Deck 8: Flexible Budgets and Variance Analysis

Question 1

To calculate the numbers in a flexible budget,managers use ________.

A) cost functions developed from regression analysis
B) flexible budget formulas
C) cost functions obtained from the high-low method
D) all of the above

Answer 1

D

Question 2

Perez Company had the following information available:
Expected Costs and Selling Price Based on 5,000 Units:
$\begin{array} { l } \text {Variable manufacturing costs per unit }&\$32 \\ \text {Fixed manufacturing costs per unit }&\$20 \\ \text {Selling price per unit }&\$ 70\\\end{array}$

$\begin{array} { l } \text {Expected production level }&5,000 \text { units } \\\end{array}$

In the flexible budget at 15,000 units,what is the total manufacturing cost?

A) $480,000
B) $580,000
C) $680,000
D) $780,000

Answer 2

$580,000

Question 3

Which of the following is used to develop flexible budgets?

A) fixed overhead variances
B) static budget variances
C) flexible budget variances
D) cost functions

Answer 3

D

Question 4

A flexible budget is different from a variable budget.

Question 5

A company that has an activity-based costing system with multiple cost drivers will prepare a(n)________ budget.

A) financial planning
B) short-range planning
C) activity-based flexible
D) strategic

Question 6

When preparing a flexible budget income statement,________ costs are constant at different levels of activity.

A) variable
B) step
C) contributed
D) fixed

Question 7

A budget prepared for one expected level of activity is called a ________.

A) flexible budget
B) static budget
C) variable budget
D) rolling budget

Question 8

An example of a favorable variance is ________.

A) actual revenues are less than expected revenues
B) actual expenses are less than expected expenses
C) actual material prices are greater than expected material prices
D) expected labor costs are less than actual labor costs

Question 9

Huntsman Company's variable selling and administrative expenses are $48,000 at a production level of 6,000 units.If the production level is 8,000 units,what are the variable selling administrative expenses?

A) $48,000
B) $56,000
C) $64,000
D) $80,000

Question 10

The static budget is based on the ________ level of output and the flexible budget is based on the ________ level of output.

A) actual; expected
B) expected; actual
C) expected; planned
D) actual; projected

Question 11

A static budget has multiple levels of activity.

Question 12

A static budget is prepared for one expected level of activity.

Question 13

Oroz Company had the following information available:
Expected Costs and Selling Price Based on 5,000 units:
$\begin{array} { l } \text {Variable manufacturing costs per unit }&\$32 \\ \text {Fixed manufacturing costs per unit }&\$20 \\ \text { Selling price per unit}&\$70 \\\end{array}$

$\begin{array} { l } \text { Expected production level}& \text {5,000 unite }\\\end{array}$

In the flexible budget at 10,000 units,what is the total manufacturing cost?

A) $250,000
B) $420,000
C) $520,000
D) $700,000

Question 14

Unfavorable variances ________ represent bad decisions made by managers.

A) always
B) sometimes
C) never
D) none of the above

Question 15

If actual expenses are less than expected expenses,the expense variance will be unfavorable.

Question 16

A flexible budget adjusts for changes in sales volume and other cost-drivers.

Question 17

Spending less than budgeted for maintenance costs will result in a(n)________ variance.When actual revenues exceed budgeted revenues,this results in a(n)________ variance.

A) unfavorable; unfavorable
B) unfavorable; favorable
C) favorable; unfavorable
D) favorable; favorable

Question 18

Which of the following statements is FALSE?

A) Flexible budgets are prepared for a range of activity.
B) Flexible budgets are matched to actual levels of activity.
C) A flexible budget is also called a variable budget.
D) Flexible budgets are based on different assumptions about cost behavior than those used for static budgets.

Question 19

A favorable expense variance is when budgeted expenses are less than actual expenses.

Question 20

A budget prepared for different levels of activity is called a ________.

A) rolling budget
B) operating budget
C) flexible budget
D) static budget

Question 21

Margaret Duffy Company has the following information available:
$\begin{array} { l } \text {Budgeted cost of direct materials at 900,000 units }&\$900,000 \\ \text {Budgeted cost of direct materials at 820,000 units }&\$820,000 \\ \text {Actual cost of direct materials at 820,000 units }&\$840,000 \\ \text {Actual level of output(units) }&820,000 \\ \text {Planned level of output(units) }& 900,000\\\end{array}$

The cost driver of product costs is units of output.What is the flexible budget variance for direct material costs?

A) $20,000 Unfavorable
B) $20,000 Favorable
C) $60,000 Favorable
D) $60,000 Unfavorable

Question 22

Garcia Company planned to produce 12,000 units.This level of activity required 40 setups at a cost of $18,000 plus $500 per setup.Actual production was 10,000 units,requiring 15 setups.Actual setup cost was $26,000.What is the static budget amount for total setup costs?

A) $21,000
B) $25,500
C) $26,000
D) $38,000

Question 23

Use the following data to prepare a flexible budget for possible production levels of 5,000,5,500 and 6,000 units.Assume all levels of production are in the same relevant range.

Variable costs:

Fixed costs(at 5,000 units):

Question 24

In the relevant range,the sales-activity variance for fixed costs is always ________.

A) greater than the flexible budget variance
B) less than the flexible budget variance
C) greater than the static budget variance
D) zero

Question 25

Fill in the blanks to complete the flexible budget for Mammoth Company.Assume the different levels of output are in the relevant range.

Variable costs:

Fixed costs:

Question 26

Differences between actual results and the static budget at the original planned level of output are ________ variances.

A) flexible budget
B) financial budget
C) operating budget
D) static budget

Question 27

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

A) amounts for the flexible budget; amounts for the static budget
B) flexible budget variance; activity level variance
C) actual results; amounts for the static budget
D) actual results; amounts for the flexible budget

Question 28

Perez Company uses activity-based costing.The company is trying to estimate the costs of the processing activity in the factory.The company has developed the following flexible budget formula:
Y = $10.50X + $13,000
Where: Y = Total processing cost per quarter and X = Number of machine hours
If 10,000 machine hours are used next quarter,total variable costs are ________ and total fixed costs are ________.

A) $105,000; $13,000
B) $105,000; $130,000,000
C) $113,000; $130,000,000
D) $10.50; $13,000

Question 29

For the current year,LeBombard Company's static budget sales were $225,000.Actual sales for the current year were $220,000.Actual sales last year were $219,000.Expected sales last year were $225,000.What is the static budget variance for sales in the current year?

A) $5,000 Favorable
B) $5,000 Unfavorable
C) $6,000 Favorable
D) $6,000 Unfavorable

Question 30

Kilsdonk Company has the following information available:
$\begin{array} { l } \text {Budgeted cost of direct materials at 900,000 units }&\$900,000 \\ \text {Budgeted cost of direct materials at 820,000 units }&\$820,000 \\ \text {Actual cost of direct materials at 820,000 units }&\$840,000 \\ \text {Actual level of output(units) }&820,000 \\ \text {Planned level of output(units) }& 900,000\\\end{array}$

The cost driver of product costs is units of output.What is the static budget variance for direct material costs?

A) $20,000 Unfavorable
B) $20,000 Favorable
C) $60,000 Favorable
D) $60,000 Unfavorable

Question 31

Sanchez Company planned to produce 12,000 units.This level of activity required 20 setups at a cost of $22,000 plus $500 per setup.Actual production was 10,000 units,requiring 15 setups.Actual setup cost was $26,000.At 10,000 units,what is the flexible budget amount for total setup costs?

A) $7,500
B) $22,000
C) $26,000
D) $29,500

Question 32

Differences between the actual results and the flexible budget at the actual level of output achieved are ________ variances.

A) static budget
B) activity budget
C) flexible budget
D) operating budget

Question 33

The activity-level variance for fixed costs equals zero when ________.

A) the actual level of output equals the static budget level of output
B) the actual level of output is greater than the static budget level of output
C) the actual level of output is less than the static budget level of output
D) all of the above

Question 34

Assume sales are the cost driver for product costs.The difference between the static budget amount for sales and the flexible budget amount for sales at the actual level of sales is called the ________.The difference between the flexible budget amount for sales at the actual level of sales and the actual amount for sales is called the ________.

A) static variance; flexible budget variance
B) master variance; flexible budget variance
C) quantity variance; static budget variance
D) sales activity variance; flexible budget variance

Question 35

Potter Company has the following information:
$\begin{array}{ll}\text { Actual operating loss at 5,000 units } & \$(11,000) \\\text { Budgeted operating income at 5,000 units } & \$ 5,000 \\\text { Budgeted operating income at 10,000 units } & \$ 12,000 \\\text { Planned level of operations } & 10,000 \text { units } \\\text { Actual level of operations } & 5,000 \text { units }\end{array}$
Assume the cost driver of product costs is units of production.What is the flexible budget variance for operating income?

A) $5,000 Unfavorable
B) $11,000 Unfavorable
C) $16,000 Unfavorable
D) $16,000 Favorable

Question 36

The static budget variance is equal to the sum of ________ and ________.

A) direct materials variance; direct labor variance
B) fixed overhead variance; variable overhead variance
C) flexible budget variance; activity-level variance
D) direct materials price variance; direct materials quantity variance

Question 37

Flexible budget variances are the deviations of actual results from the ________.

A) flexible budget amounts for the achieved level of activity
B) flexible budget amounts for the static level of activity
C) static budget amounts for the expected level of activity
D) static budget amounts for last year's level of activity

Question 38

Conner Company has the following information:
$\begin{array}{ll}\text { Actual operating loss at 5,000 units } & \$(11,000) \\\text { Budgeted operating income at 5,000 units } & \$ 5,000 \\\text { Budgeted operating income at 10,000 units } & \$ 12,000 \\\text { Planned level of operations } & 10,000 \text { units } \\\text { Actual level of operations } & 5,000 \text { units }\end{array}$
Assume units of output are the cost driver for product costs.What is the static budget variance for operating income?

A) $11,000 Unfavorable
B) $12,000 Unfavorable
C) $23,000 Unfavorable
D) $23,000 Favorable

Question 39

Corrao Company had a static budgeted operating income of $8.6 million.Actual operating income was $6.4 million.The flexible budget operating income at the actual level of output is $7,000,000.What is the static-budget variance of operating income?

A) $1.6 million Favorable
B) $1.6 million Unfavorable
C) $2.2 million Favorable
D) $2.2 million Unfavorable

Question 40

When should a company use an activity-based flexible budget with multiple cost drivers instead of a simple flexible budget with one cost driver?

A) when a significant portion of costs vary with only one cost driver
B) when a significant portion of costs vary with the number of units of output
C) when a significant portion of costs vary with the number of units of sales
D) when a significant portion of costs vary with cost drivers other than units of output

Question 41

Which statement would NOT be a reason for a flexible budget variance?

A) Material prices were different than expected.
B) Labor prices were different than expected.
C) Actual volume of activity was different than expected.
D) Amount of labor used per unit of output was different than expected.

Question 42

Brad Company planned to produce 12,000 units.This level of production required 20 setups at a cost of $18,000 plus $500 per setup.Actual production was 10,000 units,requiring 15 setups.Actual setup cost was $26,000.What is the static budget variance for setup costs?

A) $2,000 Favorable
B) $2,000 Unfavorable
C) $2,500 Favorable
D) $2,500 Unfavorable

Question 43

The sales activity variance for ________ will always be zero.

A) sales
B) contribution margin
C) variable costs
D) fixed costs

Question 44

If the flexible budget variance was $6,000 Favorable and the sales activity variance was $3,000 Favorable,then the static budget variance was ________.

A) $3,000 Favorable
B) $3,000 Unfavorable
C) $9,000 Favorable
D) $9,000 Unfavorable

Question 45

Differentiate between a static budget variance and a flexible budget variance.

Question 46

The static budget variance is the difference between actual results and the static budget for the original planned level of output.

Question 47

The amount of actual operating income may differ from the static budget amount for operating income because ________.

A) actual output levels were not the same as in the static budget
B) actual variable costs were higher than expected variable costs
C) actual fixed costs were higher than expected fixed costs
D) all of the above

Question 48

Who is usually responsible for sales activity variances for income?

A) operating managers in factory
B) marketing managers
C) research and development function
D) product design function

Question 49

Leshan Company planned to produce 12,000 units.This level of production required 20 setups at a cost of $18,000 plus $500 per setup.Actual production was 10,000 units,requiring 15 setups.Actual setup cost was $26,000.What is the flexible budget variance for setup costs?

A) $500 Favorable
B) $500 Unfavorable
C) $2,000 Favorable
D) $2,000 Unfavorable

Question 50

If the total sales-activity variance and the static-budget variance are equal,there is no flexible budget variance.

Question 51

Sunday Corporation prepared the following performance report for variable overhead costs for the last quarter of the year.Machine hours are the cost driver for all overhead costs.

The cost formulas used for the variable overhead costs are:

Your boss called you into the office and reprimanded you for the unfavorable variances.The boss says you are fired unless you can explain why the variances are all unfavorable.
Required:
Calculate the flexible budget variances and the activity-level variances for each cost.

Question 52

Flexible budget variances are the difference between the actual results and ________.

A) the static budget for the planned level of output
B) the flexible budget for the planned level of output
C) the flexible budget for the actual level of output
D) the master budget for the planned level of output

Question 53

The following data are for Sandy Corporation:
$\begin{array} { l }&&&\text { Flexible Budget for}\\&\text { Actual }&\text { Static Budget }&\text { Actual Sales activity }\\\text { Units }&18,000&16,000&18,000\\\text { Sales }&\$360,000&\$320,000&\$360,000\\ \text {Variable costs }&234,000&192,000&216,000\\\text { Contribution margin }&\$126,000&\$128,000&\$144,000\\\text { Fixed costs }&76,000&80,000&80,000\\\text { Operating income }&\$50,000&\$48,000&\$64,000\end{array}$

The static budget variance for operating income is ________.

A) $2,000 Favorable
B) $2,000 Unfavorable
C) $16,000 Favorable
D) $16,000 Unfavorable

Question 54

The following data are for Pablo Corporation:
$\begin{array} { l }&&&\text { Flexible Budget for}\\&\text { Actual }&\text { Static Budget }&\text { Actual Sales activity }\\\text { Units }&18,000&16,000&18,000\\\text { Sales }&\$360,000&\$320,000&\$360,000\\ \text {Variable costs }&234,000&192,000&216,000\\\text { Contribution margin }&\$126,000&\$128,000&\$144,000\\\text { Fixed costs }&76,000&80,000&80,000\\\text { Operating income }&\$50,000&\$48,000&\$64,000\end{array}$

The flexible budget variance for operating income is ________.

A) $2,000 Favorable
B) $2,000 Unfavorable
C) $14,000 Favorable
D) $14,000 Unfavorable

Question 55

If the sales activity variance was $8,000 Favorable and the static budget variance was $10,000 Favorable,then the flexible budget variance was ________.

A) $2,000 Favorable
B) $2,000 Unfavorable
C) $18,000 Favorable
D) $18,000 Unfavorable

Question 56

If sales are the cost driver,unfavorable flexible budget variances result from ________.

A) actual costs exceeding planned costs
B) planned costs exceeding actual costs
C) actual sales exceeding planned sales
D) planned sales exceeding actual sales

Question 57

Total static budget variances are equal to the sum of activity-level variances and flexible budget variances.

Question 58

Which is NOT a reason for a static budget variance?

A) Actual sales volume was higher than projected sales volume.
B) Actual variable costs were higher than static budget variable costs.
C) Actual fixed costs were higher than static budget fixed costs.
D) Actual sales volume in current period was higher than projected sales volume in last period.

Question 59

The following data are for the month of January for the Soloway Company.Assume the cost driver is the number of units sold.
Static budget data:
Sales of 9,000 pairs at $90 per pair
Variable costs of $69 per pair
Total fixed costs $108,000
Actual results:
Sales of 9,600 pairs at $87 per pair
Variable costs of $72 per pair
Total fixed costs $109,200
Required:

A) What is the static budget operating income?
B) What is the sales activity variance for operating income?
C) What is the flexible budget variance for operating income?

Question 60

The following data are for California Closets:
$\begin{array} { l }&&&\text { Flexible Budget for}\\&\text { Actual }&\text { Static Budget }&\text { Actual Sales activity }\\\text { Units }&18,000&16,000&18,000\\\text { Sales }&\$360,000&\$320,000&\$360,000\\ \text {Variable costs }&234,000&192,000&216,000\\\text { Contribution margin }&\$126,000&\$128,000&\$144,000\\\text { Fixed costs }&76,000&80,000&80,000\\\text { Operating income }&\$50,000&\$48,000&\$64,000\end{array}$

The sales activity variance for operating income is ________.

A) $14,000 Favorable
B) $14,000 Unfavorable
C) $16,000 Favorable
D) $16,000 Unfavorable

Question 61

Yellow Cake Company planned to produce and sell 900 units at a total cost of $180,000.Actual production and sales were 900 units at a cost of $170,000.The company was ________.

A) efficient and ineffective
B) inefficient and ineffective
C) inefficient and effective
D) efficient and effective

Question 62

Currently attainable standards are levels of performance that can be achieved by realistic levels of effort.

Question 63

As the terms are used in the budgeting process,it is possible for a company to be efficient at the same time it is ineffective.

Question 64

Ideal standards make no provision for waste,spoilage and machine breakdowns.

Question 65

________ is the degree to which an organization minimizes the ________ used to achieve an objective.

A) Efficiency; costs
B) Efficiency; resources
C) Effectiveness; resources
D) Effectiveness; costs

Question 66

Currently attainable standards do not make allowances for spoilage and waste.

Question 67

Favorable variances do not require investigation.

Question 68

Efficiency is the degree to which a goal or objective is met.

Question 69

Favorable flexible budget variances are always good news.

Question 70

Perfection standards and ideal standards are different.

Question 71

Ideal standards have an adverse effect on employee motivation.

Question 72

When a firm meets a sales goal,it is said to be ________.When a firm incurs more direct material costs to manufacture products than expected,the firm is said to be ________.

A) effective; ineffective
B) efficient; inefficient
C) effective; inefficient
D) efficient; ineffective

Question 73

A favorable materials price variance can affect all of the following variances except ________.

A) labor rate variance
B) labor efficiency variance
C) materials quantity variance
D) flexible budget variance for direct materials

Question 74

The unfavorable variances resulting from ideal standards are intended to constantly remind personnel of the continuous need for improvement.

Question 75

Sales-activity variances measure how efficient managers have been in meeting the planned sales goal.

Question 76

One variance often influences another variance.If the direct materials price variance is favorable,then it is possible that this variance will cause ________.

A) the direct materials quantity variance to be unfavorable
B) the direct labor price variance to be unfavorable
C) the direct labor price variance to be favorable
D) the direct materials quantity variance to be favorable

Question 77

Variances should be investigated if they ________.

A) are favorable
B) are unfavorable
C) are smaller than the variances in the prior period
D) exceed certain dollar amounts or percentage deviations from the budget

Question 78

Purple Rain Company planned to sell 35,000 units.Actual sales were 30,000 units.Based on this information,Blue Company was ________.

A) efficient
B) inefficient
C) effective
D) ineffective

Question 79

Which of the following is NOT an example of efficient performance?

A) Direct labor hours used per unit were less than expected.
B) Direct material used per unit was less than expected.
C) More outputs were achieved with less inputs than predicted.
D) More outputs were produced than expected.

Question 80

Which of the following statements about perfection standards is TRUE?

A) It is generally believed that they have a negative influence on employee morale.
B) They are expressions of the most efficient performance possible.
C) They usually result in unfavorable variances.
D) All of the above