Question 1

A flexible budget is a budget that is valid within the firm's relevant range of activity.

Accepted Answer

A flexible budget adjusts based on changes in the volume of activity, making it valid within the firm's relevant range of activity.

Question 2

The variable-overhead efficiency variance measures the cost of variable overhead cost driver.

Accepted Answer

The variable-overhead efficiency variance measures the efficiency with which the cost driver (e.g., machine hours, labor hours) is used, not the cost of the cost driver itself.

Question 3

Activity levels in the flexible budget are based on output measures.

Accepted Answer

False

Question 4

In a multiproduct firm, units of output usually are not a meaningful measure because one would have to add numbers of unlike units.

Accepted Answer

In a multiproduct firm, different products may vary significantly in terms of their nature, size, value, and production process, making it difficult to aggregate output into a single, meaningful measure using units of output alone.

Question 5

The activity-based budget provides a less accurate benchmark against which to compare actual costs.

Accepted Answer

Activity-based budgeting focuses on the costs of activities necessary for producing specific products or services, leading to more accurate and detailed benchmarks for comparing actual costs.

Question 6

In a standard costing system, overhead application refers to the addition of actual overhead cost to the Work-in-Process inventory as a product cost.

Accepted Answer

In a standard costing system, overhead application refers to the allocation of estimated (not actual) overhead costs to the Work-in-Process inventory based on a predetermined rate, rather than adding actual overhead costs directly.

Question 7

Variable-overhead cost and the activity measure for the flexible budget should move together as overall productive activity changes.

Accepted Answer

Variable overhead costs are expected to fluctuate in direct proportion to changes in the level of activity, which is why they should move together with the activity measure in a flexible budget.

Question 8

The flexible overhead budget is the cost manager's primary tool for the control of manufacturing-overhead costs under traditional cost management techniques.

Accepted Answer

The flexible overhead budget adjusts for variations in production volume, making it a primary tool for controlling manufacturing-overhead costs by allowing managers to see the expected costs at different levels of activity.

Question 9

Sales variance analysis attempts to explain the difference between actual sales performance and budgeted sales performance by focusing on several factors that underlie overall sales results.

Accepted Answer

Sales variance analysis breaks down the difference between actual sales and budgeted sales into various factors such as volume variance, price variance, and mix variance to understand the reasons behind the overall sales performance.

Question 10

The sales-volume variance can be broken down into the revenue sales-mix variance and the revenue sales-quantity variance.

Accepted Answer

The sales-volume variance can indeed be broken down into the sales-mix variance, which measures the effect of selling different proportions of products, and the sales-quantity variance, which measures the effect of selling more or fewer units than planned.

Question 11

The individual products' mix variance components convey a meaningful interpretation for management's analysis.

Accepted Answer

The answer of The individual products' mix variance components convey...

Question 12

A flexible budget is not based on only one level of activity.

Accepted Answer

A flexible budget adjusts for different levels of activity, allowing for more accurate budgeting and analysis across various scenarios.

Question 13

The variable-overhead spending variance is the real control variance for variable overhead.

Accepted Answer

The variable-overhead spending variance measures the difference between actual and budgeted variable overhead costs, reflecting the real control over spending.

Question 14

Budgeted fixed overhead is the basis for controlling fixed overhead because it provides the benchmark against which actual expenditures are compared.

Accepted Answer

Budgeted fixed overhead serves as a standard or benchmark for evaluating the efficiency of spending on fixed costs, allowing organizations to monitor and control their fixed overhead expenses by comparing them against actual expenditures.

Question 15

Total budgeted monthly overhead cost can be determined by means of the following formula: (budgeted variable-overhead cost per unit x total activity units) + budgeted fixed-overhead cost per month.

Accepted Answer

This formula accurately represents how to calculate total budgeted monthly overhead cost by adding together the product of the budgeted variable-overhead cost per unit and the total activity units (which gives the total variable overhead cost) to the budgeted fixed-overhead cost per month.

Question 16

The real cost of underutilizing productive capacity is due to the lost contribution margins of the products that are not produced when capacity is underutilized.

Accepted Answer

Underutilizing productive capacity means that a business is not producing as much as it could with the resources available, leading to lost opportunities for earning contribution margin on additional products that could have been sold. This lost contribution margin represents the real cost of underutilization.

Question 17

In a conventional flexible budget only one cost driver is used while several cost drivers are used in an activity-based flexible budget.

Accepted Answer

A conventional flexible budget typically adjusts costs based on one cost driver, such as production volume or hours, whereas an activity-based flexible budget uses multiple cost drivers related to different activities to more accurately allocate costs.

Question 18

Standard cost variances are automatically closed to Cost of Goods Sold at the end of each month.

Accepted Answer

Standard cost variances can be closed to Cost of Goods Sold, but this is a policy decision by the company and not an automatic process. Companies may choose to close variances to different accounts based on their accounting practices.

Question 19

An activity base or cost driver applies factory overhead to products.

Accepted Answer

The answer of An activity base or cost driver applies...

Question 20

Overhead application can use standard costing to apply the overhead to work in process.

Accepted Answer

Standard costing can be used to apply predetermined overhead rates to work in process, allowing for the allocation of overhead costs based on standard rates rather than actual costs incurred.

Quiz 17: Flexible Budgets, Overhead Cost Management, and Activity-Based Budgeting