Question 1

What assumption about the behaviour of total costs occurs within the relevant range of activity?

Accepted Answer

Within the relevant range of activity, the assumption is that total costs are linear and upward sloping. This means that as the level of activity increases, total costs also increase proportionally in a straight line.

Question 2

Which one of the following would be the same total amount on a flexible budget and a static budget if the activity level is different for the two types of budgets?

Accepted Answer

Fixed manufacturing overhead costs are fixed regardless of the level of production activity, hence they will remain the same on both the flexible and static budget. Direct and indirect labor costs as well as variable manufacturing overhead costs will change with the level of activity and therefore will differ between the flexible budget and static budget.

Question 3

Use the following information to answer questions 
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: $\begin{array}{lr}
\text { Direct Materials } & \$ 450,000 \
\text { Direct Labour } & 225,000 \
\text { Variable Overhead } & 1,125,000 \
\text { Fixed Overhead } & 2,100,000\\
\text { Actual Results: } \
\text { Machine Hours } & \
\text { Direct Materials } & \$ 60,000 \text { hours } \
\text { Direct Labour } & \$ 475,000 \
\text { Variable Overhead } & 245,000 \
\text { Fixed Overhead } & 1,150,000 \
& 2,110,000
\end{array}$
-What possible reason could explain the difference between the actual fixed overhead costs and the budgeted fixed overhead costs?

Accepted Answer

Fixed overhead costs are not affected by the level of production or machine hours. The difference between the actual and budgeted fixed overhead costs indicates that EKPN Company spent more on fixed costs than anticipated, not that the machine hours were different.

Question 4

Use the following information to answer questions 
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: $\begin{array}{lr}
\text { Direct Materials } & \$ 450,000 \
\text { Direct Labour } & 225,000 \
\text { Variable Overhead } & 1,125,000 \
\text { Fixed Overhead } & 2,100,000\\
\text { Actual Results: } \
\text { Machine Hours } & \
\text { Direct Materials } & \$ 60,000 \text { hours } \
\text { Direct Labour } & \$ 475,000 \
\text { Variable Overhead } & 245,000 \
\text { Fixed Overhead } & 1,150,000 \
& 2,110,000
\end{array}$
-What was the budgeted variable costs per machine hour for variable overhead, rounded to the nearest whole cent?

Accepted Answer

The answer of Use the following information to answer questions...

Question 5

Nextel Communications uses management by exception.Which differences between planned and actual results will it investigate?

Accepted Answer

Nextel Communications uses management by exception, which means that they only investigate differences between planned and actual results that are both material and controllable. This allows them to focus their resources and efforts on areas where they can make the greatest impact on their performance.

Question 6

What is the primary difference between a static budget and a flexible budget?

Accepted Answer

The primary difference between a static budget and a flexible budget is that a static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels. A static budget remains fixed regardless of changes in actual activity levels, whereas a flexible budget changes based on the actual activity level achieved, allowing for a more accurate analysis of performance.

Question 7

Which statement is true about the activity index used in preparing the flexible budget?

Accepted Answer

The activity index used in preparing the flexible budget significantly influences the variable costs that are being budgeted. The activity level determines the level of variable costs, such as direct materials, direct labor, and variable overhead. The higher the level of activity, the higher the variable costs, and vice versa. Therefore, the activity index is an important factor to consider when preparing a flexible budget. The other options listed are not true statements about the activity index.

Question 8

Which one of the following statements is true concerning a flexible budget?

Accepted Answer

A flexible budget is a budget that is prepared after the actual activity level is determined, in order to show what the costs should have been for that level of activity. This allows for better comparison between actual costs and budgeted costs, and helps to identify where costs may have deviated from expectations. Choices B, C, and D are all incorrect statements about a flexible budget.

Question 9

How does a graph of a flexible budget compare to a CVP graph?

Accepted Answer

The answer of How does a graph of a flexible...

Question 10

Use the following information to answer questions 
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: $\begin{array}{lr}
\text { Direct Materials } & \$ 450,000 \
\text { Direct Labour } & 225,000 \
\text { Variable Overhead } & 1,125,000 \
\text { Fixed Overhead } & 2,100,000\\
\text { Actual Results: } \
\text { Machine Hours } & \
\text { Direct Materials } & \$ 60,000 \text { hours } \
\text { Direct Labour } & \$ 475,000 \
\text { Variable Overhead } & 245,000 \
\text { Fixed Overhead } & 1,150,000 \
& 2,110,000
\end{array}$
-What is the budgeted Direct Labour cost at the actual level of activity?

Accepted Answer

The budgeted direct labour cost per machine hour is $225,000 / 150,000 hours = $1.50 per hour. At the actual level of activity of 160,000 hours, the budgeted direct labour cost would be 160,000 hours * $1.50/hour = $240,000.

Question 11

Surf N Waves planned to sell 27,000 surfboards, however the actual number sold totalled 23,000.Which one of the following provides the best comparison of the cost data associated with the sales?

Accepted Answer

A budget based on the original planned level of activity (A) does not reflect the actual level of activity and is therefore not useful for comparison purposes. Budgeting based on 27,000 units of activity (B) is not appropriate since this was not the actual level of activity. The master budget level of activity (D) may not be relevant if there were changes in the business environment since the budget was created. Therefore, the best choice is to compare the actual sales data with a budget based on the actual level of activity, which is 23,000 units of activity (C).

Question 12

Which statement is true concerning management by exception?

Accepted Answer

Management by exception focuses on identifying and addressing only those areas where performance deviates significantly from the standards, which includes both favourable and unfavourable variances. This approach allows managers to prioritize their time on issues that require their attention, rather than reviewing every minor variance.

Question 13

Use the following information to answer questions 
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: $\begin{array}{lr}
\text { Direct Materials } & \$ 450,000 \
\text { Direct Labour } & 225,000 \
\text { Variable Overhead } & 1,125,000 \
\text { Fixed Overhead } & 2,100,000\\
\text { Actual Results: } \
\text { Machine Hours } & \
\text { Direct Materials } & \$ 60,000 \text { hours } \
\text { Direct Labour } & \$ 475,000 \
\text { Variable Overhead } & 245,000 \
\text { Fixed Overhead } & 1,150,000 \
& 2,110,000
\end{array}$
-What was the difference between the actual and budgeted Direct Material costs at the actual level of activity?

Accepted Answer

The answer of Use the following information to answer questions...

Question 14

Which statement is true concerning the selection of the level of activity used in the flexible budget?

Accepted Answer

The activity level used in the flexible budget should be the same as actually achieved, as this allows for accurate comparison of actual performance to the budget. If a different activity level were used, it would not be an accurate reflection of actual performance and would not be useful for evaluating the company's performance.

Question 15

Which one of the following statements is true in developing a flexible budget within a relevant range of activity?

Accepted Answer

In developing a flexible budget within a relevant range of activity, total variable costs should be adjusted based on the activity index chosen. This means that as activity levels increase, variable costs will increase proportionately. Fixed costs, however, remain the same regardless of activity levels within the relevant range. The budget should also reflect a range of possible activity levels rather than a fixed level. Therefore, option A is incorrect. Option C is also incorrect because costs can increase or decrease within the relevant range as activity levels change. Option D is incorrect because fixed costs should be reported in a flexible budget, as they are a crucial component of the budget.

Question 16

A department has budgeted monthly fixed manufacturing overhead cost of $40,000 plus $5 per direct labour hour.The flexible budget report reflects $120,000 for total budgeted manufacturing cost for the month.What is the budgeted level of activity to be achieved during the month?

Accepted Answer

The answer of A department has budgeted monthly fixed manufacturing...

Question 17

For which of the budgets in the master budget will a company prepare a flexible budget?

Accepted Answer

A flexible budget is prepared for all of the budgets in the master budget. A flexible budget adjusts the budgeted amounts to actual activity levels, providing management with a more accurate reflection of expected costs and revenues.

Question 18

Use the following information to answer questions 
EKPN Company prepared the following data in its static budget based on 150,000 machine hours: $\begin{array}{lr}
\text { Direct Materials } & \$ 450,000 \
\text { Direct Labour } & 225,000 \
\text { Variable Overhead } & 1,125,000 \
\text { Fixed Overhead } & 2,100,000\\
\text { Actual Results: } \
\text { Machine Hours } & \
\text { Direct Materials } & \$ 60,000 \text { hours } \
\text { Direct Labour } & \$ 475,000 \
\text { Variable Overhead } & 245,000 \
\text { Fixed Overhead } & 1,150,000 \
& 2,110,000
\end{array}$
-What is the budgeted Fixed Overhead at the actual level of activity?

Accepted Answer

Fixed overhead is not affected by the level of activity, so the budgeted fixed overhead at the actual level of activity is the same as the budgeted fixed overhead at the static budget level of activity, which is $2,100,000.

Question 19

Haroot Company's master budget shows that the planned activity level for next year is expected to be 20,000 machine hours.At this level of activity, the following manufacturing overhead costs are expected: $$\begin{array} { l r } 
\text { Indirect labour } & \$ 45,000 \
\text { Factory supplies } & 4,000 \
\text { Indirect materials } & 21,000 \
\text { Depreciation on factory building } & 15,000 \
\text { Total manufacturing overhead } & \$ 85,000
\end{array}$$ Indirect labour, factory supplies and indirect materials are variable costs.If the company operates at 21,000 machine hours, how much is allowed on a flexible budget for manufacturing overhead costs?

Accepted Answer

The answer of Haroot Company's master budget shows that the...

Question 20

Which one of the following is true of a flexible budget?

Accepted Answer

A flexible budget adjusts costs based on changes in actual activity levels, making it useful for controlling both variable and fixed costs by showing how costs should scale with activity levels.

Quiz 11: Budgetary Control and Responsibility Accounting