Deck 11: Flexible Budgets and Overhead Analysis

Question 1

The volume variance is often interpreted as a measure of capacity utilization.

Answer 1

True

Question 2

When overhead is applied on the basis of direct labor hours,the variable overhead efficiency variance always has the same sign as the labor efficiency variance.

Answer 2

True

Question 3

Practical capacity is always used to calculate fixed overhead rates

Answer 3

False

Question 4

Fixed overhead costs are resources acquired as used and needed.

Question 5

Price changes of variable overhead items are easily controlled by production supervisors.

Question 6

The fixed overhead spending variance is affected primarily by changes in production levels.

Question 7

A static budget compares actual cost with budgeted costs.

Question 8

Responsibility for variable overhead spending and efficiency variances is generally assigned to production departments.

Question 9

Static budgets are the best benchmarks for preparing a performance report.

Question 10

Activity-based budgeting builds a budget for each activity based on the resources needed to provide the required activity output levels.

Question 11

Before-the-fact flexible budgets give expected outcomes for a range of activity levels.

Question 12

The variable overhead variance is affected by input price changes only.

Question 13

An activity-based budgetary approach can be used to emphasize cost reduction and process management.

Question 14

A static budget is a budget for a particular level of activity.

Question 15

Activity flexible budgeting is the prediction of what activity costs will be as related output changes.

Question 16

Although general responsibility for the volume variance is usually assigned to the purchasing department,responsibility on occasion may be assigned to the production department.

Question 17

Activity-based budgeting focuses on estimating the costs of activities rather than the costs of departments and plants.

Question 18

Activity-based budgeting supports continuous improvement and process management.

Question 19

The variable overhead spending variance is conceptually identical to the price variances of materials and labor.

Question 20

An after-the-fact flexible budget allows managers to generate financial results from a number of potential scenarios.

Question 21

In an activity framework,controlling costs is equivalent to managing activities.

Question 22

Because activities are what consume resources,activity-based budgeting may prove to be a much more powerful planning and control tool than the traditional approach.

Question 23

A _____________________ compares actual costs with budgeted costs.

Question 24

The _____________________ measures the aggregate effect of differences between the actual variable overhead rate and the standard variable overhead rate.

Question 25

A _______________ is a budget created in advance that is based on a particular level of activity.

Question 26

Activity flexible budgeting is the prediction of what activity costs will be as production output changes.

Question 27

A _________________ enables a firm to compute expected costs for a range of activity levels.

Question 28

An activity-based budgeting system may help support continuous improvement and process management.

Question 29

The ________________________ measures the change in the actual variable overhead cost that occurs because of efficient (or inefficient)use of direct labor

Question 30

______________________ is a prerequisite for assigning responsibility.

Question 31

Budgeted costs change because total variable costs go up as output increases,therefore flexible budgets are sometimes referred to as _______________.

Question 32

The ____________________ budget gives expected outcomes for a range of activity levels.

Question 33

The first step of building an activity-based budget is to identify the activities within an organization.

Question 34

Often,the flexible budget formulas are based on ________________ instead of units.

Question 35

Activity-based budgeting classifies costs as variable or fixed with respect to the activity output measure.

Question 36

For a static activity budget in a company already using an ABC or ABM system,the activities within the organization must be identified.

Question 37

An activity-based budgetary approach can be used to emphasize cost increases through the reduction of wasteful activities and improving the efficiency of necessary activities.

Question 38

The ________________ budget is based on the actual level of activity.

Question 39

A difference between the actual amount and the flexible budget amount is known as the ____________________.

Question 40

_______________________ is the difference between the actual variable overhead and applied variable overhead.

Question 41

A static budget is

A)considered a good choice for benchmarks in preparing a performance report.
B)computes expected costs for a range of activity levels.
C)compares actual costs with budgeted costs.
D)prepared for a particular level of activity.
E)none of these are correct.

Question 42

A budget prepared for a particular level of activity is a(n)

A)operational budget.
B)ABB budget.
C)static budget.
D)flexible budget.
E)variable budget.

Question 43

Which budget is used to assess managerial efficiency?

A)sales budget
B)production budget
C)static budget
D)flexible budget
E)cash budget

Question 44

_________________ are capacity costs acquired in advance of usage.

Question 45

The ______________________ is the difference between the actual fixed overhead and the budgeted fixed overhead.

Question 46

The variable overhead efficiency variance is directly related to the __________________ or usage variance.

Question 47

The ____________________ is the difference between budgeted fixed overhead and applied fixed overhead.

Question 48

To create a meaningful performance report,

A)actual costs are compared with the expected costs found in the static budget.
B)actual costs are calculated as a percentage of sales.
C)actual costs are compared with the prior year's actual costs.
D)expected costs of the static budget are compared with the expected costs of the flexible budget.
E)actual costs are compared with the expected costs at the same level of activity.

Question 49

Flexible budgets are powerful control tools because

A)they allow managers to deal with uncertainty.
B)they allow the calculation of what cost should be for the actual level of activity.
C)they allow the preparation of meaningful performance reports.
D)they help measure managerial efficiency.
E)all of these.

Question 50

A budget that allows the determination of expected costs for various levels of activity is a(n)

A)operational budget.
B)sales budget.
C)production budget.
D)financial budget.
E)flexible budget.

Question 51

_______________________ is the prediction of what activity costs will be as related output changes.

Question 52

Assume that the expectations on the static budget were met.We can conclude that

A)the static budget was ill conceived.
B)the effectiveness of the manager is not in question.
C)the manager is very efficient.
D)there is no need for a flexible budget.
E)none of these.

Question 53

Which budget should be used to determine managerial effectiveness?

A)before-the-fact flexible budget
B)after-the-fact flexible budget
C)static budget
D)financial budget
E)cash budget

Question 54

A static budget is best used to

A)measure whether or not a manager accomplishes his or her goals.
B)compare expected costs at the actual level of activity with the actual costs.
C)assess how well costs were controlled during the year.
D)determine managerial efficiency.
E)none of these.

Question 55

The _____________________ is the difference between actual fixed overhead and applied fixed overhead.

Question 56

The _________________________ focuses on the estimation of the costs of activities rather than the costs of departments and plants.

Question 57

A before-the-fact flexible budget

A)calculates expected costs for various levels of activity.
B)allows managers to deal with uncertainty.
C)can be used to generate results for a number of plausible scenarios.
D)is a useful planning tool.
E)all of these.

Question 58

An after-the-fact flexible budget

A)is a budget for the actual level of activity.
B)is used for performance reports.
C)calculates what costs should have been for the actual level of activity.
D)is used to compare expected costs with actual costs.
E)all of these.

Question 59

A performance report

A)always uses static budgets.
B)compares actual costs with budgeted costs.
C)uses a static or a flexible budget.
D)both compares actual costs with budgeted costs and always uses static budget.
E)both always uses static budgets and usually uses flexible budgets.

Question 60

Activity-based budgeting begins with the _____________ and _______________ budgets.

Question 61

Inefficient usage of labor implies a(n)

A)both unfavorable variable overhead efficiency variance and unfavorable variable overhead spending variance.
B)favorable variable overhead efficiency variance.
C)unfavorable variable overhead spending variance.
D)favorable variable overhead spending variance.
E)unfavorable variable overhead efficiency variance.

Question 62

Responsibility for the variable overhead spending variance is usually assigned to

A)the purchasing department.
B)the production department.
C)the engineering department.
D)the personnel department.
E)none of these.

Question 63

Figure 11-1. Jason,Inc.produces leather purses.Jason has developed a static budget for the first quarter,based on 20,000 direct labor hours.During the quarter,the actual activity was 22,000 direct labor hours.Data for the first quarter are summarized as follows:
Refer to Figure 11-1.What is the flexible budget variance for the first quarter?

A)$1,000 U
B)$23,000 U
C)$23,000 F
D)$1,000 F
E)none of these

Question 64

Figure 11-3. Montgomery Company has developed the following flexible budget formulas for its four overhead items:
Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however this year 19,000 units were produced with the following actual costs:
Refer to Figure 11-3.Using an after-the-fact flexible budget,calculate the total budget variance.

A)$12,510 U
B)$3,600 U
C)$5,000 F
D)$12,510 F
E)none of these.

Question 65

The variable overhead spending variance measures the aggregate effect of differences between the

A)the total variable overhead and the applied variable overhead.
B)the total variable overhead and total budgeted overhead costs.
C)the total variable overhead and the budgeted overhead for the expected activity.
D)the actual variable overhead rate and the standard variable overhead rate.
E)none of these.

Question 66

In a standard cost system,variable overhead is applied

A)using actual direct labor hours.
B)using budgeted indirect labor hours.
C)using direct labor hours at practical capacity.
D)using standard direct labor hours.
E)all of these.

Question 67

The two variances for variable overhead are

A)spending and efficiency variances.
B)spending and budget variances.
C)budget and volume variances.
D)spending and volume variances.
E)volume and efficiency variances.

Question 68

Figure 11-3. Montgomery Company has developed the following flexible budget formulas for its four overhead items:
Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however this year 19,000 units were produced with the following actual costs:
Refer to Figure 11-3.Calculate the variance for maintenance using an after-the-fact flexible budget.

A)$13,000 U
B)$13,100 F
C)$11,000 U
D)$1,000 F
E)none of these

Question 69

Figure 11-2. Lawson,Inc.produces plastic grocery bags.Lawson has developed a static budget for the month of July based on 8,000 direct labor hours.During the quarter,the actual activity was 9,000 direct labor hours.Data for July are summarized as follows:
Refer to Figure 11-2.What is the flexible budget variance for July?

A)$12,000 U
B)$12,000 F
C)$29,000 U
D)$29,000 F
E)none of these

Question 70

Figure 11-1. Jason,Inc.produces leather purses.Jason has developed a static budget for the first quarter,based on 20,000 direct labor hours.During the quarter,the actual activity was 22,000 direct labor hours.Data for the first quarter are summarized as follows:
Refer to Figure 11-1.What is the flexible budget amount for the first quarter?

A)$288,000
B)$311,000
C)$312,000
D)$261,000
E)Cannot be determined

Question 71

The variable overhead efficiency variance claims to measure

A)changes in spending efficiency.
B)productive efficiency.
C)changes in variable overhead costs because of the efficient (inefficient)use of the cost driver.
D)changes in variable overhead costs attributable to inefficient purchase of variable inputs.
E)none of these

Question 72

Figure 11-1. Jason,Inc.produces leather purses.Jason has developed a static budget for the first quarter,based on 20,000 direct labor hours.During the quarter,the actual activity was 22,000 direct labor hours.Data for the first quarter are summarized as follows:
Refer to Figure 11-1.Comparing the static budget to the actual outcomes,we can say the following:

A)the manager had more direct labor hours.
B)the variances are all unfavorable.
C)the comparison is not useful for assessing managerial efficiency.
D)a flexible budget should be used for assessing efficiency.
E)all of these.

Question 73

The total variable overhead variance is the difference between

A)the actual overhead and the budgeted overhead.
B)the total actual variable overhead and the total budgeted variable overhead.
C)the total actual variable overhead and the total applied variable overhead.
D)the total actual variable overhead and the total applied overhead.
E)none of these.

Question 74

The formula for the variable overhead spending variance can be expressed as follows:

A)(AH - SH)SVOR
B)(AVOR - SVOR)SH
C)(AVOR - SVOR)AH
D)(AH - SH)AVOR
E)none of these

Question 75

Figure 11-3. Montgomery Company has developed the following flexible budget formulas for its four overhead items:
Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however this year 19,000 units were produced with the following actual costs:
Refer to Figure 11-3.Calculate the after-the-fact budget for the actual level of activity.

A)$91,600
B)$115,000
C)$118,600
D)$77,400
E)none of these

Question 76

Figure 11-3. Montgomery Company has developed the following flexible budget formulas for its four overhead items:
Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however this year 19,000 units were produced with the following actual costs:
Refer to Figure 11-3.Using an after-the-fact flexible budget,calculate the variance for power.

A)$1,000 F
B)$1,010 U
C)$3,000 U
D)$1,010 F
E)none of these

Question 77

Figure 11-2. Lawson,Inc.produces plastic grocery bags.Lawson has developed a static budget for the month of July based on 8,000 direct labor hours.During the quarter,the actual activity was 9,000 direct labor hours.Data for July are summarized as follows:
Refer to Figure 11-2.What is the flexible budget for July?

A)$142,000
B)$159,000
C)$171,000
D)$165,000
E)none of these

Question 78

Figure 11-3. Montgomery Company has developed the following flexible budget formulas for its four overhead items:
Montgomery normally produces 15,000 units (each unit requires 0.30 direct labor hours); however this year 19,000 units were produced with the following actual costs:
Refer to Figure 11-3.Prepare an overhead budget for the expected activity level of 10,000 units.The total budgeted overhead is

A)$139,400.
B)$64,400.
C)$124,000.
D)$12,400.
E)none of these.

Question 79

The formula for calculating the variable overhead efficiency variance is

A)(AVOR ´ AH)- (SVOR ´ AH)
B)(AVOR - SVOR)SH
C)(AH - SH)SVOR
D)(AH - SH)AVOR
E)none of these

Question 80

Figure 11-2. Lawson,Inc.produces plastic grocery bags.Lawson has developed a static budget for the month of July based on 8,000 direct labor hours.During the quarter,the actual activity was 9,000 direct labor hours.Data for July are summarized as follows:
Refer to Figure 11-2.Comparing the static budget to the actual costs,we can conclude that

A)the manager spent more than should have been spent.
B)immediate action is needed to reduce costs.
C)the plant manager was clearly not efficient.
D)the plant manager should be dismissed.
E)none of these.