Question 1

A flexible budget

Accepted Answer

A flexible budget projects budget data for various levels of activity, allowing for more accurate budgeting and control in changing conditions. It is not related to disagreement on objectives or limited to fixed costs, and it can be used for evaluation by comparing actual results to the budgeted amounts adjusted for actual levels of activity.

Question 2

The flexible budget

Accepted Answer

The flexible budget is a series of static budgets at different levels of activity. A flexible budget allows for variations in activity levels and provides a better estimation of expected costs and revenues. It does not eliminate the need for a master budget, which includes the flexible budget as a component. The flexible budget is only relevant within the relevant range, which is the range of activity levels where the assumptions and cost behaviors used in the budget are valid. Therefore, option B is incorrect. Option A is also incorrect as the flexible budget is prepared after the master budget, using the assumptions and cost behaviors incorporated in the master budget as a starting point.

Question 3

The activity index used in preparing the flexible budget

Accepted Answer

The activity index used in preparing the flexible budget should significantly influence the costs that are being budgeted. This is because the activity index measures the level of activity or volume of output, which directly affects the costs of production. The activity index is not prescribed by generally accepted accounting principles and is applicable to all departments, not just fixed manufacturing costs.

Question 4

Nikoto Steel Co. budgeted manufacturing costs for 50,000 tons of steel are: Fixed manufacturing costs $ \quad \quad \$ 50,000 $ per month 
Variable manufacturing costs $ \quad \$ 12.00 $ per ton of steel Nikoto produced 40,000 tons of steel during March. How much is the flexible budget for total manufacturing costs for March?

Accepted Answer

The flexible budget for total manufacturing costs includes both fixed and variable costs. Fixed costs remain at $50,000 regardless of production level. Variable costs are $12 per ton, so for 40,000 tons, the variable costs are $480,000 (40,000 tons x $12). Total manufacturing costs = Fixed costs + Variable costs = $50,000 + $480,000 = $530,000.

Question 5

Best Shingle's budgeted manufacturing costs for 50,000 squares of shingles are: Fixed manufacturing costs $\quad\quad\$ 12,000$
Variable manufacturing costs $\quad\$ 16.00$ per square Best produced 40,000 squares of shingles during March. How much are budgeted total manufacturing costs in March?

Accepted Answer

The total manufacturing costs for March can be calculated by adding the fixed manufacturing costs to the variable manufacturing costs for the actual production. Fixed costs remain the same at $12,000. Variable costs are $16.00 per square for 40,000 squares, which equals $640,000. Adding these together gives $652,000.

Question 6

Within the relevant range of activity, the behavior of total costs is assumed to be

Accepted Answer

Total costs within the relevant range of activity are assumed to be linear and upward sloping, reflecting a direct relationship between the level of activity and total costs.

Question 7

A static budget is not appropriate in evaluating a manager's effectiveness if a company has

Accepted Answer

A static budget assumes that costs are fixed, which is not the case when a company has substantial variable costs. Therefore, a static budget would not be appropriate in evaluating a manager's effectiveness in controlling variable costs.

Question 8

Shane Industries prepared a fixed budget of 60,000 direct labor hours, with estimated overhead costs of $300,000 for variable overhead and $90,000 for fixed overhead. Shane then prepared a flexible budget at 57,000 labor hours. How much is total overhead costs at this level of activity?

Accepted Answer

The answer of Shane Industries prepared a fixed budget of...

Question 9

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs:. $\begin{array}{lrlr}\text { Variable }&&\text { Fixed }\
\hline \text { Indirect materials } & \$ 140,000 & \text { Depreciation } & \$ 60,000 \
\text { Indirect labor } & 200,000 & \text { Taxes } & 10,000 \
\text { Factory supplies } & 20,000 & \text { Supervision } & 50,000
\end{array}$ A flexible budget prepared at the 80,000 machine hours level of activity would show total manufacturing overhead costs of

Accepted Answer

To calculate the total manufacturing overhead costs at 80,000 machine hours, we first need to adjust the variable costs to the new activity level and then add the fixed costs, which remain unchanged. Variable costs (indirect materials, indirect labor, and factory supplies) total $360,000 at 100,000 machine hours. At 80,000 machine hours (80% of the original activity level), these costs would be 80% of $360,000, which is $288,000. The fixed costs (depreciation, taxes, and supervision) total $120,000 and do not change with the activity level. Adding the adjusted variable costs ($288,000) to the fixed costs ($120,000) gives a total of $408,000.

Question 10

A flexible budget can be prepared for which of the following budgets comprising the master budget?

Accepted Answer

A flexible budget can be prepared for all components of the master budget including sales, overhead, and direct materials. A flexible budget is a budget that can be adjusted to reflect changes in activity levels and provides a more accurate measure of performance than a static budget.

Question 11

A flexible budget depicted graphically

Accepted Answer

The answer of A flexible budget depicted graphically
...

Question 12

The selection of levels of activity to depict a flexible budget
1.	will be within the relevant range.
2.	is largely a matter of expediency.
3.	is governed by generally accepted accounting principles.

Accepted Answer

The statement is governed by generally accepted accounting principles, which includes both the measurement and disclosure principles. Therefore, option 1 (measurement principle) and option 2 (disclosure principle) are both correct, and the best answer is D.

Question 13

In the Dichter Co., indirect labor is budgeted for $72,000 and factory supervision is budgeted for $24,000 at normal capacity of 160,000 direct labor hours. If 180,000 direct labor hours are worked, flexible budget total for these costs is

Accepted Answer

The flexible budget for these costs adjusts based on the actual direct labor hours worked. The total budgeted costs for indirect labor and factory supervision at normal capacity (160,000 hours) is $72,000 + $24,000 = $96,000. To find the cost per direct labor hour, divide the total budgeted costs by the normal capacity: $96,000 / 160,000 hours = $0.60 per hour. For 180,000 hours worked, the flexible budget total is 180,000 hours * $0.60 = $108,000. However, the mistake in my calculation is that the $96,000 is already the combined total of indirect labor and supervision, and it does not need to be summed again. The correct approach is to adjust the budget based on the actual hours worked, but since the costs given are fixed costs and do not vary with the hours worked, the initial calculation approach was incorrect. Fixed costs remain the same regardless of the level of production or hours worked. Therefore, the correct answer reflects a misunderstanding of the nature of these costs, as they should not vary with the number of direct labor hours in this context.

Question 14

Under management by exception, which differences between planned and actual results should be investigated?

Accepted Answer

Under management by exception, only material and controllable differences between planned and actual results should be investigated. This allows managers to focus their attention on the most important issues and take corrective action to address them. Non-material differences and those that are outside of the manager's control can be ignored, as they are not likely to have a significant impact on overall performance.

Question 15

Stone Industries uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is: $48,000 variable and $270,000 fixed. If Stone had actual overhead costs of $321,000 for 18,000 units produced, what is the difference between actual and budgeted costs?

Accepted Answer

The answer of Stone Industries uses flexible budgets. At normal...

Question 16

Smart Manufacturing budgeted costs for 50,000 linear feet of block are: Fixed manufacturing costs $ \quad \$ 24,000 $ per month
Variable manufacturing costs $ \quad \$ 16.00 $ per linear foot Smart installed 40,000 linear feet of block during March. How much is budgeted total manufacturing costs in March?

Accepted Answer

The total budgeted manufacturing costs for March can be calculated by adding the fixed manufacturing costs to the variable manufacturing costs for the actual production. Fixed costs are $24,000. Variable costs are $16.00 per linear foot for 40,000 linear feet, which equals $640,000. Therefore, the total budgeted costs are $24,000 (fixed) + $640,000 (variable) = $664,000.

Question 17

If a company plans to sell 48,000 units of product but sells 60,000, the most appropriate comparison of the cost data associated with the sales will be by a budget based on

Accepted Answer

The most appropriate comparison of cost data associated with the sales would be by a budget based on the actual level of activity, which in this case is 60,000 units. Option C represents the actual level of activity, so it would be the best choice for comparison purposes. The other options represent levels of activity that differ from the actual level, so they would not provide an accurate comparison.

Question 18

Sales results that are evaluated by a static budget might show
1.	favorable differences that are not justified.
2.	unfavorable differences that are not justified.

Accepted Answer

Both 1 and 2 are possible reasons for unfavorable differences that are not justified. It is important to investigate these differences and determine if they are due to discrimination or other unjustifiable factors.

Question 19

For June, Gold Corp. estimated sales revenue at $600,000. It pays sales commissions that are 4% of sales. The sales manager's salary is $285,000, estimated shipping expenses total 1% of sales, and miscellaneous selling expenses are $15,000. How much are budgeted selling expenses for the month of July if sales are expected to be $540,000?

Accepted Answer

Budgeted selling expenses for July = Sales commissions (4% of $540,000) + Sales manager's salary + Shipping expenses (1% of $540,000) + Miscellaneous selling expenses = ($540,000 * 0.04) + $285,000 + ($540,000 * 0.01) + $15,000 = $21,600 + $285,000 + $5,400 + $15,000 = $327,000.

Question 20

Management by exception

Accepted Answer

Management by exception focuses on identifying and addressing cases that deviate significantly from the norm or expectations, hence "material differences" are investigated. This approach helps in prioritizing issues that could have a significant impact on performance or operations, rather than spending time on minor variances.

Quiz 10: Budgetary Control and Responsibility Accounting