Deck 10: Flexible Budgets and Standard Costs

Question 1

A variance is considered to be

A) the gap between an actual result and a benchmark amount.
B) the required number of inputs for one standard output.
C) the difference between an actual result and a budget amount.
D) the difference between a budgeted amount and a standard amount.

Answer 1

C

Question 2

In a flexible budget, total fixed costs change as production volume changes.

Answer 2

False

Question 3

A static budget variance is the difference between the static budget and the flexible budget.

Answer 3

False

Question 4

Flexible budgets are budgets that summarize cost and revenue information for multiple volume levels.

Question 5

A static budget is a budget prepared for multiple volume levels.

Question 6

Which of the following is TRUE regarding a static budget?

A) A static budget is adjusted for changes in the level of sales activity.
B) A static budget is prepared for only one level of sales activity.
C) A static budget is a budget that stays the same from one period to the next.
D) A static budget is also known as a fixed budget.

Question 7

Another name for a static budget is a flexible budget.

Question 8

Myer Appliances sells its microwave ovens for $110 each. Its variable cost is $65 per microwave oven. Fixed costs are $90,000 per month for volumes up to 2,000 microwave ovens. Above 2,000 microwave ovens, monthly fixed costs are $135,000.

-What is the Myer Appliances' budgeted operating income (loss) at a sales level of 1,900 microwave ovens per month?

A) Operating loss of $4,500
B) Operating loss of $49,500
C) Operating income of $85,500
D) Operating income of $119,000

Question 9

Which of the following is a budget based on a single predicted amount of sales or production?

A) Standard budget
B) Flexible budget
C) Fixed budget
D) Static budget

Question 10

The flexible budget total cost formula applies only to a specific relevant range.

Question 11

Outdoor Creations sells its patio heaters for $300 each. Its variable cost is $220 per heater. Fixed costs are $40,000 per month for volumes up to 1,000 heaters. Above 1,000 heaters, monthly fixed costs are $62,000.

-What is the Outdoor Creations' budgeted operating income at a level of 800 patio heaters per month?

A) $2,000
B) $200,000
C) $24,000
D) $64,000

Question 12

Outdoor Creations sells its patio heaters for $300 each. Its variable cost is $220 per heater. Fixed costs are $40,000 per month for volumes up to 1,000 heaters. Above 1,000 heaters, monthly fixed costs are $62,000.

-What is the Outdoor Creations' budgeted operating income at a level of 1,300 heaters per month?

A) $42,000
B) $104,000
C) $328,000
D) $64,000

Question 13

Both the static budget and the flexible budget used for performance evaluation are developed before the period of actual production.

Question 14

Which of the following statements regarding static budgets is TRUE?

A) They are designed to estimate revenues only.
B) Managers use them to help plan for uncertainties.
C) They are prepared for a range of activity levels.
D) They are prepared for one level of sales volume.

Question 15

Which budget is best for managers to use to plan revenues and expenses at different sales volumes?

A) Capital budget
B) Flexible budget
C) Static budget
D) Master budget

Question 16

Outdoor Creations sells its patio heaters for $300 each. Its variable cost is $220 per heater. Fixed costs are $40,000 per month for volumes up to 1,000 heaters. Above 1,000 heaters, monthly fixed costs are $62,000.

-Universal Remotes makes remote controls for home theater systems. The budgeted selling price is $125 per remote control, the variable cost is $112 per remote control and budgeted fixed costs are $110,000 per month. What is the budgeted operating income for 12,000 remote controls sold in a month?

A) $156,000
B) $1,454,000
C) $46,000
D) $1,500,000

Question 17

Outdoor Creations sells its patio heaters for $300 each. Its variable cost is $220 per heater. Fixed costs are $40,000 per month for volumes up to 1,000 heaters. Above 1,000 heaters, monthly fixed costs are $62,000.

-Rockwell Corporation manufactures and sells computer keyboards. The keyboard sells for $55 per unit and its variable costs per unit are $42. Fixed costs are $80,000 per month for sales volumes up to 40,000 keyboards. If more than 40,000 keyboards are sold, the fixed costs will be $110,000. The flexible budget would reflect what monthly operating income for a sales volume of 52,000 keyboards?

A) $566,000
B) $676,000
C) $596,000
D) $2,860,000

Question 18

Corbett Company makes blenders. The budgeted selling price is $35 per blender, the variable rate is $18 per blender and budgeted fixed costs are $32,000 per month. What is the budgeted operating income for 2,000 blenders sold in a month?

A) $34,000
B) $68,000
C) $70,000
D) $2,000

Question 19

Sunny Dayz sells bottles of sun screen lotion for $8.00 each. Variable costs are $4.50 per bottle, while fixed costs are $42,000 per month for volumes up to 20,000 bottles of lotion and $52,000 per month for volumes above 20,000 bottles of lotion. The flexible budget would reflect monthly operating income for 18,000 bottles of lotion and 23,000 bottles of lotion of what dollar amounts?

A) $102,000 and $38,500, respectively
B) $144,000 and $184,000, respectively
C) $21,000 and $28,500, respectively
D) $132,000 and $11,000, respectively

Question 20

A graph of a flexible budget formula reflects fixed costs of $30,000 per month and total costs of $90,000 at a volume of 6,000 units. Assuming the relevant range is 1,000 to 12,000 units, the graph would reflect total monthly costs at 10,000 units of what dollar amount?

A) $90,000
B) $130,000
C) $100,000
D) $180,000

Question 21

The sales volume variance arises because the number of units actually sold differs from the number of units expected to be sold according to the master budget.

Question 22

SnoGo, Inc., produces plastic tray used in cafeterias and for snow sledding.
The company's static budget income statement for January follows. It is based on expected sales volume of 5,500 trays.

SnoGo's manufacturing capacity is 6,250 trays. If actual volume exceeds 6,250 trays, the company must expand the plant. In that case, salaries will increase by 10%, depreciation by 15%, and rent by $800. Fixed utilities will be unchanged by any volume increase.
Prepare flexible budget income statements for the company, showing output levels of 5,500, 6,000 and 6,500 trays.

Question 23

SnoGo, Inc., produces ergonometric tool used for snow removal. The company's static budget income statement for January follows. It is based on expected sales volume of 11,000 tools.
SnoGo's manufacturing capacity is 12,000 tools. If actual volume exceeds 12,000 tools, the company must expand the plant. In that case, salaries will increase by 10%, depreciation by 15%, and rent by $1,500. Fixed utilities will be unchanged by any volume increase.
Prepare flexible budget income statements for the company, showing output levels of 11,000, 12,000 and 13,000 tools.

Question 24

Match the following:

A) Overhead flexible budget variance
B) Efficiency variance
C) Static budget
D) Flexible budget variance
E) Sales volume variance
F) Standard cost
G) Variance
H) Production volume variance
I) Benchmarking
J) Price variance
K) Flexible budget
1) The difference between the actual quantity of input and standard quantity of input allowed for actual output, multiplied by the standard unit price of input
2) Using standards based on the "best practice" level of performance
3) A summarized budget that can easily be computed for several volume levels
4) The difference between the actual overhead cost incurred and the flexible budget amount of overhead cost for actual production
5) Arises because the number of units actually sold differs from the static budget units
6) The difference between an actual result and a flexible budget amount for the actual output
7) The difference between an actual amount and the corresponding budgeted amount
8) The difference between the actual and standard unit price of input, multiplied by the actual quantity of input
9) The difference between the overhead cost in the flexible budget for actual production and the standard overhead cost allocated to production
10) A carefully predetermined cost that usually is expressed on a per unit basis
11) The budget prepared for only one level of sales volume

Question 25

SnoGo, Inc., produces plastic tray used in cafeterias and for snow sledding.
The company's static budget income statement for January follows. It is based on expected sales volume of 50,000 trays.

SnoGo's manufacturing capacity is 62,500 trays. If actual volume exceeds 62,500 trays,the company must expand the plant. In that case, salaries will increase by 15%, depreciation by 10%, and rent by $275. Fixed utilities will be unchanged by any volume increase.
Prepare flexible budget income statements for the company, showing output levels of 50,000, 60,000 and 70,000 trays.

Question 26

Myer Appliances sells its microwave ovens for $110 each. Its variable cost is $65 per microwave oven. Fixed costs are $90,000 per month for volumes up to 2,000 microwave ovens. Above 2,000 microwave ovens, monthly fixed costs are $135,000.

-.What is the Myer Appliances' budgeted operating income (loss) at a sales level of 2,500 microwave ovens per month?

A) Operating loss of $22,500
B) Operating income of $22,500
C) Operating income of $112,500
D) Operating income of $140,000

Question 27

Use the information below to answer the following question(s).
Ames Golf Company used the following data to evaluate their current operating system. The company sells 1 pack of golf balls for $10 per pack. The $10 selling price is also the budgeted selling price.

What is the budgeted operating income for Ames Golf Company?

A) $5,970,000
B) $5,550,000
C) $5,200,000
D) $4,750,000

Question 28

The sales volume variance is the difference between the static budget and the flexible budget for sales revenue, variable expenses, fixed expenses or operating income.

Question 29

A favourable budget variance occurs when actual expenses are greater than flexible budget expenses.

Question 30

Use the information below to answer the following question(s).
Ames Golf Company used the following data to evaluate their current operating system. The company sells 1 pack of golf balls for $10 per pack. The $10 selling price is also the budgeted selling price.

What is the actual operating income for Ames Golf Company using the actual results?

A) $4,750,000
B) $5,200,000
C) $5,550,000
D) $5,970,000

Question 31

A company's flexible budget for 80,000 units of production showed sales of $240,000; variable costs of $120,000; and fixed costs of $80,000. What net operating income would you expect the company to earn if it produces and sells 83,000 units? (Assume 83,000 units is in the relevant range.)

Question 32

The flexible budget variance arises because the number of units actually sold differs from the static budget units.

Question 33

The flexible budget variance is the difference between the flexible budget and the static budget.

Question 34

The sales volume variance is the difference between the static budget and the flexible budget.

Question 35

The flexible budget used for performance evaluation is based on the original budgeted number of outputs.

Question 36

Tucker Supply sells a unit of its product for $10.00, resulting in a contribution margin of $8.00 per unit. Fixed costs are budgeted at $52,000 per quarter for volumes up to 15,000 units and $78,000 for volumes exceeding 15,000 units.
Prepare the flexible budget for the next quarter for volume levels of 12,000, 18,000, and 25,000 units.

Question 37

Use the information below to answer the following question(s).
Ames Golf Company used the following data to evaluate their current operating system. The company sells 1 pack of golf balls for $10 per pack. The $10 selling price is also the budgeted selling price.

What is the total static budget variance for Ames Golf Company?

A) $450,000 unfavourable
B) $400,000 favourable
C) $390,000 unfavourable
D) $350,000 favourable

Question 38

SnoGo, Inc., produces ergonometric tools used for snow removal. The company's static budget income statement for January follows. It is based on expected sales volume of 5,500 tools.
SnoGo's manufacturing capacity is 6,250 tools. If actual volume exceeds 6,250 tools, the company must expand the plant. In that case, salaries will increase by 10%, depreciation by 15%, and rent by $1,500. Fixed utilities will be unchanged by any volume increase.
Prepare flexible budget income statements for the company, showing output levels of 5,500, 6,000 and 6,500 tools.

Question 39

Scion Corporation provided the following partially completed monthly flexible budget.
Complete the flexible budget.

Question 40

SnoGo, Inc., produces ergonometric tool used for snow removal. The company's static budget income statement for January follows. It is based on expected sales volume of 11,000 tools.
SnoGo's manufacturing capacity is 12,000 tools. If actual volume exceeds 12,000 tools, the company must expand the plant. In that case, salaries will increase by 10%, depreciation by 15%, and rent by $1,500. Fixed utilities will be unchanged by any volume increase.
Prepare flexible budget income statements for the company, showing output levels of 11,000, 12,000 and 13,000 tools.

Question 41

Which term below is best paired with "arises when actual sales volume differs from expected sales volume"?

A) Static budget variance
B) Standard budget
C) Overhead flexible budget variance
D) Sales volume variance

Question 42

The sales volume variance of operating income is a measure of efficiency.

Question 43

The difference between actual costs and the costs that should have been incurred for the actual number of outputs is called the

A) flexible budget variance.
B) price variance.
C) static budget variance.
D) sales volume variance.

Question 44

Assuming that all activity is within the relevant range, a decrease in the activity level in a flexible budget will

A) decrease total fixed costs.
B) decrease the variable cost per unit.
C) decrease total costs.
D) increase the variable cost per unit.

Question 45

Zany Brainy projected current year sales of 50,000 units at a unit sale price of $20.00. Actual current year sales were 55,000 units at $22.00 per unit. Variable costs were budgeted at $14.00 per unit and actually totaled $15.00 per unit. Budgeted fixed costs totaled $400,000, while actual fixed costs amounted to $420,000.

-What is the Zany Brainy's flexible budget variance for operating income?

A) $65,000 favourable
B) $65,000 unfavourable
C) $35,000 unfavourable
D) $35,000 favourable

Question 46

Zany Brainy projected current year sales of 50,000 units at a unit sale price of $20.00. Actual current year sales were 55,000 units at $22.00 per unit. Variable costs were budgeted at $14.00 per unit and actually totaled $15.00 per unit. Budgeted fixed costs totaled $400,000, while actual fixed costs amounted to $420,000.
What is the Zany Brainy's sales volume variance for total revenue?

A) $110,000 favourable
B) $100,000 unfavourable
C) $110,000 unfavourable
D) $100,000 favourable

Question 47

Zany Brainy projected current year sales of 50,000 units at a unit sale price of $20.00. Actual current year sales were 55,000 units at $22.00 per unit. Variable costs were budgeted at $14.00 per unit and actually totaled $15.00 per unit. Budgeted fixed costs totaled $400,000, while actual fixed costs amounted to $420,000.
What is the Zany Brainy's flexible budget variance for variable expenses?

A) $55,000 favourable
B) $50,000 favourable
C) $55,000 unfavourable
D) $50,000 unfavourable

Question 48

Kid Adventures Company projected current year sales of 3,600 swing sets at a unit sale price of $225.00. Actual current year sales were 3,300 units at $215.00 per unit. Variable costs were budgeted at $166.00 per unit and actually cost $175.00 per unit. Budgeted fixed costs totaled $122,000, while actual fixed costs amounted to $118,000.

-What is the Kid Adventures Company's sales volume variance for operating income?

A) $17,700 unfavourable
B) $76,400 unfavourable
C) $17,700 favourable
D) $76,400 favourable

Question 49

Kid Adventures Company projected current year sales of 3,600 swing sets at a unit sale price of $225.00. Actual current year sales were 3,300 units at $215.00 per unit. Variable costs were budgeted at $166.00 per unit and actually cost $175.00 per unit. Budgeted fixed costs totaled $122,000, while actual fixed costs amounted to $118,000.

-What is the Kid Adventures Company's flexible budget variance for operating income?

A) $58,700 favourable
B) $76,400 unfavourable
C) $76,400 favourable
D) $58,700 unfavourable

Question 50

A.C. Catering reported actual operating income for the current year of $40,000. The flexible budget's operating income for actual volume achieved is $38,000, while the static budget's operating income is $35,000. What is the flexible budget variance for operating income?

A) $2,000 favourable
B) $5,000 favourable
C) $5,000 unfavourable
D) $2,000 unfavourable

Question 51

The ________ variance is the difference between the number of units actually sold and the volume of sales originally planned for.

A) materials price
B) flexible budget
C) sales volume
D) labour efficiency

Question 52

Dambrodt Travel Agency's actual operating income for the current year is $25,000. The flexible budget's operating income for actual volume achieved is $32,000, while the static budget's operating income is $35,000. What is the sales volume variance for operating income?

A) $7,000 unfavourable
B) $3,000 favourable
C) $3,000 unfavourable
D) $7,000 favourable

Question 53

A flexible budget variance is the difference between

A) actual results and amounts in the static budget.
B) amounts in the flexible budget and the actual results.
C) amounts in the flexible budget and the static budget.
D) the budgeted amounts for each level of sales in the flexible budget.

Question 54

Which budget is based on the expected number of sales?

A) Flexible budget used for evaluating performance
B) Operating budget
C) Output budget
D) Static budget

Question 55

Kid Adventures Company projected current year sales of 3,600 swing sets at a unit sale price of $225.00. Actual current year sales were 3,300 units at $215.00 per unit. Variable costs were budgeted at $166.00 per unit and actually cost $175.00 per unit. Budgeted fixed costs totaled $122,000, while actual fixed costs amounted to $118,000.

-What is the Kid Adventures Company's sales volume variance for total revenue?

A) $64,500 favourable
B) $64,500 unfavourable
C) $67,500 favourable
D) $67,500 unfavourable

Question 56

Zany Brainy projected current year sales of 50,000 units at a unit sale price of $20.00. Actual current year sales were 55,000 units at $22.00 per unit. Variable costs were budgeted at $14.00 per unit and actually totaled $15.00 per unit. Budgeted fixed costs totaled $400,000, while actual fixed costs amounted to $420,000.

-What is the Zany Brainy's flexible budget variance for total expenses?

A) $55,000 unfavourable
B) $75,000 unfavourable
C) $55,000 favourable
D) $75,000 favourable

Question 57

Kid Adventures Company projected current year sales of 3,600 swing sets at a unit sale price of $225.00. Actual current year sales were 3,300 units at $215.00 per unit. Variable costs were budgeted at $166.00 per unit and actually cost $175.00 per unit. Budgeted fixed costs totaled $122,000, while actual fixed costs amounted to $118,000.
What is the Kid Adventures Company's flexible budget variance for variable expenses?

A) $32,400 favourable
B) $29,700 unfavourable
C) $32,400 unfavourable
D) $29,700 favourable

Question 58

Zany Brainy projected current year sales of 50,000 units at a unit sale price of $20.00. Actual current year sales were 55,000 units at $22.00 per unit. Variable costs were budgeted at $14.00 per unit and actually totaled $15.00 per unit. Budgeted fixed costs totaled $400,000, while actual fixed costs amounted to $420,000.

-What is the Zany Brainy's sales volume variance for operating income?

A) $30,000 favourable
B) $65,000 unfavourable
C) $65,000 favourable
D) $30,000 unfavourable

Question 59

A sales volume variance for units is the difference between the

A) number of units actually sold and number of units expected to be sold according to the static budget.
B) number of units in the flexible budget at two levels of activity.
C) actual units sold and the number of units in the flexible budget.
D) actual sales volume and normal sales volume.

Question 60

Kid Adventures Company projected current year sales of 3,600 swing sets at a unit sale price of $225.00. Actual current year sales were 3,300 units at $215.00 per unit. Variable costs were budgeted at $166.00 per unit and actually cost $175.00 per unit. Budgeted fixed costs totaled $122,000, while actual fixed costs amounted to $118,000.

-What is the Kid Adventures Company's flexible budget variance for total expenses?

A) $25,700 unfavourable
B) $29,700 unfavourable
C) $25,700 favourable
D) $29,700 favourable

Question 61

Tuff Stuff Company's managers received the following incomplete performance report:

Find the missing data by completing the performance report. Identify the employee group that may deserve praise and the group that may be subject to criticism. Give your reasons.

Question 62

The Flashlight Company projected yearly sales of 12,000 units at $15.00 per unit. Actual sales for the year were 15,000 units at $16.00 per unit. Variable expenses, budgeted at $10.00 per unit, actually amounted to $15.00 per unit. Fixed expenses, budgeted at $50,000, actually totaled $48,000.
Prepare the Flashlight Company's income statement performance report for the year ended December 31, including both flexible budget variances and sales volume variances.

Question 63

Explain the difference between a static budget and a flexible budget. Explain what is meant by a static budget variance and a flexible budget variance.

Question 64

Tuff Stuff Company's managers received the following incomplete performance report:

Find the missing data by completing the performance report. Identify the employee group that may deserve praise and the group that may be subject to criticism. Give your reasons.

Question 65

The standard for the direct labour rate per hour includes fringe benefits such as health care insurance and vacations.

Question 66

A standard cost for production inputs is a carefully predetermined cost that usually is expressed on a per-unit basis.

Question 67

Standard costs for production inputs are used to develop flexible budgets.

Question 68

On the line at the end of each sentence, put the letter of the phrase that best completes the
sentence.
A. Actual number of outputs
B. Expected number of outputs
C. Sales volume variance
D. Beginning of the period
E. End of the period
F. Flexible budget variance
G. Static budget variance
1. The flexible budget used in an income statement performance report is based on the ________.
2. The master budget is based on the ________.
3. The difference between actual costs and the costs that should have been incurred for the actual number of outputs is the ________.
4. The flexible budget used in an income statement performance report is developed at the ________.
5. The static budget is developed at the ________.

Question 69

A packaging company produces cardboard boxes in an automated process. The required direct materials costs $0.30 per unit. Fixed manufacturing overhead costs are budgeted at $24,000 per month and are allocated based on units of production. The budgeted contribution margin per unit is $0.85, and administration fixed costs are budgeted at $7,500 per month.What is the flexible-budget amount for operating income for 40,000 and 20,000 units, respectively?

A) $26,000; $20,000
B) $36,000; $30,000
C) $44,000; $38,000
D) $2,500; <$14,500>

Question 70

Tuff Stuff Company's managers received the following incomplete performance report:


Find the missing data by completing the performance report. Identify the employee group that may deserve praise and the group that may be subject to criticism. Give your reasons.

Question 71

The price sensitivity of consumers can be studied using standard costing.

Question 72

Linkin Co. has a relevant range extending to 20,000 units each month. The following performance report provides information about Linkin Co.'s budget and actual performance for April.

Required:
Find the missing data for letters A-G. Be sure to label any variances as favourable or unfavourable

Question 73

The Bird Brainz Corporation produces and sells two types of bird cages, deluxe and regular. The Bird Brainz Corporation provides the following data:

Compute the flexible budget variance and the sales volume variance for sales revenue for deluxe and regular bird cages.

Question 74

Breezy Fan Company manufactures ceiling fans Breezy Fan estimated yearly sales of 20,000 units at $16 per unit. Actual sales for the year were 23,000 units at $17 per unit. Variable expenses were budgeted at $6 per unit, and actual variable expenses were $6.20 per unit. Actual fixed costs were $78,400, and budgeted fixed costs were $75,000.
Prepare Breezy Fan's income statement performance report, including flexible budget variances and sales volume variances, for the year ended December 31.

Question 75

Handco has a relevant range extending to 60,000 units each month. The following performance report provides information about Handco's budget and actual performance for April.

Required:
Find the missing data for letters A-G. Be sure to label any variances as favourable or unfavourable

Question 76

Tuff Stuff Company's managers received the following incomplete performance report:

Find the missing data by completing the performance report. Identify the employee group that may deserve praise and the group that may be subject to criticism. Give your reasons.

Question 77

Match the following:

A) Production volume variance
B) Efficiency variance
C) Static budget
D) Standard cost
E) Overhead flexible budget variance
F) Price variance
1) Measures how well the business keeps unit prices of direct material and direct labour inputs within standards
2) Measures whether the quantity of direct materials or direct labour used to make the actual number of outputs is within the standard allowed for that number of outputs
3) Shows how well management has controlled overhead costs
4) A budget for a single unit
5) Prepared for one level of sales volume
6) Arises when actual production volume differs from expected production volume

Question 78

Standard costs for production inputs help motivate employees by serving as benchmarks against which their performance is measured.

Question 79

Handco has a relevant range extending to 60,000 units each month. The following performance report provides information about Handco's budget and actual performance for April.

Required:
Find the missing data for letters A-G. Be sure to label any variances as favourable or unfavourable

Question 80

Linkin Co. has a relevant range extending to 50,000 units each month. The following performance report provides information about Linkin Co.'s budget and actual performance for April.

Required:
Find the missing data for letters A-G. Be sure to label any variances as favourable or unfavourable