Question 1

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:

Accepted Answer

First, we need to calculate the contribution margin per unit:

Contribution margin per unit = Sales - Variable costs 
= $48,000 - $18,000 
= $30,000 / 12,000 units 
= $2.50 per unit

Next, we need to calculate the fixed cost per unit:

Fixed cost per unit = Fixed costs / Units produced 
= $16,000 / 12,000 units 
= $1.33 per unit

Using this information, we can calculate the operating income for 16,000 units:

Operating income = (Sales - Variable costs - Fixed costs) 
= ($2.50 * 16,000) - ($1.33 * 16,000) - $16,000 
= $40,000 - $21,280 
= $18,720

Therefore, the operating income expected if the company produces and sells 16,000 units is $24,000.

Question 2

Variable budget is another name for:

Accepted Answer

A variable budget, also known as a flexible budget, is a budget that adjusts or "flexes" based on changes in activity or volume. This allows for better accuracy in budgeting and forecasting, as it takes into account fluctuations in revenue and expenses.

Question 3

Standard costs are used in the calculation of:

Accepted Answer

Standard costs are used to determine both price and quantity variances, as they provide a benchmark against which actual costs and activities can be compared. Therefore, option A is the correct choice.

Question 4

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:

Accepted Answer

Fixed costs remain constant at $150,000 regardless of production level. Variable costs per unit are $123,000/12,000 = $10.25, so for 10,000 units, variable costs are 10,000 * $10.25 = $102,500.

Question 5

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?

Accepted Answer

To calculate the budgeted operating income for Product A using a flexible budget, we need to determine the total variable and fixed costs at the higher production level of 12,500 units.

Variable costs per unit remain constant at $6 per unit, so total variable costs for 12,500 units would be:

$6 x 12,500 = $75,000

Fixed costs per unit remain constant at $3 per unit, so total fixed costs for 12,500 units would be:

$3 x 12,500 = $37,500

To calculate revenue at the higher production level, we can use the sales price of $10 per unit and the production level of 12,500 units:

$10 x 12,500 = $125,000

Now, we can calculate the budgeted operating income as follows:

Budgeted Operating Income = Revenue - Total Variable Costs - Total Fixed Costs

Budgeted Operating Income = $125,000 - $75,000 - $37,500

Budgeted Operating Income = $12,500

Therefore, the correct answer is (C) $20,000.

Question 6

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

Accepted Answer

A flexible budget is designed to adjust to changes in activity levels, and can include multiple scenarios based on different levels of activity. Rolling budgets are constantly updated and revised, while production budgets only focus on the production process. Merchandise purchases budgets only relate to purchases of goods for resale, and fixed budgets do not allow for adjustments based on changes in activity levels.

Question 7

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:

Accepted Answer

Using the high-low method, we can determine the variable cost per unit:
Variable cost per unit = (Total variable cost at 22,000 units - Total variable cost at 20,000 units) / (22,000 units - 20,000 units)
Variable cost per unit = ($99,000 - ?) / (2,000 units)
Variable cost per unit = $0.50

Using the formula for income:
Income = Sales - Variable Costs - Fixed Costs

We can rearrange the formula to solve for sales:
Sales = Income + Variable Costs + Fixed Costs
Sales = $36,000 + ($0.50 x 22,000) + $30,000
Sales = $36,000 + $11,000 + $30,000
Sales = $77,000

Therefore, the budgeted amount of sales for 20,000 units would be:
Sales at 20,000 units = ($0.50 x 20,000) + $30,000 + $36,000
Sales at 20,000 units = $10,000 + $30,000 + $36,000
Sales at 20,000 units = $76,000

The closest option to this value is (B) $150,000.

Question 8

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.

Accepted Answer

First, we need to calculate the flexible budget for production and sales of 13,000 units:
Sales: ($200,000/10,000 units) x 13,000 units = $260,000
Variable costs: ($40,000/10,000 units) x 13,000 units = $52,000
Fixed costs remain the same at $75,000. 
Total costs: $75,000 + $52,000 = $127,000
Expected operating income: $260,000 - $127,000 = $133,000

Question 9

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:

Accepted Answer

Management by exception focuses on significant variances and gives less attention to areas where performance is reasonably close to standard. This enables management to allocate their resources effectively to address the areas that require attention. Controllable management, management by variance, and performance management are not specific analytical techniques used for this purpose. Management by objectives is a technique used to set and track progress towards specific goals, but it is not necessarily designed to focus on significant variances.

Question 10

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):

Accepted Answer

A flexible budget performance report compares actual performance to what the budgeted performance should have been based on the actual level of activity. This allows management to analyze the difference between actual and budgeted performance more accurately as it takes into account the varying levels of activity. The other options do not specifically take into account the level of activity and may not provide as accurate of a comparison.

Question 11

A flexible budget performance report compares the differences between:

Accepted Answer

A flexible budget adjusts for changes in sales volume, and therefore compares actual performance to budgeted performance based on the actual, rather than budgeted, sales volume. This provides a more accurate reflection of performance and allows for better analysis and decision-making.

Question 12

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

Accepted Answer

A favorable variance occurs when actual revenue is higher than budgeted revenue, meaning the company is generating more income than anticipated, which can lead to higher profits.

Question 13

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

Accepted Answer

The cost variance is calculated by subtracting the actual cost from the standard cost. In this case, the actual cost is $888,250 and the standard cost is $810,000. Therefore, the cost variance is $78,250 unfavorable (actual cost - standard cost = $78,250 U).

Question 14

A flexible budget may be prepared:

Accepted Answer

A flexible budget can be prepared at any time in the planning period as it is designed to adjust to changes in activity levels and provide more accurate budget estimates. It is not limited to before or after the operating period, during the operating period only, or only when encountering excessive costs.

Question 15

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:

Accepted Answer

The contribution margin per unit is $24,000 / 12,000 units = $2 per unit. For 15,000 units, the contribution margin is 15,000 * $2 = $30,000. Subtracting fixed costs of $16,000 gives an operating income of $14,000.

Question 16

Sales variance analysis is used by managers for:

Accepted Answer

Sales variance analysis helps in both planning and control purposes. By comparing actual sales with budgeted sales, managers can identify areas where the company is performing well or where it needs improvements. This information can be used to adjust future plans and make better business decisions. Additionally, understanding the reasons for sales variances helps managers to control the sales performance of their teams and take corrective actions to meet their targets.

Question 17

Static budget is another name for:

Accepted Answer

Static budget is also called fixed budget as it remains unchanged despite changes in actual activity levels.

Question 18

In this type of control system,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:

Accepted Answer

This is a description of a fixed budget, where the budget is based on a single prediction for sales volume and assumes a specific amount of sales will occur.

Question 19

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:

Accepted Answer

Fixed costs remain constant regardless of the level of production or sales, so they would stay at $10,000. Variable costs change with the level of production or sales. Since the variable costs for 12,000 units are $72,000, for 15,000 units (which is 25% more), the variable costs would increase by 25% to $90,000.

Question 20

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:

Accepted Answer

The contribution margin per unit is $3.00, and the fixed costs are $20,000. If the company produces and sells 18,000 units, the total contribution margin will be $3.00 x 18,000 = $54,000. The operating income will be $54,000 - $20,000 = $34,000.

Quiz 23: Flexible Budgets and Standard Costs