Deck 13: Budgeting and Standard Cost Systems

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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 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 300,000 units in 2012, 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 2012 is 298,000 units.

Question 13

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.

Question 14

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

Question 15

If Division Inc. expects to sell 200,000 units in 2012, 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 2012 is 198,000 units.

Question 16

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

Question 17

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

Question 18

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

Question 19

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

Question 20

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 21

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

Question 22

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

Question 23

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

Question 24

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

Question 25

The standard cost is a detailed estimate of how much a product should cost.

Question 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

Standard costs serve as a device for measuring efficiency.

Question 31

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

Question 32

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

Question 33

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

Question 34

Currently attainable standards allow for unreasonable production difficulties.

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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 direct labor time variance was $1,700 favorable.

Question 42

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 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 price variance was $1,000 favorable.

Question 44

Changes in technology, machinery, or production methods may make past cost data irrelevant for future operations.

Question 45

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

Question 46

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

Question 47

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

Question 48

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 49

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 50

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

Question 51

The difference between the actual amount of variable factory overhead cost incurred and the amount of variable factory overhead budgeted for the standard product is termed as variable factory overhead controllable variance.

Question 52

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 53

The difference between the budgeted fixed overhead at 100% of normal capacity and the standard fixed cost for the actual units produced is termed volume variance.

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 $800 favorable.

Question 55

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

Question 56

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

Question 57

Standards are designed to evaluate price and quantity variances separately.

Question 58

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 59

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

Question 60

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

Question 61

Which of the following budgets is prepared using the production budget?

A) Selling and administrative expenses
B) Direct materials purchases
C) Sales
D) Capital expenditures

Question 62

The budget process involves all of 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 63

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

Question 64

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

Question 65

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

Question 66

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 67

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

Question 68

Below is budgeted production and sales information for Cooper Cans, Inc. for the month of March: $\begin{array}{lll}\text { Tin }& \text { Aluminum }\\4,000 \text { units } & 10,000 \text { units } & \text { Estimated beginning inventory } \\3,000 \text { units } & 14,000 \text { units } & \text { Desired ending inventory } \\80,000 \text { units } & 360,000 \text { units } & \text { Region I, anticipated sales } \\20,000 \text { units } & 120,000 \text { units } & \text { Region II, anticipated sales }\end{array}$
The unit selling price for aluminum cans is $0.10 and for tin cans is $0.15.
Refer to the information provided for Cooper Cans Inc. Budgeted sales for the month are:

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

Question 69

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 70

Below is budgeted production and sales information for Cooper Cans, Inc. for the month of March: $\begin{array}{lll}\text { Tin }& \text { Aluminum }\\4,000 \text { units } & 10,000 \text { units } & \text { Estimated beginning inventory } \\3,000 \text { units } & 14,000 \text { units } & \text { Desired ending inventory } \\80,000 \text { units } & 360,000 \text { units } & \text { Region I, anticipated sales } \\20,000 \text { units } & 120,000 \text { units } & \text { Region II, anticipated sales }\end{array}$
The unit selling price for aluminum cans is $0.10 and for tin cans is $0.15.
Refer to the information provided for Cooper Cans Inc. 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 71

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 72

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 73

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 74

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

Question 75

Department managers plan lower goals than possible in order to build in a cushion for unexpected events. This result in:

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

Question 76

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 77

Which of the following are the principal components of a master budget?

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

Question 78

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 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

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