Deck 8: Flexible Budgets, Standard Costs and Variance Analysis

Question 1

Standard costs are the amount that managers expect to incur to produce a good or service under standard operating conditions.

Answer 1

A

Question 2

There are two reasons for calculating variances; bookkeeping and monitoring.

Answer 2

A

Question 3

Sensitivity analysis can be used to estimate the effects of deviations from budget assumptions.

Answer 3

A

Question 4

Variance analysis involves calculating variances and preparing journal entries.

Question 5

A flexible budget uses the variable cost information from the static budget but changes the fixed costs to reflect actual volume.

Question 6

Another name for master budget is static budget.

Question 7

Standards should be reviewed periodically.

Question 8

Organisations should always use ideal standards to motivate employees.

Question 9

A flexible budget is a set of cost relationships that can be used to estimate costs and cash flows for any level of operations within the relevant range.

Question 10

Ideal standards assume perfect operating conditions that achieve maximum efficiency.

Question 11

Currently attainable standards assume normal operating conditions which make allowances for inefficiencies in the production process.

Question 12

There are two types of standards; ideal standard and efficient standard.

Question 13

The standard cost of direct labour is computed as the standard price per labour hour multiplied by the standard labour hours per unit of output.

Question 14

To establish standard costs organisations need to identify the standard usage of resources and the standard costs of resources.

Question 15

Ideal standards make allowances for unexpected events.

Question 16

The use of standard costs is suited to organisations which produce highly customised goods or services.

Question 17

Standards costs cannot be used for new products as no information about resource use is available.

Question 18

Variances are differences between budgeted and actual results.

Question 19

It is not possible to calculate a standard cost of fixed overhead as fixed overhead is not determined by units of output.

Question 20

Managers can study the difference between the static budget and the flexible budget to identify ways to improve future operations.

Question 21

If managers could accurately predict actual volume when preparing the master budget there would be no need for flexible budgets.

Question 22

The static budget compared to flexible budget will compute a volume variance.

Question 23

Efficiency variances provide information about how economically resources have been used.

Question 24

A standard cost variance can be broken down into a price variance and a direct variance.

Question 25

If a variance is considered to be random or not expected to recur the appropriate management action is to delete the variance from the accounting records.

Question 26

Calculating the dollar amount of a variance is all that is required for decision making.

Question 27

Which of the following is the same amount in the master budget and the flexible budget?

A) sales volume
B) variable costs
C) fixed costs
D) direct costs

Question 28

A standard cost variance is the difference between a standard cost and an actual cost.

Question 29

The preparation of the flexible budget eliminates the variance caused by volume differences in overall activity.

Question 30

Flexible budgets in a standard costing environment are based on the standard cost for actual output.

Question 31

Management by exception refers to investigating all variances.

Question 32

The master budget is also called a:

A) static budget
B) flexible budget
C) direct budget
D) cost budget

Question 33

A price variance is the difference between standard and actual prices paid for resources purchased and used.

Question 34

The starting point for variance analysis is to compare the static budget to actual costs to determine volume variance.

Question 35

Interactions between employee incentives and variances may result in incentives creating unanticipated problems.

Question 36

Variances in standard costing can be separated in the following categories; direct materials, direct labour, fixed overhead and variable overhead.

Question 37

One element of variance analysis is identifying reasons for variances.

Question 38

When actual costs exceed budgeted costs the variance will be favourable.

Question 39

Managers choose which variance to investigate by considering the amount of the variance and any other relevant factors such as changes in trends.

Question 40

If variances show that the operations are better than expected the appropriate management action is to continue monitoring to ensure it is maintained and modify future operating plans accordingly.

Question 41

Standards which assume normal operating conditions are called:

A) ideal standards
B) efficiency standards
C) historical standards
D) currently attainable standards

Question 42

Variance analysis includes which of the following processes?
I $\quad$ Calculating variances
II $\quad$ Choosing variances for further investigation
III $\quad$ Predicting variances in future periods

A) I and II only
B) I and III only
C) II and III only
D) I, II, and III

Question 43

Management by exception means that managers investigate:

A) All variances
B) All unfavourable variances
C) Variances they consider important
D) All exceptional variances

Question 44

In a production setting, the standard cost of a unit of output is the sum of the standard costs of:

A) Direct material, direct labour, and variable overhead
B) Direct material, direct labour, and fixed overhead
C) Direct material, direct labour, variable overhead, and fixed overhead
D) Direct material, direct labour, and period costs

Question 45

A _______________ is a set of cost relationships that can be used to estimate costs for any level of operations within the relevant range.

A) static budget
B) standard cost
C) flexible budget
D) master budget

Question 46

Variances are calculated for which of the following reasons:

A) budgeting
B) bookkeeping
C) monitoring
D) b and c

Question 47

A tool that managers use to estimate the effects of deviations from budget assumptions is known as:

A) sensitivity analysis
B) variance analysis
C) standard costing
D) benchmarking

Question 48

If actual costs are less than budgeted costs then the variance will be:

A) favourable
B) unfavourable
C) immaterial
D) b and c

Question 49

Price variances analyse:

A) use of resources
B) sales prices of outputs
C) cost of inputs
D) none of the above

Question 50

Standard cost variances can be broken down into:

A) price variances
B) efficiency variances
C) operating variances
D) a and b

Question 51

The difference between the standard quantity of an input and the actual quantity of an input is a:

A) price variance
B) efficiency variance
C) operating variance
D) none of the above

Question 52

Standards may be derived using:

A) historical data
B) the assistance of industrial engineers
C) benchmarking
D) all of the above

Question 53

The difference between the standard and actual prices paid for resources purchased is a:

A) price variance
B) efficiency variance
C) volume variance
D) quantity variance

Question 54

If actual revenue is less than budgeted revenue then the variance will be:

A) favourable
B) unfavourable
C) immaterial
D) a and c

Question 55

The standard cost of fixed overhead is calculated by:

A) standard fixed overhead allocation rate multiplied by standard quantity of direct labour per unit of output
B) standard fixed overhead allocation rate multiplied by standard quantity of allocation base per unit of input
C) standard fixed overhead allocation rate multiplied by standard quantity of allocation base per unit of output
D) total fixed overhead multiplied by standard quantity of allocation base per unit of output

Question 56

Standard costing allows management to:
I $\quad$ Plan operations
II $\quad$ Monitor Performance
III $\quad$ Control costs

A) I and II only
B) I and III only
C) II and III only
D) I, II, and III

Question 57

The process of calculating variances and analysing the reasons they occurred is called:

A) Benchmarking
B) Budget analysis
C) Trend analysis
D) Variance analysis

Question 58

Expected costs per unit of input are called:

A) Standard prices
B) Standard revenues
C) Standard quantities
D) Standard costs

Question 59

Ideal standards assume:

A) perfect operating conditions
B) normal operating conditions
C) substandard operating conditions
D) less than 100% efficiency

Question 60

Standard costs are established under operating plan assumptions which include: I $\quad$ Volume of production activity
II $\quad$ Just in time inventory management
III $\quad$ Prices and quality of inputs

A) I and II only
B) I and III only
C) II and III only
D) I, II, and III

Question 61

Variance analysis involves the steps listed below. In which order should the steps be performed?
1 Draw conclusions and take action
2 Calculate variances
3 Choose variances for further investigation
4 Identify reasons for variances

A) 1, 2, 3, 4
B) 2, 3, 4, 1
C) 2, 1, 4, 3
D) 2, 4, 3, 1

Question 62

Fickle Factory Ltd produces unique large ceramic frogs. The accountant has collected the following information regarding standard costs. $$\begin{array} { | l | l | } \hline \text { Praductim Input } & \text { Standard Cast } \\\hline \text { Direct Materials } & \begin{array} { l } 2 \text { kilos of raw material } \\\text { Each kilo } = \$ 5\end{array} \\\hline \text { Direct Labour } & \begin{array} { l } \text { 1 hour } \\\text { Direct Labour is charged at } \$ 10 \text { per hour }\end{array} \\\hline \text { Variable Overhead } &\$ 2 \text { per direct labour hour } \\\hline \text { Fixed Overhead } & \$ 4 \text { per frog } \\\hline\end{array}$$ Total fixed overhead for the year is estimated to be $80,000. The selling price for each frog is $45.
The static budget for direct materials the year is:

A) $200,000
B) $100,000
C) $80,000
D) $10,000

Question 63

Thai Connection Ltd is a travel agency. They budget monthly costs of $50,000 plus $125 per customer served. They plan to serve 550 customers per month. During June they served 580 customers. Actual costs for June were $53,000 fixed costs and $65,000 variable costs. The flexible budget variance for variable costs is due to:

A) more customers served than expected
B) lower variable costs per customer than expected
C) higher fixed costs than expected
D) a and b

Question 64

Thai Connection Ltd is a travel agency. They budget monthly costs of $50,000 plus $125 per customer served. They plan to serve 550 customers per month. During June they served 580 customers. Actual costs for June were $53,000 fixed costs and $65,000 variable costs. The flexible budget for June is:

A) Fixed Costs $50,000; Variable Costs $68,750
B) Fixed costs $50,000: Variable Costs $72,500
C) Fixed costs $53,000; Variable Costs $65,000
C) Fixed costs $53,000; Variable Costs $72,500

Question 65

Fickle Factory Ltd produces unique large ceramic frogs. The accountant has collected the following information regarding standard costs. $$\begin{array} { | l | l | } \hline \text { Praductim Input } & \text { Standard Cast } \\\hline \text { Direct Materials } & \begin{array} { l } 2\text { kilos of raw material } \\\text { Each kilo } = \$ 5\end{array} \\\hline \text { Direct Labour } & \begin{array} { l } \text { 1 hour } \\\text { Direct Labour is charged at } \$ 10 \text { per hour }\end{array} \\\hline \text { Variable Overhead } & \$ 2 \text { per direct labour hour } \\\hline \text { Fixed Overhead } & \$ 4 \text { per frog } \\\hline\end{array}$$ Total fixed overhead for the year is estimated to be $80,000. The selling price for each frog is $45.
Calculate the standard cost for one frog.

A) $24
B) $22
C) $26
D) $20

Question 66

Managers should consider possible interactions between incentives and variances because:

A) Research has shown that variance analysis reduces employee morale
B) Activities affect more than one department and incentives in one department may cause unfavourable variances in another department.
C) Rewards based on standard costs reduce organisational effectiveness.
D) All of the above

Question 67

Fickle Factory Ltd produces unique large ceramic frogs. The accountant has collected the following information regarding standard costs. $$\begin{array} { | l | l | } \hline \text { Praductim Input } & \text { Standard Cast } \\\hline \text { Direct Materials } & \begin{array} { l } 2 \text { kilos of raw material } \\\text { Each kilo } = \$ 5\end{array} \\\hline \text { Direct Labour } & \begin{array} { l } \text { 1 hour } \\\text { Direct Labour is charged at } \$ 10 \text { per hour }\end{array} \\\hline \text { Variable Overhead } &\$ 2 \text { per direct labour hour } \\\hline \text { Fixed Overhead } & \$ 4 \text { per frog } \\\hline\end{array}$$ Total fixed overhead for the year is estimated to be $80,000. The selling price for each frog is $45. Actual sales and production was 22,000
The flexible budget for direct materials the year is:

A) $200,000
B) $100,000
C) $220,000
D) $10,000

Question 68

Standard cost for actual output is also called the:

A) flexible budget
B) static budget
C) master budget
D) quantity variance

Question 69

Fickle Factory Ltd produces unique large ceramic frogs. The accountant has collected the following information regarding standard costs. $$\begin{array} { | l | l | } \hline \text { Praductim Input } & \text { Standard Cast } \\\hline \text { Direct Materials } & \begin{array} { l } 2 \text { kilos of raw material } \\\text { Each kilo } = \$ 5\end{array} \\\hline \text { Direct Labour } & \begin{array} { l } \text { 1 hour } \\\text { Direct Labour is charged at } \$ 10 \text { per hour }\end{array} \\\hline \text { Variable Overhead } & \$ 2 \text { per direct labour hour } \\\hline \text { Fixed Overhead } & \$ 4 \text { per frog } \\\hline\end{array}$$ Total fixed overhead for the year is estimated to be $80,000. The selling price for each frog is $45. Actual sales and production was 22,000. Actual direct material cost was $220,000.
The flexible budget variance for direct materials the year is:

A) $20,000 unfavourable
B) $0
C) $20,000 favourable
D) unable to be determined

Question 70

Thai Connection Ltd is a travel agency. They budget monthly costs of $50,000 plus $125 per customer served. They plan to serve 550 customers per month. During June they served 580 customers. Actual costs for June were $53,000 fixed costs and $65,000 variable costs. The flexible budget variance for fixed costs in June is:

A) $3750 unfavourable
B) $12,000 favourable
C) $0
D) $3,000 unfavourable

Question 71

Thai Connection Ltd is a travel agency. They budget monthly costs of $50,000 plus $125 per customer served. They plan to serve 550 customers per month. During June they served 580 customers. Actual costs for June were $53,000 fixed costs and $65,000 variable costs. The static budget for June is:

A) Fixed Costs $50,000; Variable Costs $68,750
B) Fixed costs $50,000: Variable Costs $125
C) Fixed costs $50,000; Variable Costs $65,000
C) Fixed costs $53,000; Variable Costs $65,000

Question 72

Thai Connection Ltd is a travel agency. They budget monthly costs of $50,000 plus $125 per customer served. They plan to serve 550 customers per month. During June they served 580 customers. Actual costs for June were $53,000 fixed costs and $65,000 variable costs. The flexible budget variance for variable costs in June is:

A) $3,750 favourable
B) $7,500 unfavourable
C) $3,750 unfavourable
D) $7,500 favourable

Question 73

If the conclusion from a variance analysis is that the benchmark is inappropriate then the correct management action is to:

A) Write off the variance against cost of goods sold
B) Do nothing
C) Revise benchmark
D) Replace the manager who set the benchmark

Question 74

How do managers decide which variances are important enough to investigate? I $\quad$ When the variance is unfavourable
II $\quad$ When the variance is larger than a specified amount or percentage
III $\quad$ When the variance trends are increasing

A) I only
B) II only
C) III only
D) II and III only

Question 75

If a variance analysis shows that operations are better than expected, managers should:

A) Do nothing
B) Revise standard costs to make them harder to achieve
C) Monitor quality to ensure it was maintained
D) Change the accounting records so that unrealistic expectations aren't imposed in future

Question 76

Fickle Factory Ltd produces unique large ceramic frogs. The accountant has collected the following information regarding standard costs. $$\begin{array} { | l | l | } \hline \text { Praductim Input } & \text { Standard Cast } \\\hline \text { Direct Materials } & \begin{array} { l } \text { 2 kilos of raw material } \\\text { Each kilo } = \$ 5\end{array} \\\hline \text { Direct Labour } & \begin{array} { l } \text { 1 hour } \\\text { Direct Labour is charged at } \$ 10 \text { per hour }\end{array} \\\hline \text { Variable Overhead } & \text { \$2 per direct labour hour } \\\hline \text { Fixed Overhead } & \$ 4 \text { per frog } \\\hline\end{array}$$ Total fixed overhead for the year is estimated to be $80,000. The selling price for each frog is $45. Actual sales and production was 22,000.
The flexible budget for fixed overhead for the year is:

A) $88,000
B) $72,727
C) $80,000 $ $10,000