Deck 13: Budgeting and Standard Cost Systems

Question 1

Budgets are normally used by both profit-making businesses and nonprofit organizations.

Answer 1

True

Question 2

The budgeted volume of production is normally computed as the sum of (1)the expected sales volume and (2)the desired ending inventory.

Answer 2

False

Question 3

The budgeted direct materials purchases are based on the sum of (1)the materials needed for production and (2)the desired ending materials inventory,less (3)the estimated beginning materials inventory.

Answer 3

True

Question 4

Once a static budget has been determined,it is changed regularly as the underlying activity changes.

Question 5

Budgetary slack can be avoided if lower and mid-level managers are requested to support all of their spending requirements with specific operational plans.

Question 6

When budget goals are set too tight,the budget becomes less effective as a tool for planning and controlling operations.

Question 7

The master budget of a small manufacturer would normally include all component budgets that impact the financial statements.

Question 8

Employees view budgeting more positively when goals are established for them by senior management.

Question 9

Flexible budgeting builds the effect of changes in level of activity into the budget system.

Question 10

The master budget of a small manufacturer would normally include all necessary component budgets EXCEPT the capital expenditures budget.

Question 11

Goal conflict can be avoided if budget goals are carefully designed for consistency across all areas of the organization.

Question 12

If Division Inc.expects to sell 200,000 units in 2010,desires ending inventory of 24,000 units,and has 22,000 units on hand as of the beginning of the year,the budgeted volume of production for 2010 is 198,000 units.

Question 13

The budgeted volume of production is based on the sum of (1)the expected sales volume and (2)the desired ending inventory,less (3)the estimated beginning inventory.

Question 14

A formal written statement of management's plans for the future,expressed in financial terms,is called a budget.

Question 15

The first budget to be prepared is usually the production budget.

Question 16

In preparing flexible budgets,the first step is to identify the fixed and variable components of the various costs and expenses being budgeted.

Question 17

The first budget to be prepared is usually the sales budget.

Question 18

The budget procedure that requires all levels of management to start from zero in estimating sales,production,and other operating data is called zero-based budgeting.

Question 19

If Division Inc.expects to sell 300,000 units in 2010,desires ending inventory of 22,000 units,and has 24,000 units on hand as of the beginning of the year,the budgeted volume of production for 2010 is 298,000 units.

Question 20

A budget procedure that provides for the maintenance at all times of a twelve-month projection into the future is called continuous budgeting.

Question 21

The cash budget presents the expected inflow and outflow of cash for a specified period
of time.

Question 22

The fact that workers are unable to meet a properly determined direct labor standard is sufficient cause to change the standard.

Question 23

The sales budget is the starting point for preparation of the direct labor cost budget.

Question 24

In most businesses,cost standards are established principally by accountants.

Question 25

The cash budget summarizes future plans for acquisition of fixed assets.

Question 26

The standard cost is how much a product should cost to manufacture.

Question 27

A variable cost system is an accounting system where standards are set for each manufacturing cost element.

Question 28

The capital expenditures budget summarizes future plans for acquisition of fixed assets.

Question 29

Standard costs should be revised when they differ from actual costs.

Question 30

Standard costs serve as a device for measuring efficiency.

Question 31

The production budget is the starting point for preparation of the direct labor cost budget.

Question 32

Normally standard costs should be revised when labor rates change to incorporate new
union contracts.

Question 33

Currently attainable standards do NOT allow for reasonable production difficulties.

Question 34

Supervisor salaries and indirect factory wages would normally appear in the direct labor
cost budget.

Question 35

Supervisor salaries,maintenance,and indirect factory wages would normally appear in the factory overhead cost budget.

Question 36

Financial reporting systems that are guided by the principle of exceptions concept focus attention on variances from standard costs.

Question 37

As a device for measuring efficiency,standard cost systems enable management to determine the causes of differences between what a product should cost and how much it actually costs to produce.

Question 38

Ideal standards are developed under conditions that assume no idle time,no machine breakdowns,and no materials spoilage.

Question 39

Supervisor salaries,maintenance,and indirect factory wages would normally appear in the selling and administrative expenses budget.

Question 40

The budgeted direct materials purchases are normally computed as the sum of (1)the materials for production and (2)the desired ending inventory.

Question 41

A budget performance report compares actual results with the budgeted amounts and reports differences for possible investigation.

Question 42

An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds
actual cost.

Question 43

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12,the direct materials quantity variance was $2,200 favorable.

Question 44

A favorable cost variance occurs when actual cost is less than budgeted cost at actual volumes.

Question 45

The variance from standard for factory overhead cost resulting from operating at a level above or below 100% of normal capacity is termed volume variance.

Question 46

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12,the direct materials price variance was $800 favorable.

Question 47

Nonmanufacturing activities are usually controlled using a static budget rather than a standard costing system.

Question 48

The direct labor time variance measures the efficiency of the direct labor force.

Question 49

Changes in technology,machinery,or production methods may make past cost data irrelevant when setting standards.

Question 50

The difference between the standard cost of a product and its actual cost is called a variance.

Question 51

If the standard to produce a given amount of product is 500 direct labor hours at $15 and the actual was 600 hours at $17,the rate variance was $1,200 favorable.

Question 52

Standards are more widely used for nonmanufacturing expenses than for manufacturing costs.

Question 53

If the standard to produce a given amount of product is 500 direct labor hours at $15 and the actual was 600 hours at $17,the time variance was $1,500 favorable.

Question 54

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12,the direct materials price variance was $1,000 favorable.

Question 55

Using a standard costing system for nonmanufacturing expenses is easily administered because the expenses generally relate to a repetitive,measurable output.

Question 56

If the standard to produce a given amount of product is 2,000 units of direct materials at
$12 and the actual was 1,600 units at $13,the direct materials quantity variance was
$4,800 favorable.

Question 57

The variance from standard for factory overhead resulting from incurring a total amount of factory overhead cost that is greater or less than the amount budgeted for the level of operations achieved is termed controllable variance.

Question 58

If the standard to produce a given amount of product is 900 units of direct materials at
$11 and the actual was 800 units at $12,the direct materials quantity variance was
$1,100 unfavorable.

Question 59

Standards are designed to evaluate price and quantity variances separately.

Question 60

If the standard to produce a given amount of product is 600 direct labor hours at $17 and the actual was 500 hours at $15,the time variance was $1,700 favorable.

Question 61

The budget process involves doing all the following EXCEPT

A)establishing specific goals.
B)executing plans to achieve the goals.
C)periodically comparing actual results with the goals.
D)dismissing all managers who fail to achieve operational goals specified in the budget.

Question 62

Favorable volume variances are never harmful since achieving them encourages managers to run the factory above normal capacity.

Question 63

Below is budgeted production and sales information for Cooper Cans,Inc.for the month of March:
The unit selling price for aluminum cans is $0.10 and for tin cans is $0.15.
Budgeted production for aluminum cans during the month is

A)476,000 units.
B)484,000 units.
C)480,000 units.
D)504,000 units.

Question 64

The first budget customarily prepared as part of an entity's master budget is the

A)production budget.
B)cash budget.
C)sales budget.
D)direct materials purchases.

Question 65

The most effective means of presenting standard factory overhead cost variance data is through a factory overhead cost budget.

Question 66

Principal components of a master budget include which of the following?

A)Production budget
B)Sales budget
C)Capital expenditures budget
D)All of these

Question 67

The production budgets are used to prepare which of the following budgets?

A)Selling and administrative expenses
B)Direct materials purchases,direct labor cost,factory overhead cost
C)Sales
D)Capital expenditures

Question 68

A disadvantage of static budgets is that they

A)start with a clean slate.
B)cannot be used by service companies.
C)do not show possible changes in underlying activity levels.
D)show the expected results of a responsibility center for several levels of activity.

Question 69

If the standard to produce a given amount of product is 16,000 hours at a factory overhead rate of $5 ($3 fixed,$2 variable),actual variable factory overhead was $26,400,actual fixed factory overhead was $45,000,and 100% of productive capacity is 15,000 hours,the volume variance was $3,000 favorable.

Question 70

For February,sales revenue is $250,000;sales commissions are 6% of sales;the sales manager's salary is $50,000;advertising expenses are $15,000;shipping expenses total 1% of sales;and miscellaneous selling expenses are $1,000 plus 1/2 of 1% of sales.Total selling expenses for the month of February are

A)$65,000.
B)$69,750.
C)$82,250.
D)$84,750.

Question 71

Below is budgeted production and sales information for Cooper Cans,Inc.for the month of March:
The unit selling price for aluminum cans is $0.10 and for tin cans is $0.15.
Budgeted sales for the month are

A)$63,000.
B)$62,750.
C)$63,250.
D)$66,450.

Question 72

An unfavorable volume variance may be due to a failure of supervisors to maintain an even flow of work.

Question 73

A series of budgets for varying rates of activity is termed a(n)

A)flexible budget.
B)variable budget.
C)master budget.
D)activity budget.

Question 74

A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at all times is termed

A)flexible budgeting.
B)master budgeting.
C)zero-based budgeting.
D)continuous budgeting.

Question 75

Since the controllable variance measures the efficiency of using variable overhead resources,if budgeted variable overhead exceeds actual results,the variance is favorable.

Question 76

The process of developing budget estimates by requiring all levels of management to estimate sales,production,and other operating data as though operations were being initiated for the first time is referred to as

A)flexible budgeting.
B)continuous budgeting.
C)zero-based budgeting.
D)master budgeting.

Question 77

If the standard to produce a given amount of product is 12,000 hours at a factory overhead rate of $5 ($3 fixed,$2 variable),actual variable factory overhead was $26,400,actual fixed factory overhead was $45,000,and 100% of productive capacity is 15,000 hours,the volume variance was $9,000 favorable.

Question 78

When department managers plan lower goals than possible in order to build in a cushion for unexpected events,the result is

A)budgetary slack.
B)zero-based budgeting.
C)goal conflict.
D)flexible budgeting.

Question 79

Christiansen and Sons' static budget for 10,000 units of production includes $50,000 for direct materials,$44,000 for direct labor,utilities of $5,000,and supervisor salaries of $15,000.A flexible budget for 12,000 units of production would show

A)the same cost structure in total.
B)direct materials of $60,000,direct labor of $52,800,utilities of $6,000,and supervisor salaries of $15,000.
C)total variable costs of $136,800.
D)direct materials of $60,000,direct labor of $52,800,utilities of $6,000,and supervisor salaries of $18,000.

Question 80

The most effective means of presenting standard factory overhead cost variance data is through a factory overhead cost variance report.