Deck 7: Flexible Budgets, Direct-Cost Variances, and Management Control

Question 1

An unfavorable variance indicates that:

A)actual costs are less than budgeted costs
B)actual revenues exceed budgeted revenues
C)the actual amount decreased operating income relative to the budgeted amount
D)All of these answers are correct.

Answer 1

C

Question 2

The master budget is:

A)a flexible budget
B)a static budget
C)developed at the end of the period
D)based on the actual level of output

Answer 2

B

Question 3

Answer the following questions using the information below:
Caan Corporation used the following data to evaluate their current operating system. The company sells items for $20 each and used a budgeted selling price of $20 per unit.

What is the static-budget variance of operating income?

A)$165,000 favorable
B)$190,000 unfavorable
C)$60,000 favorable
D)$60,000 unfavorable

Answer 3

A

Question 4

The master budget is one type of flexible budget.

Question 5

Answer the following questions using the information below:
Everclean Filter Corporation used the following data to evaluate their current operating system. The company sells items for $10 each and had used a budgeted selling price of $11 per unit.

What is the static-budget variance of variable costs?

A)$13,000 favorable
B)$13,000 unfavorable
C)$15,000 favorable
D)$15,000 unfavorable

Question 6

A variance is:

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 budgeted amount
D)the difference between a budgeted amount and a standard amount

Question 7

Answer the following questions using the information below:
Caan Corporation used the following data to evaluate their current operating system. The company sells items for $20 each and used a budgeted selling price of $20 per unit.

What is the static-budget variance of variable costs?

A)$200,000 favorable
B)$50,000 unfavorable
C)$250,000 favorable
D)$250,000 unfavorable

Question 8

A flexible budget is calculated at the end of the budget period.

Question 9

A favorable variance indicates that:

A)budgeted costs are less than actual costs
B)actual revenues exceed budgeted revenues
C)the actual amount decreased operating income relative to the budgeted amount
D)All of these answers are correct.

Question 10

Answer the following questions using the information below:
Everclean Filter Corporation used the following data to evaluate their current operating system. The company sells items for $10 each and had used a budgeted selling price of $11 per unit.

What is the static-budget variance of revenues?

A)$60,000 favorable
B)$240,000 favorable
C)$240,000 unfavorable
D)$6,000 favorable

Question 11

Information regarding the causes of variances is provided when the master budget is compared with actual results.

Question 12

Answer the following questions using the information below:
Bowden Corporation used the following data to evaluate their current operating system. The company sells items for $20 each and used a budgeted selling price of $20 per unit.

What is the static-budget variance of revenues?

A)$20,000 favorable
B)$20,000 unfavorable
C)$2,000 favorable
D)$2,000 unfavorable

Question 13

A variance is the difference between the actual cost for the current and expected (or budgeted)performance.

Question 14

Management by exception is the practice of concentrating on:

A)the master budget
B)areas not operating as anticipated
C)favorable variances
D)unfavorable variances

Question 15

A flexible budget:

A)is another name for management by exception
B)is developed at the end of the period
C)is based on the budgeted level of output
D)provides favorable operating results

Question 16

Answer the following questions using the information below:
Bowden Corporation used the following data to evaluate their current operating system. The company sells items for $20 each and used a budgeted selling price of $20 per unit.

What is the static-budget variance of operating income?

A)$10,600 favorable
B)$10,600 unfavorable
C)$13,100 favorable
D)$13,100 unfavorable

Question 17

Answer the following questions using the information below:
Everclean Filter Corporation used the following data to evaluate their current operating system. The company sells items for $10 each and had used a budgeted selling price of $11 per unit.

What is the static-budget variance of operating income?

A)$12,000 unfavorable
B)$12,000 favorable
C)$15,000 favorable
D)$15,000 unfavorable

Question 18

Answer the following questions using the information below:
Bowden Corporation used the following data to evaluate their current operating system. The company sells items for $20 each and used a budgeted selling price of $20 per unit.

What is the static-budget variance of variable costs?

A)$1,200 favorable
B)$9,400 unfavorable
C)$20,000 favorable
D)$1,200 unfavorable

Question 19

Regier Company had planned for operating income of $10 million in the master budget but actually achieved operating income of only $7 million.

A)The static-budget variance for operating income is $3 million favorable.
B)The static-budget variance for operating income is $3 million unfavorable.
C)The flexible-budget variance for operating income is $3 million favorable.
D)The flexible-budget variance for operating income is $3 million unfavorable.

Question 20

Answer the following questions using the information below:
Caan Corporation used the following data to evaluate their current operating system. The company sells items for $20 each and used a budgeted selling price of $20 per unit.

What is the static-budget variance of revenues?

A)$60,000 favorable
B)$60,000 unfavorable
C)$6,000 favorable
D)$6,000 unfavorable

Question 21

A favorable variance should be ignored by management.

Question 22

The sales-volume variance is due to:

A)using a different selling price from that budgeted
B)inaccurate forecasting of units sold
C)poor production performance
D)Both A and B are correct.

Question 23

A favorable variance results when actual costs exceed budgeted costs.

Question 24

Answer the following questions using the information below:
JJ Abrams planned to use $164 of material per unit but actually used $160 of material per unit, and planned to make 1,200 units but actually made 1,000 units.
The sales-volume variance is:

A)$4,000 favorable
B)$28,000 unfavorable
C)$32,800 unfavorable
D)$4,800 favorable

Question 25

An unfavorable variance may be due to poor planning rather than due to inefficiency.

Question 26

A flexible-budget variance is $600 favorable for unit-related costs. This indicates that costs were:

A)$600 more than the master budget
B)$600 less than for the planned level of activity
C)$600 more than standard for the achieved level of activity
D)$600 less than standard for the achieved level of activity

Question 27

The essence of variance analysis is to capture a departure from what was expected.

Question 28

Answer the following questions using the information below:
JJ Abrams planned to use $164 of material per unit but actually used $160 of material per unit, and planned to make 1,200 units but actually made 1,000 units.
The flexible-budget variance is:

A)$4,000 favorable
B)$28,000 unfavorable
C)$32,800 unfavorable
D)$4,800 favorable

Question 29

Management by exception is the practice of concentrating on areas not operating as anticipated (such as a cost overrun)and placing less attention on areas operating as anticipated.

Question 30

The variance that is best for measuring operating performance is the:

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

Question 31

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 32

Answer the following questions using the information below:
JJ Abrams planned to use $164 of material per unit but actually used $160 of material per unit, and planned to make 1,200 units but actually made 1,000 units.
The flexible-budget amount is:

A)$160,000
B)$164,000
C)$192,000
D)$196,800

Question 33

All of the following are needed to prepare a flexible budget EXCEPT determining the:

A)budgeted variable cost per output unit
B)budgeted fixed costs
C)actual selling price per unit
D)actual quantity of output units

Question 34

The flexible budget contains:

A)budgeted amounts for actual output
B)budgeted amounts for planned output
C)actual costs for actual output
D)actual costs for planned output

Question 35

An unfavorable flexible-budget variance for variable costs may be the result of:

A)using more input quantities than were budgeted
B)paying higher prices for inputs than were budgeted
C)selling output at a higher selling price than budgeted
D)Both A and B are correct.

Question 36

An unfavorable sales-volume variance could result from:

A)decreased demand for the product
B)competitors taking market share
C)customer dissatisfaction with the product
D)All of these answers are correct.

Question 37

The variance that LEAST affects cost control is the:

A)flexible-budget variance
B)direct-material-price variance
C)sales-volume variance
D)direct manufacturing labor efficiency variance

Question 38

An unfavorable variance:

A)may suggest investigation is needed
B)is conclusive evidence of poor performance
C)demands that standards be recomputed
D)indicates continuous improvement is needed

Question 39

The following items are the same for the flexible budget and the master budget EXCEPT for:

A)variable cost per unit
B)total fixed costs
C)units sold
D)sales price per unit

Question 40

If a sales-volume variance was caused by poor-quality products, then the ________ would be in the best position to explain the variance.

A)production manager
B)sales manager
C)purchasing manager
D)management accountant

Question 41

Answer the following questions using the information below:
JJ Abrams planned to use $164 of material per unit but actually used $160 of material per unit, and planned to make 1,200 units but actually made 1,000 units.
Bebee Corporation currently produces cardboard boxes in an automated process. Expected production per month is 40,000 units, direct-material costs are $0.60 per unit, and manufacturing overhead costs are $18,000 per month. Manufacturing overhead is all fixed costs. What is the flexible budget for 20,000 and 40,000 units, respectively?

A)$21,000; $33,000
B)$21,000; $42,000
C)$30,000; $42,000
D)None of these answers are correct.

Question 42

Answer the following questions using the information below:
Melville Incorporated planned to use $37.50 of material per unit but actually used $36.75 of material per unit, and planned to make 1,800 units but actually made 1,600 units.
The flexible-budget variance is:

A)$7,500 favorable
B)$7,500 unfavorable
C)$1,200 unfavorable
D)$1,200 favorable

Question 43

The static-budget variance can be subdivided into the flexible-budget variance and the sales-volume variance.

Question 44

Answer the following questions using the information below:
The actual information pertains to the month of September. As part of the budgeting process, Kriger Fencing Company developed the following static budget for September. Kriger is in the process of preparing the flexible budget and understanding the results.

The flexible budget will report ________ for the fixed costs.

A)$229,000
B)$225,000
C)$180,000
D)$286,250

Question 45

Answer the following questions using the information below:
Brennen Incorporated planned to use $24 of material per unit but actually used $25 of material per unit, and planned to make 2,000 units but actually made 2,400 units.
The flexible-budget variance is:

A)$9,600 favorable
B)$2,400 unfavorable
C)$10,000 unfavorable
D)$12,000 favorable

Question 46

Answer the following questions using the information below:
The actual information pertains to the month of September. As part of the budgeting process, Kriger Fencing Company developed the following static budget for September. Kriger is in the process of preparing the flexible budget and understanding the results.

The flexible budget will report ________ for variable costs.

A)$256,000
B)$300,000
C)$240,000
D)$320,000

Question 47

The flexible-budget variance for direct-cost inputs is subdivided into two detailed variances, the efficiency variance and the price variance.

Question 48

The president of the company, Gregory Peters, has come to you for help. Use the following data to prepare a flexible budget for possible sales/production levels of 10,000, 11,000, and 12,000 units. Show the contribution margin at each activity level.

Question 49

Decreasing demand for a product may create a favorable sales-volume variance.

Question 50

Answer the following questions using the information below:
Brennen Incorporated planned to use $24 of material per unit but actually used $25 of material per unit, and planned to make 2,000 units but actually made 2,400 units.
The sales-volume variance is:

A)$9,600 favorable
B)$2,400 unfavorable
C)$10,000 unfavorable
D)$12,000 favorable

Question 51

Answer the following questions using the information below:
Melville Incorporated planned to use $37.50 of material per unit but actually used $36.75 of material per unit, and planned to make 1,800 units but actually made 1,600 units.
Hemberger Corporation currently produces baseball caps in an automated process. Expected production per month is 20,000 units, direct material costs are $3.00 per unit, and manufacturing overhead costs are $46,000 per month. Manufacturing overhead is entirely fixed costs. What is the flexible budget for 10,000 and 20,000 units, respectively?

A)$53,000; $83,000
B)$53,000; $106,000
C)$76,000; $106,000
D)None of these answers are correct.

Question 52

Answer the following questions using the information below:
Melville Incorporated planned to use $37.50 of material per unit but actually used $36.75 of material per unit, and planned to make 1,800 units but actually made 1,600 units.
The flexible-budget amount is:

A)$60,000
B)$67,500
C)$59,200
D)$1,200

Question 53

The only difference between the static budget and flexible budget is that the static budget is prepared using planned output.

Question 54

Answer the following questions using the information below:
Brennen Incorporated planned to use $24 of material per unit but actually used $25 of material per unit, and planned to make 2,000 units but actually made 2,400 units.
The flexible-budget amount is:

A)$48,000
B)$50,000
C)$57,600
D)$60,000

Question 55

Answer the following questions using the information below:
The actual information pertains to the month of September. As part of the budgeting process, Kriger Fencing Company developed the following static budget for September. Kriger is in the process of preparing the flexible budget and understanding the results.

The flexible-budget variance for variable costs is:

A)$16,000 unfavorable
B)$60,000 unfavorable
C)$16,000 favorable
D)$60,000 favorable

Question 56

Nicholas Company manufacturers TVs. Some of the company's data was misplaced. Use the following information to replace the lost data:
Required:
a. What are the respective flexible-budget revenues (A)?
b. What are the static-budget revenues (B)?
c. What are the actual variable costs (C)?
d. What is the total flexible-budget variance (D)?
e. What is the total sales-volume variance (E)?
f. What is the total static-budget variance?

Question 57

Answer the following questions using the information below:
Melville Incorporated planned to use $37.50 of material per unit but actually used $36.75 of material per unit, and planned to make 1,800 units but actually made 1,600 units.
The sales-volume variance is:

A)$7,500 favorable
B)$7,500 unfavorable
C)$1,200 unfavorable
D)$1,200 favorable

Question 58

An unfavorable variance is conclusive evidence of poor performance.

Question 59

The flexible-budget variance may be the result of inaccurate forecasting of units sold.

Question 60

A company would NOT need to use a flexible budget if it had perfect foresight about actual output units.

Question 61

When actual input data from past periods is used to develop a budget:

A)past inefficiencies are excluded
B)expected future changes are incorporated
C)information is available at a low cost
D)audited financial information must be used

Question 62

Answer the following questions using the information below:
Manash Company manufactures tires. Some of the company's data was misplaced. Use the following information to replace the lost data:

What is the total sales-volume variance (E)?

A)$14,960 unfavorable
B)$5,600 unfavorable
C)$3,760 favorable
D)$14,960 favorable

Question 63

Answer the following questions using the information below:
The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy Department of Wooden Figurines Incorporated had developed the following static budget for the third quarter. Duck Decoy is in the process of preparing the flexible budget and understanding the results.

The flexible budget will report ________ for variable costs.

A)$154,000
B)$189,583
C)$175,000
D)$13,583

Question 64

Answer the following questions using the information below:
The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy Department of Wooden Figurines Incorporated had developed the following static budget for the third quarter. Duck Decoy is in the process of preparing the flexible budget and understanding the results.

The flexible-budget variance for variable costs is:

A)$21,000 favorable
B)$13,583 unfavorable
C)$35,583 unfavorable
D)$35,583 favorable

Question 65

Answer the following questions using the information below:
The actual information pertains to the month of September. As part of the budgeting process, Kriger Fencing Company developed the following static budget for September. Kriger is in the process of preparing the flexible budget and understanding the results.

The primary reason for low operating profits was:

A)the variable-cost variance
B)increased fixed costs
C)a poor management accounting system
D)lower sales volume than planned

Question 66

Bach Table Company manufactures tables for schools. The 2011 operating budget is based on sales of 40,000 units at $50 per table. Operating income is anticipated to be $120,000. Budgeted variable costs are $32 per unit, while fixed costs total $600,000.
Actual income for 2011 was a surprising $354,000 on actual sales of 42,000 units at $52 each. Actual variable costs were $30 per unit and fixed costs totaled $570,000.
Required:
Prepare a variance analysis report with both flexible-budget and sales-volume variances.

Question 67

The term budget indicates:

A)that standards have been used to develop the budget
B)that actual input data from past periods have been used to develop the budget
C)that engineering studies have been used to develop the budget
D)planned amounts for a future accounting period

Question 68

Budgeted input quantity information may be obtained from:

A)actual input quantities used last period
B)standards developed by your company
C)data from other companies that have similar processes
D)All of these answers are correct.

Question 69

Cost control is the focus of the sales-volume variance.

Question 70

Answer the following questions using the information below:
The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy Department of Wooden Figurines Incorporated had developed the following static budget for the third quarter. Duck Decoy is in the process of preparing the flexible budget and understanding the results.

The flexible budget will report ________ for the fixed costs.

A)$50,500
B)$49,500 Favorable
C)$49,500
D)$1,000 Unfavorable

Question 71

The flexible-budget variance pertaining to revenues is often called a selling-price variance.

Question 72

Answer the following questions using the information below:
Manash Company manufactures tires. Some of the company's data was misplaced. Use the following information to replace the lost data:

What are the actual variable costs (C)?

A)$72,800
B)$64,240
C)$62,640
D)$54,080

Question 73

Answer the following questions using the information below:
Manash Company manufactures tires. Some of the company's data was misplaced. Use the following information to replace the lost data:

What is the total flexible-budget variance (D)?

A)$240 unfavorable
B)$0
C)$1,360 favorable
D)$6,640 favorable

Question 74

Answer the following questions using the information below:
Manash Company manufactures tires. Some of the company's data was misplaced. Use the following information to replace the lost data:

What is the total static-budget variance?

A)$10,400 favorable
B)$6,640 favorable
C)$3,760 unfavorable
D)$3,760 favorable

Question 75

When standards are used to develop a budget:

A)past inefficiencies are excluded
B)benchmarking must also be used
C)information is available at a low cost
D)flexible-budget amounts are difficult to determine

Question 76

Answer the following questions using the information below:
The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy Department of Wooden Figurines Incorporated had developed the following static budget for the third quarter. Duck Decoy is in the process of preparing the flexible budget and understanding the results.

The primary reason for high actual operating profits was:

A)the variable-cost variance
B)increased fixed costs
C)higher sales volume than planned
D)lower sales volume than planned

Question 77

Ideal standards:

A)assume peak operating conditions
B)allow for normal machine breakdowns
C)greatly improve employee motivation and performance
D)All of these answers are correct..

Question 78

A standard input:

A)is a carefully determined price, cost, or quantity
B)is usually expressed on a per unit basis
C)may be developed using engineering studies
D)All of these answers are correct.

Question 79

Answer the following questions using the information below:
Manash Company manufactures tires. Some of the company's data was misplaced. Use the following information to replace the lost data:

What amounts are reported for revenues in the flexible-budget (A)and the static-budget (B), respectively?

A)$164,320; $158,720
B)$164,320; $169,920
C)$169,920; $177,920
D)$169,920; $166,720

Question 80

The flexible-budget variance for direct cost inputs can be further subdivided into a:

A)static-budget variance and a sales-volume variance
B)sales-volume variance and an efficiency variance
C)price variance and an efficiency variance
D)static-budget variance and a price variance