Deck 7: Flexible Budgets, Direct-Cost Variances, and Management Control

Question 1

A favorable expense variance results when actual costs exceed budgeted costs.

Answer 1

False

Question 2

Management by exception is a practice whereby managers focus more closely on ________.

A) variances in the larger departments
B) areas not operating as anticipated and less closely on areas that are operating as anticipated
C) activity-based budgeting
D) unfavorable variances

Answer 2

areas not operating as anticipated and less closely on areas that are operating as anticipated

Question 3

Lincoln Corporation used the following data to evaluate their current operating system. The company sells items for $19 each and used a budgeted selling price of $19 per unit.

What is the static-budget variance of revenues?

A) $171,000 favorable
B) $171,000 unfavorable
C) $6,000 favorable
D) $9,000 unfavorable

Answer 3

$171,000 favorable

Question 4

Lincoln Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit.

What is the static-budget variance of variable costs?

A) $6,000 favorable
B) $11,000 unfavorable
C) $14,000 favorable
D) $5,000 unfavorable

Question 5

Management by exception is the practice of concentrating on areas not operating as anticipated (such as a cost overrun) and placing less attention on areas operating as anticipated.

Question 6

Daniels Corporation used the following data to evaluate their current operating system. The company sells items for $19 each and had used a budgeted selling price of $20 per unit.

What is the static-budget variance of revenues?

A) $299,000 favorable
B) $260,000 favorable
C) $260,000 unfavorable
D) $299,000 unfavorable

Question 7

Schooner Corporation used the following data to evaluate its current operating system. The company sells items for $24 each and used a budgeted selling price of $24 per unit.

What is the static-budget variance of operating income?

A) $8,000 favorable
B) $176,000 unfavorable
C) $32,000 favorable
D) $7,000 unfavorable

Question 8

A variance is ________.

A) the difference between actual fixed cost per unit and standard variable cost per unit
B) the standard units of inputs for one output
C) the difference between an actual result and a budgeted performance
D) the difference between actual variable cost per unit and standard fixed cost per unit

Question 9

Lincoln Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit.

What is the static-budget variance of operating income?

A) $164,000 favorable
B) $164,000 unfavorable
C) $181,000 favorable
D) $181,000 unfavorable

Question 10

A master budget is called a static budget because it is developed around a single planned output level.

Question 11

Daniels Corporation used the following data to evaluate their current operating system. The company sells items for $19 each and had used a budgeted selling price of $20 per unit.

What is the static-budget variance of variable costs?

A) $116,000 favorable
B) $116,000 unfavorable
C) $103,000 favorable
D) $103,000 unfavorable

Question 12

A variance is the difference between the actual cost for the current and expected (or budgeted) performance.

Question 13

For revenue items, a favorable variance means that actual revenues are less than expected.

Question 14

Daniels Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and had used a budgeted selling price of $19 per unit.

What is the static-budget variance of operating income?

A) $325,000 favorable
B) $325,000 unfavorable
C) $316,000 favorable
D) $316,000 unfavorable

Question 15

An unfavorable variance indicates that ________.

A) the actual costs are less than the budgeted costs
B) the actual revenues exceed the budgeted revenues
C) the actual units sold are less than the budgeted units
D) the budgeted contribution margin is more than the actual amount

Question 16

Schooner Corporation used the following data to evaluate its current operating system. The company sells items for $23 each and used a budgeted selling price of $23 per unit.

What is the static-budget variance of revenues?

A) $368,000 favorable
B) $368,000 unfavorable
C) $16,000 favorable
D) $16,000 unfavorable

Question 17

Schooner Corporation used the following data to evaluate its current operating system. The company sells items for $25 each and used a budgeted selling price of $25 per unit.

What is the static-budget variance of variable costs?

A) $36,000 favorable
B) $36,000 unfavorable
C) $204,000 favorable
D) $204,000 unfavorable

Question 18

Johnson Company had planned for operating income of $10 million in the master budget with a contribution margin of $3 million, but actually achieved operating income of only $7 million and a contribution margin of $2.5 million.

A) The static-budget variance for operating income is $3 million favorable.
B) The static-budget variance for operating income is $3 million unfavorable.
C) The flexible-budget variance for operating income is $3 million favorable.
D) The flexible-budget variance for operating income is $3 million unfavorable.

Question 19

A master budget is ________.

A) a budget which starts from a zero base
B) based on the level of expected output at the start of the budget period
C) developed at the end of a period
D) a type of flexible budget once actual results are known

Question 20

A favorable variance indicates that ________.

A) budgeted costs are less than actual costs
B) actual revenues exceed budgeted revenues
C) actual operating income is less than the budgeted amount
D) budgeted contribution margin is more than the actual amount

Question 21

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 22

A company budgets 10,000 units of sales based on a projected selling price of $13.00. The actual units sold were 15,000 at a price of $10. What is the flexible budget for sales?

A) $195,000
B) $150,000
C) $130,000
D) $100,000

Question 23

Variances are used for evaluating performance and for motivating managers.

Question 24

An unfavorable flexible-budget variance for variable costs may be the result of ________.

A) using more input quantities than were budgeted
B) paying lower prices for inputs than were budgeted
C) selling output at a higher selling price than budgeted
D) selling less quantity compared to the budgeted

Question 25

Which of the following information is needed to prepare a flexible budget?

A) actual units sold
B) actual variable cost
C) actual selling price per unit
D) actual fixed cost

Question 26

Which of the following items will be same for a flexible budget and a master budget?

A) total variable cost
B) total expected fixed costs
C) total contribution margin
D) total expected revenues

Question 27

In a flexible budget ________.

A) variable costs are calculated proportionately for the budgeted level of sales
B) fixed costs are calculated proportionately for the actual level of sales
C) fixed costs are kept at the same level of static budget
D) variable costs are kept at the same level of static budget

Question 28

Goodard Inc. planned to use $156 of material per unit but actually used $141 of material per unit, and planned to make 1,150 units but actually made 920 units.
The flexible-budget variance for materials is ________.

A) $13,800 favorable
B) $13,800 unfavorable
C) $17,250 unfavorable
D) $17,250 favorable

Question 29

A favorable variance should be ignored by management.

Question 30

Static-budget variance for operating income is calculated by taking a difference between static-budget operating income and actual operating income.

Question 31

Jalbert Incorporated planned to use materials of $11 per unit but actually used materials of $15 per unit, and planned to make 1,560 units but actually made 1,730 units.
The flexible-budget amount for materials is ________.

A) $17,160
B) $23,400
C) $19,030
D) $25,950

Question 32

A flexible-budget variance is $600 favorable for unit-related costs. This indicates that costs were ________.

A) $600 more than the master budget
B) $600 less than for the planned level of activity
C) $600 more than standard for the achieved level of activity
D) $600 less than standard for the achieved level of activity

Question 33

A favorable variance indicates that budgeted costs are less than actual costs.

Question 34

Jalbert Incorporated planned to use materials of $11 per unit but actually used materials of $13 per unit, and planned to make 1,590 units but actually made 1,780 units.
The flexible-budget variance for materials is ________.

A) $3,180 favorable
B) $3,560 unfavorable
C) $3,180 unfavorable
D) $3,560 favorable

Question 35

Goodard Inc. planned to use $155 of material per unit but actually used $147 of material per unit, and planned to make 1,110 units but actually made 1,000 units.
The sales-volume variance for materials is ________.

A) $8,000 favorable
B) $16,170 unfavorable
C) $17,050 unfavorable
D) $8,000 unfavorable

Question 36

The flexible budget contains ________.

A) budgeted amounts for actual output
B) static budget amounts for planned output
C) actual costs for actual output
D) actual costs for planned output

Question 37

Goodard Inc. planned to use $153 of material per unit but actually used $140 of material per unit, and planned to make 1,100 units but actually made 940 units.
The flexible-budget amount for materials is ________.

A) $168,300
B) $143,820
C) $154,000
D) $131,600

Question 38

Harland Corporation currently produces cardboard boxes in an automated process. Expected production per month is 20,000 units, direct material costs are $2.50 per unit, and manufacturing overhead costs are $15,000 per month. Manufacturing overhead is all fixed costs. What are the flexible budget for 14,000 and 20,000 units, respectively?

A) $14,000; $65,000
B) $14,000; $30,000
C) $50,000; $65,000
D) $50,000; $30,000

Question 39

Which of the following is true of flexible budget?

A) It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.
B) It calculates total fixed cost by multiplying actual units by budgeted fixed cost per unit.
C) It calculates revenues by multiplying budgeted units by actual selling price per unit.
D) It calculates contribution margin by multiplying budgeted units by actual contribution margin per unit.

Question 40

A flexible budget ________.

A) is another name for management by exception
B) is developed at the end of the period
C) is based on the budgeted level of output
D) provides favorable operating results

Question 41

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 42

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

Question 43

The actual information pertains to the month of June. As a part of the budgeting process, Great Cabinets Company developed the following static budget for June. Great Cabinets is in the process of preparing the flexible budget and understanding the results.

The flexible-budget variance for variable costs is ________.

A) $2,210 unfavorable
B) $202,275 unfavorable
C) $89,270 favorable
D) $137,930 favorable

Question 44

The actual information pertains to the month of June. As a part of the budgeting process, Great Cabinets Company developed the following static budget for June. Great Cabinets is in the process of preparing the flexible budget and understanding the results.

The flexible budget will report ________ for the fixed costs.

A) $303,820
B) $270,600
C) $530,200
D) $246,000

Question 45

Jalbert Incorporated planned to use materials of $9 per unit but actually used materials of $14 per unit, and planned to make 1,640 units but actually made 1,770 units.
The sales-volume variance for materials is ________.

A) $1,170 unfavorable
B) $1,820 unfavorable
C) $1,170 favorable
D) $1,820 favorable

Question 46

The actual information pertains to the month of June. As a part of the budgeting process, Great Cabinets Company developed the following static budget for June. Great Cabinets is in the process of preparing the flexible budget and understanding the results.

The flexible budget will report ________ for variable costs.

A) $592,774
B) $460,000
C) $363,060
D) $463,910

Question 47

The only difference between the static budget and flexible budget is that the static budget is prepared using actual prices charged and costs per units incurred.

Question 48

A favorable flexible-budget variance for variable costs may be the result of using more input quantities than were budgeted.

Question 49

The actual information pertains to the month of June. As part of the budgeting process, Colonial Fencing Company developed the following static budget for September. Colonial is in the process of preparing the flexible budget and understanding the results.

The flexible budget for sales revenues will be?

A) $615,000
B) $510,000
C) $635,500
D) $570,000

Question 50

When preparing a flexible budget, fixed costs must be adjusted to reflect actual costs at actual output.

Question 51

Better Products Inc. planned to use $40 of material per unit but actually used $30 of material per unit, and planned to make 1,560 units but actually made 1,310 units.
The sales-volume variance for materials is ________.

A) $10,000 favorable
B) $10,000 unfavorable
C) $7,500 unfavorable
D) $7,500 favorable

Question 52

The president of the company, Peter Francis, has come to you for help. Use the following data to prepare a flexible budget for possible sales/production levels of 10,000, 15,000, and 20,000 units. Show the contribution margin at each activity level.

Question 53

An unfavorable variance is conclusive evidence of poor performance.

Question 54

The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy Department of Paralith Incorporated had developed the following static budget for the third quarter. Duck Decoy is in the process of preparing the flexible budget and understanding the results.

The flexible budget will report ________ for variable costs.

A) $101,933
B) $250,909
C) $45,000
D) $184,000

Question 55

Studies show that variance analysis is no longer a popular tool of corporate managers as they have adopted various other forms of performance evaluation.

Question 56

Expected performance is also called budgeted performance.

Question 57

When actual revenues exceed budgeted revenues, a favorable variance arises.

Question 58

Zebra Corporation currently produces baseball caps in an automated process. Expected production per month is 17,000 units, direct material costs are $7.50 per unit, and manufacturing overhead costs are $60,000 per month. Manufacturing overhead is entirely fixed costs. What is the flexible budget for 11,000 and 17,000 units, respectively?

A) $60,000; $187,500
B) $60,000; $105,000
C) $142,500; $187,500
D) $142,500; $105,000

Question 59

Better Products Inc. planned to use $36 of material per unit but actually used $34 of material per unit, and planned to make 1,520 units but actually made 1,310 units.
The flexible-budget variance for materials is ________.

A) $3,040 favorable
B) $3,040 unfavorable
C) $2,620 unfavorable
D) $2,620 favorable

Question 60

Better Products Inc. planned to use $43 of material per unit but actually used $32 of material per unit, and planned to make 1,510 units but actually made 1,340 units.
The flexible-budget amount for materials is ________.

A) $57,620
B) $64,930
C) $48,320
D) $42,880

Question 61

Standard cost per output unit for each variable direct cost input is calculated by multiplying ________.

A) standard input allowed for one output unit by standard price per input unit
B) standard input allowed for one output unit by actual price per input unit
C) actual input allowed for one output unit by standard price per input unit
D) actual input allowed for one output unit by actual price per input unit

Question 62

Which of the following is a disadvantage of using the standards developed by a firm itself to develop a budget?

A) A firm's inefficiencies will be part of the data.
B) They are not based on realized benchmarks and can be unrealistic
C) The expected future changes are not included in the standards.
D) The flexible-budget amounts are difficult to determine.

Question 63

A difference between the static-budget and the flexible-budget amounts is called the sales-volume variance.

Question 64

Classic Products Company manufactures colonial style desks. Some of the company's data was misplaced. Use the following information to replace the lost data:

What is the total flexible-budget variance (D)?

A) $11,750 favorable
B) $0
C) $3,840 favorable
D) $7,910 favorable

Question 65

Bennett Street Table Company manufactures tables for schools. The 2018 operating budget is based on sales of 45,000 units at $55 per table. Operating income is anticipated to be $240,000. Budgeted variable costs are $35 per unit, while fixed costs total $660,000.
Actual income for 2018 was a surprising $569,000 on actual sales of 46,000 units at $60 each. Actual variable costs were $34 per unit and fixed costs totaled $627,000.
Required:
Prepare a variance analysis report with both flexible-budget and sales-volume variances.

Question 66

The flexible-budget variance for direct cost inputs can be further subdivided into a ________.

A) static-budget variance and a sales-volume variance
B) sales-volume variance and an efficiency variance
C) price variance and an efficiency variance
D) static-budget variance and a price variance

Question 67

An efficiency variance reflects the difference between ________.

A) actual input quantities used last period and current period
B) an actual input quantity and a budgeted input quantity
C) an actual input quantity used in a company and its main competitors
D) a standard input quantity in a company and its main competitors

Question 68

If a sales-volume variance was caused by poor-quality products, then the ________ would be in the best position to explain the variance.

A) production manager
B) sales supervisor
C) financial supervisor
D) logistic manager

Question 69

The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy Department of Paralith Incorporated had developed the following static budget for the third quarter. Duck Decoy is in the process of preparing the flexible budget and understanding the results.

The flexible budget will report ________ for the fixed costs.

A) $73,923
B) $31,000 Favorable
C) $31,000
D) $10,000 Unfavorable

Question 70

Classic Products Company manufactures colonial style desks. Some of the company's data was misplaced. Use the following information to replace the lost data:

What amounts are reported for revenues in the flexible-budget (A) and the static-budget (B), respectively?

A) $192,250; $175,990
B) $182,250; $188,510
C) $187,250; $185,990
D) $180,990; $188,510

Question 71

J.C Coats Inc. carefully develops standards for its coat making operation. Its specifications call for 2 square yards of wool per coat. The budgeted price of wool is $44 per square yard. The actual price for the wool was $36 and the usage was only 1.70 yards of wool per coat. What would be the standard cost per output for the wool?

A) $61.20 per coat
B) $72.00 per coat
C) $88.00 per coat
D) $74.80 per coat

Question 72

A flexible-budget variance pertaining to revenues is often called a sales-volume variance.

Question 73

Classic Products Company manufactures colonial style desks. Some of the company's data was misplaced. Use the following information to replace the lost data:

What are the actual variable costs (C)?

A) $71,220
B) $72,920
C) $72,070
D) $82,470

Question 74

Which of the following is the correct formula for the materials price variance?

A) (Actual price of input - Budgeted price of input) x Budgeted quantity of input
B) (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Budgeted price of input
C) (Actual price of input - Budgeted price of input) x Actual quantity of input
D) (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Actual price of input

Question 75

The sales-volume variance is sometimes due to ________.

A) the difference between selling price and budgeted selling price
B) quality problems leading to customer dissatisfaction
C) unexpected increase in manufacturing labor time
D) unexpected increase in the use of quantities of inputs of raw material

Question 76

Classic Products Company manufactures colonial style desks. Some of the company's data was misplaced. Use the following information to replace the lost data:

What is the total sales-volume variance (E)?

A) $11,530 unfavorable
B) $7,290 unfavorable
C) $4,240 favorable
D) $11,530 favorable

Question 77

An unfavorable sales-volume variance could result from ________.

A) an inappropriate assignment of labor or machines to specific jobs
B) competitors taking market share
C) an inefficiency of a purchasing manager in bargaining with suppliers
D) a decrease in actual selling price compared to anticipated selling price

Question 78

Classic Products Company manufactures colonial style desks. Some of the company's data was misplaced. Use the following information to replace the lost data:

What is the total static-budget variance?

A) $11,790 favorable
B) $7,350 favorable
C) $4,440 unfavorable
D) $4,440 favorable

Question 79

The actual information pertains to the third quarter. As part of the budgeting process, the controller for Foley Manufacturing had developed the following static budget for the third quarter. The company is in the process of preparing the flexible budget and understanding the results.

The primary reason for high actual operating profits was ________.

A) the variable-cost variance
B) increased fixed costs
C) flexible budget variance for revenues
D) lower sales volume than planned

Question 80

The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy Department of Paralith Incorporated had developed the following static budget for the third quarter. Duck Decoy is in the process of preparing the flexible budget and understanding the results.

The flexible-budget variance for variable costs is ________. (Round the final answer to the nearest dollar.)

A) $17,000 favorable
B) $33,400 unfavorable
C) $17,000 unfavorable
D) $63,000 favorable