Deck 8: Flexible Budgets and Standard Costs

Question 1

When computing a price variance, the price is held constant.

Answer 1

False

Question 2

While companies strive to achieve ideal standards, reality implies that some loss of materials usually occurs with any process.

Answer 2

True

Question 3

Standard material costs, standard labor costs, and standard overhead costs can be obtained from standard cost tables published by the Institute of Management Accountants.

Answer 3

False

Question 4

Another name for a static budget is a variable budget.

Question 5

Within the same flexible budget performance report, it is impossible to have both favorable and unfavorable variances.

Question 6

A cost variance can be further separated into the quantity variance and the price variance.

Question 7

Management by exception means studying industry standards to define normal conditions.

Question 8

Variable budget is another name for a flexible budget.

Question 9

Fixed budget performance reports compare actual results with the results expected under a fixed budget.

Question 10

Standard costs are preset costs for delivering a product or service under normal conditions.

Question 11

Standard costs can be used by management to assess the reasonableness of actual costs incurred.

Question 12

When standard costs are used, factory overhead is assigned to products with a predetermined standard overhead rate.

Question 13

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

Question 14

A fixed budget is based on a single predicted amount of sales or other activity measure.

Question 15

Fixed budgets are also known as flexible budgets.

Question 16

When computing a price variance, the quantity is held constant.

Question 17

Cost variances are ignored under management by exception.

Question 18

A flexible budget is based on a single predicted amount of sales or other activity measure.

Question 19

Management by exception means that managers focus on the most significant differences between actual costs and standard costs.

Question 20

A budget performance report shows budgeted amounts, actual amounts, and differences between budgeted and actual amounts.

Question 21

A flexible budget is useful both before and after the period's activities are complete.

Question 22

Standard costs are:

A) Actual costs incurred to produce a specific product or perform a service.
B) Preset costs for delivering a product or service under normal conditions.
C) Established by the IMA.
D) Rarely achieved.
E) Uniform among companies within an industry.

Question 23

The purchasing department is responsible for the price paid for materials.

Question 24

A favorable direct materials price variance might lead to an unfavorable direct materials quantity variance because the company purchased inferior materials.

Question 25

A volume variance occurs when the company operates at a different capacity level than was expected.

Question 26

The process of closing ending variance account balances increases Cost of Goods Sold.

Question 27

An unfavorable variance is recorded with a debit because it reflects additional costs higher than the standard cost.

Question 28

A flexible budget expresses all costs on a per unit basis, regardless of cost behavior.

Question 29

A flexible budget expresses variable costs on a per unit basis and fixed costs on a total basis.

Question 30

A variable or flexible budget is so named because it only focuses on variable costs.

Question 31

An overhead cost variance is the difference between the total overhead actually incurred for the period and the standard overhead applied to products.

Question 32

A direct labor cost variance can be divided into price and quantity variances, which are almost always called controllable and volume variances.

Question 33

The anticipated costs incurred under normal conditions to produce a specific product or to perform a specific service are:

A) Variable costs.
B) Fixed costs.
C) Standard costs.
D) Product costs.
E) Period costs.

Question 34

In sales variance analysis, the budgeted amount of unit sales is the predicted activity level and the budgeted cost of the goods sold can be treated as a "standard" price.

Question 35

A volume variance is the difference between overhead at maximum volume of production and the standard volume of production.

Question 36

If ending variance account balances are immaterial, they can be closed directly to Cost of Goods Sold.

Question 37

A fixed budget performance report never provides useful information for evaluating variances.

Question 38

One possible explanation for direct labor rate and efficiency variances is the use of workers with different skill levels.

Question 39

When the actual price per unit of direct materials used exceeds the standard price per unit, the company has an unfavorable direct materials price variance.

Question 40

The total sales variance can be divided into the sales price variance and the sales volume variance.

Question 41

A company provided the following direct materials cost information. Compute the direct materials price variance.

A) $81,000 Favorable.
B) $81,000 Unfavorable.
C) $80,750 Unfavorable.
D) $80,750 Favorable.
E) $78,250 Favorable.

Question 42

Variable budget is another name for:

A) Cash budget.
B) Flexible budget.
C) Fixed budget.
D) Manufacturing budget.
E) Rolling budget.

Question 43

Which of the following is not part of the flow of events in variance analysis:

A) Preparing a standard cost performance report.
B) Identifying questions and their answers.
C) Taking corrective and strategic actions.
D) Computing and analyzing variances.
E) Working to ensure that all variances are favorable.

Question 44

Static budget is another name for:

A) Standard budget.
B) Flexible budget.
C) Variable budget.
D) Fixed budget.
E) Master budget.

Question 45

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The variable costs expected if the company produces and sells 16,000 units is:

A) $48,000.
B) $64,000.
C) $40,000.
D) $24,000.
E) $18,000.

Question 46

The difference between actual price per unit of input and the standard price per unit of input results in a:

A) Standard variance.
B) Quantity variance.
C) Volume variance.
D) Controllable variance.
E) Price variance.

Question 47

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The sales expected if the company produces and sells 16,000 units is:

A) $48,000.
B) $64,000.
C) $40,000.
D) $24,000.
E) $18,000.

Question 48

Sales variance analysis is used by managers for:

A) Planning purposes only.
B) Budgeting purposes only.
C) Control purposes only.
D) Planning and control purposes.
E) Planning and budgeting purposes.

Question 49

Identify the situation below that will result in a favorable variance.

A) Actual revenue is higher than budgeted revenue.
B) Actual revenue is lower than budgeted revenue.
C) Actual income is lower than expected income.
D) Actual costs are higher than budgeted costs.
E) Actual expenses are higher than budgeted expenses.

Question 50

The difference between the total actual cost incurred and the total standard cost is called the:

A) Flexible variance.
B) Usage variance.
C) Cost variance.
D) Controllable variance.
E) Volume variance.

Question 51

An analytical technique used by management to focus attention on the most significant variances and give less attention to the areas where performance is reasonably close to standard is known as:

A) Controllable management.
B) Management by variance.
C) Performance management.
D) Management by objectives.
E) Management by exception.

Question 52

The difference between actual quantity of input used and the standard quantity of input used results in a:

A) Controllable variance.
B) Standard variance.
C) Budget variance.
D) Quantity variance.
E) Price variance.

Question 53

A budget based on several different levels of activity, often including both a best-case and worst-case scenario, is called a:

A) Rolling budget.
B) Production budget.
C) Flexible budget.
D) Merchandise purchases budget.
E) Fixed budget.

Question 54

Standard costs are used in the calculation of:

A) Price and quantity variances.
B) Price variances only.
C) Quantity variances only.
D) Price, quantity, and sales variances.
E) Quantity and sales variances.

Question 55

A flexible budget performance report compares the differences between:

A) Actual performance and budgeted performance based on actual sales volume.
B) Actual performance over several periods.
C) Budgeted performance over several periods.
D) Actual performance and budgeted performance based on budgeted sales volume.
E) Actual performance and standard costs at the budgeted sales volume.

Question 56

An internal report that helps management analyze the difference between actual performance and budgeted performance based on the actual sales volume (or other level of activity) is called a(n):

A) Sales budget performance report.
B) Flexible budget performance report.
C) Master budget performance report.
D) Static budget performance report.
E) Operating budget performance report.

Question 57

A flexible budget may be prepared:

A) Before the operating period only.
B) After the operating period only.
C) During the operating period only.
D) At any time in the planning period.
E) Only when the company encounters excessive costs.

Question 58

A company provided the following direct materials cost information. Compute the direct materials quantity variance.

A) $78,250 Favorable.
B) $2,750 Unfavorable.
C) $2,750 Favorable.
D) $2,500 Favorable.
E) $2,500 Unfavorable.

Question 59

In this type of budget, the master budget is based on a single prediction for sales volume, and the budgeted amount for each cost essentially assumes that a specific amount of sales will occur:

A) Sales budget.
B) Standard budget.
C) Flexible budget.
D) Fixed budget.
E) Variable budget.

Question 60

A company provided the following direct materials cost information. Compute the total direct materials cost variance.

A) $2,500 Favorable.
B) $78,250 Favorable.
C) $78,250 Unfavorable.
D) $80,750 Favorable.
E) $80,750 Unfavorable.

Question 61

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000. Based on this information, the budgeted amount of sales for 20,000 units would be:

A) $165,000.
B) $150,000.
C) $117,272.
D) $181,500.
E) $141,900.

Question 62

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The operating income expected if the company produces and sells 16,000 units is:

A) $2,667.
B) $14,000.
C) $18,667.
D) $24,000.
E) $35,000.

Question 63

A company's flexible budget for 12,000 units of production showed total contribution margin of $24,000 and fixed costs, $16,000. The operating income expected if the company produces and sells 15,000 units is:

A) $34,000.
B) $10,000.
C) $18,667.
D) $8,000.
E) $14,000.

Question 64

A company's flexible budget for 12,000 units of production showed per unit contribution margin of $3.00 and fixed costs, $20,000. The operating income expected if the company produces and sells 18,000 units is:

A) $34,000.
B) $10,000.
C) $18,667.
D) $16,000.
E) $24,000.

Question 65

Parallel Enterprises has collected the following data on one of its products. During the period the company produced 25,000 units. The direct materials price variance is:

A) $27,500 unfavorable.
B) $50,000 unfavorable.
C) $50,000 favorable.
D) $22,500 unfavorable.
E) $22,500 favorable.

Question 66

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000. Based on this information, the budgeted amount of variable costs for 20,000 units would be:

A) $99,000.
B) $90,000.
C) $66,000.
D) $30,000.
E) $150,000.

Question 67

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The contribution margin expected if the company produces and sells 16,000 units is:

A) $48,000.
B) $64,000.
C) $40,000.
D) $24,000.
E) $18,000.

Question 68

Georgia, Inc. has collected the following data on one of its products. The direct materials quantity variance is:

A) $30,000 favorable.
B) $13,750 unfavorable.
C) $16,250 favorable.
D) $30,000 unfavorable.
E) $13,750 favorable.

Question 69

Based on a predicted level of production and sales of 12,000 units, a company anticipates reporting operating income of $26,000 after deducting variable costs of $72,000 and fixed costs of $10,000. Based on this information, the budgeted amounts of fixed and variable costs for 15,000 units would be:

A) $10,000 of fixed costs and $72,000 of variable costs.
B) $10,000 of fixed costs and $90,000 of variable costs.
C) $12,500 of fixed costs and $90,000 of variable costs.
D) $12,500 of fixed costs and $72,000 of variable costs.
E) $10,000 of fixed costs and $81,000 of variable costs.

Question 70

Based on predicted production of 12,000 units, a company anticipates $150,000 of fixed costs and $123,000 of variable costs. The flexible budget amounts of fixed and variable costs for 10,000 units are:

A) $125,000 fixed and $102,500 variable.
B) $125,000 fixed and $123,000 variable.
C) $102,500 fixed and $150,000 variable.
D) $150,000 fixed and $123,000 variable.
E) $150,000 fixed and $102,500 variable.

Question 71

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000. Based on this information, the budgeted amount of fixed costs for 20,000 units would be:

A) $99,000.
B) $90,000.
C) $66,000.
D) $30,000.
E) $150,000.

Question 72

Georgia, Inc. has collected the following data on one of its products. The actual cost of direct materials used is:

A) $133,750.
B) $150,000.
C) $106,250.
D) $158,750.
E) $120,000.

Question 73

Product A has a sales price of $10 per unit. Based on a 10,000-unit production level, the variable costs are $6 per unit and the fixed costs are $3 per unit. Using a flexible budget for 12,500 units, what is the budgeted operating income from Product A?

A) $12,500.
B) $25,000.
C) $20,000.
D) $30,000.
E) $35,000.

Question 74

Which department is often responsible for the direct materials price variance?

A) The accounting department.
B) The production department.
C) The purchasing department.
D) The finance department.
E) The budgeting department.

Question 75

Georgia, Inc. has collected the following data on one of its products. The direct materials price variance is:

A) $13,750 unfavorable.
B) $16,250 unfavorable.
C) $16,250 favorable.
D) $30,000 unfavorable.
E) $33,000 favorable.

Question 76

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The fixed costs expected if the company produces and sells 16,000 units is:

A) $16,000.
B) $64,000.
C) $48,000.
D) $24,000.
E) $18,000.

Question 77

Based on a predicted level of production and sales of 30,000 units, a company anticipates total contribution margin of $105,000, fixed costs of $40,000, and operating income of $65,000. Based on this information, the budgeted operating income for 28,000 units would be:

A) $52,000.
B) $135,333.
C) $58,000.
D) $72,500.
E) $105,000.

Question 78

A company's flexible budget for 10,000 units of production reflects sales of $200,000; variable costs of $40,000; and fixed costs of $75,000. Calculate the expected level of operating income if the company produces and sells 13,000 units.

A) $110,500.
B) $85,000.
C) $133,000.
D) $100,000.
E) $50,500.

Question 79

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000. Based on this information, the budgeted amount of contribution margin for 20,000 units would be:

A) $99,000.
B) $90,000.
C) $66,000.
D) $150,000.
E) $60,000.

Question 80

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000. Based on this information, the budgeted amount of operating income for 20,000 units would be:

A) $30,000.
B) $60,000.
C) $69,000.
D) $150,000.
E) $32,727.