Deck 7: Flexible Budgets, Variances, and Management Control: I

Question 1

Variances and flexible budgets help managers gain insights into why actual results differ from planned performance.

Answer 1

True

Question 2

Answer the following question(s)using the information below.Abernathy Corporation used the following data to evaluate their current operating system.The company sells items for $10 each and used a budgeted selling price of $10 per unit.
What is the static-budget variance of operating income?

A)$3,800 favourable
B)$1,200 unfavourable
C)$6,200 favourable
D)$6,200 unfavourable
E)$1,200 favourable

Answer 2

C

Question 3

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)<$3,360,000>
B)$4,750,000
C)$5,200,000
D)$5,550,000
E)$5,970,000

Answer 3

D

Question 4

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)$7,000,000
B)$5,970,000
C)$5,550,000
D)$5,200,000
E)$4,750,000

Question 5

A variance is the difference between the actual result and a budgeted amount.

Question 6

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.
E)a standard.

Question 7

A static budget is a budget that can be changed or altered after it is developed.

Question 8

A budget that is adjusted in accordance with changes in actual output is called

A)a balanced budget.
B)a cost budget.
C)a flexible budget.
D)a trial balance budget.
E)a static budget.

Question 9

A variance is the difference between the actual cost for the current and previous year.

Question 10

Management by exception is the practice of concentrating on

A)the master budget variances.
B)on areas where performance fails to meet expectations.
C)favourable variances.
D)unfavourable variances.
E)exceptional results.

Question 11

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

Question 12

General Insurance Company had a static budgeted operating income of $4.6 million; however, actual income was $3.0 million.What is the static budget variance of operating income?

A)$1,000,000 favourable
B)$1,000,000 unfavourable
C)$1,600,000 favourable
D)$3,000,000 favourable
E)$1,600,000 unfavourable

Question 13

Management by exception is the practice of focusing management attention on areas where performance meets expectations.

Question 14

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)$650,000 favourable
B)$450,000 unfavourable
C)$400,000 favourable
D)$390,000 unfavourable
E)$350,000 favourable

Question 15

Answer the following question(s)using the information below.Abernathy Corporation used the following data to evaluate their current operating system.The company sells items for $10 each and used a budgeted selling price of $10 per unit.
What is the static-budget variance of revenues?

A)$20,000 favourable
B)$20,000 unfavourable
C)$2,000 favourable
D)$2,000 unfavourable
E)$25,000 unfavourable

Question 16

The type of budget that is based on one level of output, without adjustment for any operational or financial changes is called

A)a balanced budget.
B)a cost budget.
C)a flexible budget.
D)a static budget.
E)a standard budget.

Question 17

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.
A company uses a static budget approach and the previous management accountant calculated the following information: Fixed costs variance $10,000 U; revenues variance $400,000 F; contribution margin variance $60,000 F.What is the total static-budget variance?

A)$50,000 F
B)$50,000 U
C)$230,000 F
D)$230,000 U
E)$390,000 F

Question 18

A flexible budget is a budget that is developed using budgeted revenue or cost amounts and is not adjusted at the end of the budgeted period.

Question 19

Some financial variances show increases in operating income relative to a budgeted or allocated amount, and others show decreases in operating income.Respectively, these variances are

A)budgeted, standard.
B)favourable, unfavourable.
C)standard, budgeted.
D)unfavourable, favourable.
E)fixed, variable.

Question 20

Answer the following question(s)using the information below.Abernathy Corporation used the following data to evaluate their current operating system.The company sells items for $10 each and used a budgeted selling price of $10 per unit.
What is the static-budget variance of variable costs?

A)$1,200 favourable
B)$18,800 favourable
C)$20,000 favourable
D)$1,200 unfavourable
E)$18,800 unfavourable

Question 21

Use the information below to answer the following question(s).Bates Corporation used the following data to evaluate their current operating system.The company sells items for $10 each and used a budgeted selling price of $10 per unit.
What is the static-budget variance of variable costs?

A)$200,000 favourable
B)$50,000 unfavourable
C)$50,000 favourable
D)$250,000 unfavourable
E)$250,000 favourable

Question 22

An unfavourable variance is conclusive evidence of poor performance.

Question 23

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. Required:
Prepare a Level 1 static-budget variance analysis using a income statement in contribution margin format.Use the following three column headings: Actual Results, Static Budget, Static-budget Variance.

Question 24

The flexible-budget variance pertaining to revenues is also called the variance of operating income.

Question 25

The sales-volume variance is the difference between the flexible-budget amount and the static-budget amount; unit selling prices, unit variable costs, and fixed costs are held constant.

Question 26

Saan 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. Required:
Prepare a Level 1 static-budget variance analysis using a income statement in contribution margin format.Use the following three column headings: Actual Results, Static Budget, Static-budget Variance.

Question 27

Variances can be expected to vary within some normal limits, so not all variances require further investigation.

Question 28

Use the information below to answer the following question(s).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 favourable
B)$13,000 unfavourable
C)$15,000 favourable
D)$15,000 unfavourable
E)$3,000 unfavourable

Question 29

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

Question 30

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

Question 31

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

Question 32

Use the information below to answer the following question(s).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)$258,000 unfavourable
B)$258,000 favourable
C)$222,000 favourable
D)$222,000 unfavourable
E)$3,000 unfavourable

Question 33

Determining the actual quantity of the revenue driver is one step in the development of a flexible budget.

Question 34

Use the information below to answer the following question(s).Bates Corporation used the following data to evaluate their current operating system.The company sells items for $10 each and used a budgeted selling price of $10 per unit.
What is the static-budget variance of operating income?

A)$175,000 favourable
B)$195,000 unfavourable
C)$225,000 favourable
D)$200,000 unfavourable
E)$200,000 favourable

Question 35

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

Question 36

Use the information below to answer the following question(s).Bates Corporation used the following data to evaluate their current operating system.The company sells items for $10 each and used a budgeted selling price of $10 per unit.
What is the static-budget variance of revenues?

A)$50,000 favourable
B)$50,000 unfavourable
C)$5,000 favourable
D)$5,000 unfavourable
E)$25,000 unfavourable

Question 37

The flexible budget contains

A)budgeted amounts for alternative levels of output.
B)actual amounts for budgeted output.
C)revenue based on budgeted quantity and actual unit price.
D)actual costs for planned output.
E)the difference between flexible and static budget fixed costs.

Question 38

The flexible-budget variance is the difference between the actual results and the flexible-budget amount for the actual levels of the revenue and cost drivers.

Question 39

Use the information below to answer the following question(s).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 favourable
B)$240,000 favourable
C)$240,000 unfavourable
D)$6,000 favourable
E)$6,000 unfavourable

Question 40

A flexible budget enables managers to compute a richer set of variances than a static budget does.

Question 41

Use the following data to prepare a flexible budget for possible sales/production levels of 6,000; 7,000; and, 8,000 units.Show the contribution margin at each activity level. Variable costs:
Fixed costs:

Question 42

Rate variances are considered to be the difference between the actual price and the budgeted price multiplied by the actual quantity of input goods or services.

Question 43

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)$40,000; $34,000
D)$44,000; $38,000
E)$2,500; <$14,500>

Question 44

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. Variable costs:
Fixed costs:

Question 45

A flexible-budget variance can be decomposed into an efficiency variance and a rate variance.

Question 46

Bach Table Company manufactures tables for schools.The current year operating budget is based on sales of 40,000 units at $50 per table.Operating income is anticipated to be $300,000.Budgeted variable costs are $30 per unit, while fixed costs total $500,000.Actual income for the year was a surprising $2,268,000 on actual sales of 42,000 units.Actual variable costs were $33 per unit and fixed costs totaled $550,000.Required:
Prepare a Level 2 variance analysis report with both flexible-budget and sales-volume variances.

Question 47

Use the information below to answer the following question(s).The following data for a pottery company pertain to the production of 2,000 clay pots during July.Direct Materials (all materials purchased were used):
Direct Manufacturing Labour:

What is the direct manufacturing labour efficiency variance?

A)$672 unfavourable
B)$500 favourable
C)$672 favourable
D)$500 unfavourable
E)$28 favourable

Question 48

If a company has a favourable efficiency variance, it uses less inputs than were budgeted for the output units achieved.

Question 49

Use the information below to answer the following question(s).The following data for a pottery company pertain to the production of 2,000 clay pots during July.Direct Materials (all materials purchased were used):
Direct Manufacturing Labour:

What is the standard direct material amount per pot?

A)1.00 kilogram
B)1.88 kilograms
C)2.12 kilograms
D)3.00 kilograms
E)4.00 kilograms

Question 50

The flexible-budget variance measures

A)what the costs and revenues should have been for the budgeted number of outputs.
B)the difference between budgeted expenditures and actual expenditures for the budgeted number of outputs.
C)the difference between budgeted and actual variable costs.
D)[expected expenditures for the actual number of outputs] + [the actual expenditures for the actual number of outputs].
E)[actual cost for the actual level of the revenue or cost driver] - [budget unit amount × the actual level of the revenue or cost driver].

Question 51

An input-price variance is the difference between actual quantity of input used and the budgeted quantity of input that should have been used, multiplied by the budgeted price.

Question 52

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 53

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 54

For any actual level of output, the efficiency variance is the difference between actual quantity of input used and the budgeted quantity of input allowed to produce actual output, multiplied by the budgeted price.

Question 55

The term efficiency variance is the direct cost portion of the flexible-budget variance.

Question 56

Describe the purpose of variance analysis.

Question 57

The terms, usage variances and efficiency variances mean the same thing.

Question 58

A packaging company produces a variety of cardboard boxes in an automated process.Expected production per month is 160,000 units.The required direct materials costs $0.30 per unit.Variable manufacturing overhead costs are $24,000 per month and are allocated based on units of production.Direct labour is budgeted to be $6,400.The company only produces based on customer orders, so all production is considered sold as it is produced.Revenue for the month will be $240,000.What is the budgeted contribution margin per unit?

A)$1.50 per unit
B)$1.31 per unit
C)$1.16 per unit
D)$1.05 per unit
E)$1.01 per unit

Question 59

Rate variances are the difference between actual inputs used and budgeted inputs that should have been used, multiplied by the budgeted price.

Question 60

Whistler Table Company manufactures tables for schools.The current year operating budget is based on sales of 20,000 units at $100 per table.Operating income is anticipated to be $120,000.Budgeted variable costs are $64 per unit while fixed costs total $600,000.Actual income for the year was $2,184,000 on actual sales of 21,000 units.Actual variable costs were $60 per unit and fixed costs totaled $570,000.Required:
Prepare a Level 2 variance analysis report with both flexible-budget and sales-volume variances.

Question 61

Use the information below to answer the following question(s).Tractor Corporation produces toy tractors.The company uses the following direct cost categories:
Actual performance for the company is shown below:
Actual output: 5,000 units
Direct Materials:
Direct Manufacturing Labour:
Direct Marketing Labour:

What is the rate variance of the direct materials?

A)$10,000 favourable
B)$11,500 unfavourable
C)$11,500 favourable
D)$10,000 unfavourable
E)$11,000 favourable

Question 62

Use the information below to answer the following question(s).Robb Industries Inc.(RII), developed standard costs for direct material and direct labour.In 2019, RII estimated the following standard costs for one of their major products, the 10-litre plastic container. During June 2020, RII produced and sold 5,000 containers using 490 kilograms of direct materials at an average actual cost per kilogram of $32 and 250 direct manufacturing labour-hours at an average actual wage of $15.25 per hour.
June's direct material rate variance is

A)$980 unfavourable.
B)$1,000 favourable.
C)$680 favourable.
D)$980 favourable.
E)$1,000 unfavourable.

Question 63

Use the information below to answer the following question(s).A company makes table lamps, for which the following standards have been developed:
During January, production of 100 lamps was expected, but 110 lamps were actually completed.Direct materials purchased and used were 2,100 kilograms at an actual price of $2.20 per kilogram.Direct labour cost for the month was $5,310, and the actual pay per hour was $9.00.
The direct-labour efficiency variance for the month of January is

A)$630 unfavourable.
B)$560 unfavourable.
C)$630 favourable.
D)$560 favourable.
E)$70 favourable.

Question 64

Use the information below to answer the following question(s).All Good Things Ltd.planned on producing 600 units for the year.However, actual production was 400 units.Information concerning the direct labour cost for All Good Things Ltd.is as follows: actual results 1,000 hours at $25 per hour; static budget amounts were 1,200 hours at $21 per hour.
What is the All Good Things Ltd.static-budget variance?

A)$400 F
B)$400 U
C)$600 F
D)$200 F
E)$200 U

Question 65

Use the information below to answer the following question(s).A company makes table lamps, for which the following standards have been developed:
During January, production of 100 lamps was expected, but 110 lamps were actually completed.Direct materials purchased and used were 2,100 kilograms at an actual price of $2.20 per kilogram.Direct labour cost for the month was $5,310, and the actual pay per hour was $9.00.
The direct-material rate variance for January is

A)$420 unfavourable.
B)$420 favourable.
C)$400 favourable.
D)$400 unfavourable.
E)$20 favourable.

Question 66

Use the information below to answer the following question(s).Robb Industries Inc.(RII), developed standard costs for direct material and direct labour.In 2019, RII estimated the following standard costs for one of their major products, the 10-litre plastic container. During June 2020, RII produced and sold 5,000 containers using 490 kilograms of direct materials at an average actual cost per kilogram of $32 and 250 direct manufacturing labour-hours at an average actual wage of $15.25 per hour.
June's direct manufacturing labour efficiency variance is

A)$62.50 unfavourable.
B)$62.50 favourable.
C)$128.00 unfavourable.
D)$128.00 favourable.
E)neither favourable nor unfavourable.

Question 67

Use the information below to answer the following question(s).Robb Industries Inc.(RII), developed standard costs for direct material and direct labour.In 2019, RII estimated the following standard costs for one of their major products, the 10-litre plastic container. During June 2020, RII produced and sold 5,000 containers using 490 kilograms of direct materials at an average actual cost per kilogram of $32 and 250 direct manufacturing labour-hours at an average actual wage of $15.25 per hour.
June's direct material flexible-budget variance is

A)$980 unfavourable.
B)$300 favourable.
C)$680 favourable.
D)$980 favourable.
E)$680 unfavourable.

Question 68

Use the information below to answer the following question(s).The following data for a pottery company pertain to the production of 2,000 clay pots during July.Direct Materials (all materials purchased were used):
Direct Manufacturing Labour:

What is the direct manufacturing labour rate variance?

A)$186 favourable
B)$486 unfavourable
C)$486 favourable
D)$672 unfavourable
E)$672 favourable

Question 69

Use the information below to answer the following question(s).All Good Things Ltd.planned on producing 600 units for the year.However, actual production was 400 units.Information concerning the direct labour cost for All Good Things Ltd.is as follows: actual results 1,000 hours at $25 per hour; static budget amounts were 1,200 hours at $21 per hour.
What is the All Good Things Ltd.sales-volume variance?

A)$8,400 F
B)$8,400 U
C)$8,200 U
D)$8,200 F
E)$200 F

Question 70

Use the information below to answer the following question(s).Tractor Corporation produces toy tractors.The company uses the following direct cost categories:
Actual performance for the company is shown below:
Actual output: 5,000 units
Direct Materials:
Direct Manufacturing Labour:
Direct Marketing Labour:

What is the rate variance of the direct manufacturing labour, and the direct marketing labour, respectively?

A)$4,750 favourable; $12,500 favourable
B)$8,000 favourable; $10,000 favourable
C)$3,500 unfavourable; $6,750 unfavourable
D)3,500 favourable; $6,750 favourable
E)$4,750 unfavourable; $12,500 unfavourable

Question 71

Use the information below to answer the following question(s).A company makes table lamps, for which the following standards have been developed:
During January, production of 100 lamps was expected, but 110 lamps were actually completed.Direct materials purchased and used were 2,100 kilograms at an actual price of $2.20 per kilogram.Direct labour cost for the month was $5,310, and the actual pay per hour was $9.00.
For any actual level of output, the difference between the input that was actually used and the input should have been used is

A)an effectiveness variance.
B)a purchase cost variance.
C)the variance rate.
D)a rate variance.
E)an efficiency variance.

Question 72

Use the information below to answer the following question(s).Robb Industries Inc.(RII), developed standard costs for direct material and direct labour.In 2019, RII estimated the following standard costs for one of their major products, the 10-litre plastic container. During June 2020, RII produced and sold 5,000 containers using 490 kilograms of direct materials at an average actual cost per kilogram of $32 and 250 direct manufacturing labour-hours at an average actual wage of $15.25 per hour.
June's direct material efficiency variance is

A)$320 unfavourable.
B)$300 favourable.
C)$680 favourable.
D)$300 unfavourable.
E)$320 favourable.

Question 73

Use the information below to answer the following question(s).Robb Industries Inc.(RII), developed standard costs for direct material and direct labour.In 2019, RII estimated the following standard costs for one of their major products, the 10-litre plastic container. During June 2020, RII produced and sold 5,000 containers using 490 kilograms of direct materials at an average actual cost per kilogram of $32 and 250 direct manufacturing labour-hours at an average actual wage of $15.25 per hour.
June's direct manufacturing labour rate variance is

A)neither favourable or unfavourable.
B)$62.50 favourable.
C)$128.00 unfavourable.
D)$62.50 unfavourable.
E)$128.00 favourable.

Question 74

Use the information below to answer the following question(s).All Good Things Ltd.planned on producing 600 units for the year.However, actual production was 400 units.Information concerning the direct labour cost for All Good Things Ltd.is as follows: actual results 1,000 hours at $25 per hour; static budget amounts were 1,200 hours at $21 per hour.
What is the All Good Things Ltd.direct labour rate variance?

A)$4,200 U
B)$4,200 F
C)$200 F
D)$4,000 F
E)$4,000 U

Question 75

Use the information below to answer the following question(s).All Good Things Ltd.planned on producing 600 units for the year.However, actual production was 400 units.Information concerning the direct labour cost for All Good Things Ltd.is as follows: actual results 1,000 hours at $25 per hour; static budget amounts were 1,200 hours at $21 per hour.
What is the All Good Things Ltd.direct labour input-efficiency variance?

A)$4,200 U
B)$4,200 F
C)$5,000 U
D)$5,000 F
E)$200 U

Question 76

Use the information below to answer the following question(s).Tractor Corporation produces toy tractors.The company uses the following direct cost categories:
Actual performance for the company is shown below:
Actual output: 5,000 units
Direct Materials:
Direct Manufacturing Labour:
Direct Marketing Labour:

What is the combined total of the flexible budget variances?

A)$102,650 unfavourable
B)$99,000 unfavourable
C)$78,500 unfavourable
D)$75,150 favourable
E)$75,150 unfavourable

Question 77

Use the information below to answer the following question(s).All Good Things Ltd.planned on producing 600 units for the year.However, actual production was 400 units.Information concerning the direct labour cost for All Good Things Ltd.is as follows: actual results 1,000 hours at $25 per hour; static budget amounts were 1,200 hours at $21 per hour.
What is the All Good Things Ltd.flexible-budget variance?

A)$8,400 F
B)$8,400 U
C)$8,200 U
D)$8,200 F
E)$200 U

Question 78

Use the information below to answer the following question(s).Tractor Corporation produces toy tractors.The company uses the following direct cost categories:
Actual performance for the company is shown below:
Actual output: 5,000 units
Direct Materials:
Direct Manufacturing Labour:
Direct Marketing Labour:

What are the efficiency variances for direct manufacturing labour and direct marketing labour, respectively?

A)$25,000 favourable; $18,400 favourable
B)$23,750 favourable; $12,650 unfavourable
C)$25,000 unfavourable; $18,400 unfavourable
D)$23,750 unfavourable; $12,650 unfavourable
E)$23,750 favourable; $12,650 favourable

Question 79

Use the information below to answer the following question(s).Tractor Corporation produces toy tractors.The company uses the following direct cost categories:
Actual performance for the company is shown below:
Actual output: 5,000 units
Direct Materials:
Direct Manufacturing Labour:
Direct Marketing Labour:

What is the efficiency variance for direct materials?

A)$47,350 favourable
B)$36,000 unfavourable
C)$36,000 favourable
D)$37,500 unfavourable
E)$23,750 unfavourable

Question 80

Use the information below to answer the following question(s).The following data for a pottery company pertain to the production of 2,000 clay pots during July.Direct Materials (all materials purchased were used):
Direct Manufacturing Labour:

What is the direct materials rate variance for the clay pots?

A)$560 unfavourable
B)$560 favourable
C)$800 unfavourable
D)$800 favourable
E)$1,040 favourable