static budget has multiple levels of activity.

Question 31

Round Company currently produces cardboard boxes in an automated process.Expected production per month is 40,000 units.The required direct materials cost $0.30 per unit.Manufacturing fixed overhead costs are $24,000 per month.The cost driver for manufacturing fixed overhead costs is units of production.In a flexible budget at 20,000 units,the total fixed cost is ________ per month and the total variable cost is ________ per month.

A)$24,000; $6,000
B)$24,000; $12,000
C)$12,000; $6,000
D)$12,000; $12,000

Question 32

Flat Company currently produces cardboard boxes in an automated process.Expected production per month is 40,000 units.The required direct materials cost $0.30 per unit.Manufacturing fixed overhead costs are $24,000 per month.The cost driver for manufacturing fixed overhead costs is units of production.In a static budget at 40,000 units,the total fixed cost is ________ per month and the total variable cost is ________ per month.

A)$24,000; $6,000
B)$24,000; $12,000
C)$12,000; $6,000
D)$12,000; $12,000

Question 33

Bond Company has depreciation expense of $63,000 at a production level of 21,000 units.If the production level is 15,000 units,what is the total depreciation expense?

A)$45,000
B)$60,000
C)$63,000
D)$65,000

Question 34

Orange Company had the following information available: Expected Costs and Selling Price Based on 5,000 units:
In the flexible budget at 10,000 units,what is the total manufacturing cost?

A)$250,000
B)$420,000
C)$520,000
D)$700,000

Question 35

Hut Company's variable selling and administrative expenses are $48,000 at a production level of 6,000 units.If the production level is 8,000 units,what are the variable selling administrative expenses?

A)$48,000
B)$56,000
C)$64,000
D)$80,000

Question 36

A favorable expense variance is when budgeted expenses are less than actual expenses.

Question 37

Red Company had the following information available: Expected Costs and Selling Price Based on 5,000 Units:
In the flexible budget at 15,000 units,what is the total manufacturing cost?

A)$480,000
B)$580,000
C)$680,000
D)$780,000

Question 38

Differentiate between a static budget variance and a flexible budget variance.

Question 39

A flexible budget adjusts for changes in sales volume and other cost-driver activities.

Question 40

Use the following data to prepare a flexible budget for possible production levels of 5,000,5,500 and 6,000 units.Assume all levels of production are in the same relevant range.
Variable costs:
Fixed costs(at 5,000 units):

Question 41

Which is NOT a reason for a static budget variance?

A)Actual sales volume was higher than projected sales volume.
B)Actual variable costs per unit were higher than expected variable costs per unit.
C)Actual fixed costs per unit were higher than expected fixed costs per unit.
D)Actual sales volume in current period was higher than projected sales volume in last period.

Question 42

Unfavorable activity level variances are due to ________.

A)planned costs exceeding actual costs
B)actual costs exceeding planned costs
C)planned output exceeding actual output
D)actual output exceeding planned output

Question 43

If the flexible budget variance was $6,000 Favorable and the sales activity variance was $3,000 Favorable,then the static budget variance was ________.

A)$3,000 Favorable
B)$3,000 Unfavorable
C)$9,000 Favorable
D)$9,000 Unfavorable

Question 44

The static budget variance equals the ________ variance plus the ________ variance.

A)flexible budget; activity-level
B)flexible budget; variable budget
C)variable budget; fixed budget
D)sales activity; strategic budget

Question 45

Stein Company planned to produce 12,000 units.This level of production required 20 setups at a cost of $18,000 plus $500 per setup.Actual production was 10,000 units,requiring 15 setups.Actual setup cost was $26,000.What is the flexible budget variance for setup costs?

A)$500 Favorable
B)$500 Unfavorable
C)$2,000 Favorable
D)$2,000 Unfavorable

Question 46

Effectiveness is indicated by the ________ variances.

A)sales activity
B)static budget
C)flexible budget
D)price

Question 47

When a firm meets a sales goal,it is said to be ________.When a firm incurs more direct material costs to manufacture products than expected,the firm is said to be ________.

A)effective; ineffective
B)efficient; inefficient
C)effective; inefficient
D)efficient; ineffective

Question 48

Ben Company planned to produce 12,000 units.This level of production required 20 setups at a cost of $18,000 plus $500 per setup.Actual production was 10,000 units,requiring 15 setups.Actual setup cost was $26,000.What is the static budget variance for setup costs?

A)$2,000 Favorable
B)$2,000 Unfavorable
C)$2,500 Favorable
D)$2,500 Unfavorable

Question 49

Blue Company planned to sell 35,000 units.Actual sales were 30,000 units.Based on this information,Blue Company was ________.

A)efficient
B)inefficient
C)effective
D)ineffective

Question 50

Efficiency is indicated by the ________ variances.

A)sales activity
B)static budget
C)flexible budget
D)strategic budget

Question 51

Priestly Company uses activity-based costing.The company is trying to estimate the costs of the processing activity in the factory.The company has developed the following flexible budget formula: Y = $10.50X + $13,000
Where: Y = Total processing cost per quarter and X = Number of machine hours
If 10,000 machine hours are used next quarter,total variable costs are ________ and total fixed costs are ________.

A)$105,000; $13,000
B)$105,000; $130,000,000
C)$113,000; $130,000,000
D)$10.50; $13,000

Question 52

Black Company planned to produce and sell 900 units at a total cost of $180,000.Actual production and sales were 900 units at a cost of $170,000.Black Company was ________.

A)efficient and ineffective
B)inefficient and ineffective
C)inefficient and effective
D)efficient and effective

Question 53

Actual results may differ from the static budget numbers because ________.

A)actual output levels were not the same as in the static budget
B)actual variable costs were higher than expected variable costs
C)actual fixed costs were higher than expected fixed costs
D)all of the above

Question 54

Pizza Company planned to produce 12,000 units.This level of activity required 40 setups at a cost of $18,000 plus $500 per setup.Actual production was 10,000 units,requiring 15 setups.Actual setup cost was $26,000.What is the static budget amount for total setup costs?

A)$21,000
B)$25,500
C)$26,000
D)$38,000

Question 55

If the sales activity variance was $8,000 Favorable and the static budget variance was $10,000 Favorable,then the flexible budget variance was ________.

A)$2,000 Favorable
B)$2,000 Unfavorable
C)$18,000 Favorable
D)$18,000 Unfavorable

Question 56

Unfavorable flexible budget variances result from ________.

A)actual costs exceeding planned costs
B)planned costs exceeding actual costs
C)actual output exceeding planned output
D)planned output exceeding actual output

Question 57

________ is the degree to which an organization minimizes the ________ used to achieve an objective.

A)Efficiency; costs
B)Efficiency; resources
C)Effectiveness; resources
D)Effectiveness; costs

Question 58

Puppy Company planned to produce 12,000 units.This level of activity required 20 setups at a cost of $22,000 plus $500 per setup.Actual production was 10,000 units,requiring 15 setups.Actual setup cost was $26,000.At 10,000 units,what is the flexible budget amount for total setup costs?

A)$7,500
B)$22,000
C)$26,000
D)$29,500

Question 59

An activity-based flexible budget is based on budgeted costs for every activity using the related cost driver.

Question 60

The difference between static budget amounts and flexible budget amounts are ________.The difference between flexible budget amounts and actual results are ________.

A)static variances; flexible budget variances
B)master variances; flexible budget variances
C)quantity variances; static budget variances
D)activity level variances; flexible budget variances

Question 61

By using a flexible budget,changes in activity level cannot cause any variances between the flexible budget and actual results.

Question 62

Unfavorable flexible budget variances for costs do not necessarily mean that costs are mismanaged if ________.

A)actual wage rate increases for labor union workers are not reflected in standard wage rates
B)high quality materials were used to reduce waste
C)high quality materials were used to increase product quality
D)all of the above

Question 63

Total static budget variances are equal to the sum of activity-level variances and flexible budget variances.

Question 64

Which statement about "currently attainable standards" is FALSE?

A)They allow for normal spoilage and nonproductive time.
B)They represent projections of what will probably be attained.
C)Employees usually view these standards as reasonable.
D)Because they allow for waste,they usually result in favorable variances.

Question 65

Which of the following is NOT an example of efficient performance?

A)Direct labor hours used per unit were less than expected.
B)Direct material used per unit was less than expected.
C)More outputs were achieved with less inputs than predicted.
D)More outputs were produced than expected.

Question 66

As the terms are used in the budgeting process,it is possible for a company to be efficient at the same time it is ineffective.

Question 67

Favorable flexible budget variances for costs may indicate that costs are well-managed.On the other hand,these same variances can indicate ________.

A)the company is spending too little for vital activities,such as maintenance of machines.
B)the company is cutting costs to drive up profits in the short run.
C)the company is cutting back on benefits offered to customers and employees.
D)all of the above

Question 68

The following data are for Point Corporation: The flexible budget variance for operating income is ________.

A)$2,000 Favorable
B)$2,000 Unfavorable
C)$14,000 Favorable
D)$14,000 Unfavorable

Question 69

Flexible budget variances are designed to measure the ________.

A)effectiveness of operations at an expected level of activity
B)effectiveness of operations at an actual level of activity
C)efficiency of operations at an expected level of activity
D)efficiency of operations at an actual level of activity

Question 70

Favorable variances do not require investigation.

Question 71

Efficiency is the degree to which a goal or objective is met.

Question 72

Favorable flexible budget variances are always good news.

Question 73

The sales activity variance for ________ will always be zero.

A)sales
B)contribution margin
C)variable costs
D)fixed costs

Question 74

Who is usually responsible for sales activity income variances?

A)operating managers in factory
B)marketing managers
C)research and development function
D)product design function

Question 75

Variances should be investigated if they ________.

A)are favorable
B)are unfavorable
C)are smaller than the prior period
D)exceed certain dollar or percentage deviations from the budget

Question 76

The following data are for Pepperdine Corporation: The sales activity variance for operating income is ________.

A)$14,000 Favorable
B)$14,000 Unfavorable
C)$16,000 Favorable
D)$16,000 Unfavorable

Question 77

Which of the following statements about perfection standards is TRUE?

A)It is generally believed that they have a negative influence on employee morale.
B)They are expressions of the most efficient performance possible.
C)They usually result in unfavorable variances.
D)All of the above

Question 78

If the total sales-activity variance and the static-budget variance are equal,there is no flexible budget variance.

Question 79

Which statement would NOT be a reason for a flexible budget variance?

A)Material prices were different than expected.
B)Labor prices were different than expected.
C)Actual volume of activity was different than expected.
D)Amount of labor used per unit of output was different than expected.

Question 80

The following data are for Sacramento Corporation: The static budget variance for operating income is ________.

A)$2,000 Favorable
B)$2,000 Unfavorable
C)$16,000 Favorable
D)$16,000 Unfavorable