Question 1

Use the information below to answer the following questions.
 $\begin{array}{lll}&\text { Budget for April }&\text { Actual for April }\
\text { Output } &40,000 \text { units } & 40,000 \text { units }\
\text { Sales } & \$ 400,000 & \$ 400,000 \
\text { Raw materials } & \$ 80,000 & \$ 88,000 \
\text { Labour } & \$ 200,000 & \$ 180,000 \
\text { Overheads } & 225,000 & \$ 305,000
\end{array}$
-Refer to the table above. The raw materials variance can best be described as:

Accepted Answer

The answer of Use the information below to answer the...

Question 2

If budgeted profit is $11 000, favourable variances are $3 100 and unfavourable variances are $7 450, actual profit (loss)is:

Accepted Answer

Actual profit = budgeted profit + favourable variances - unfavourable variances
Actual profit = $11 000 + $3 100 - $7 450
Actual profit = $6 650 profit

Question 3

Where there is an insignificant adverse variance, management is best advised to:

Accepted Answer

Keeping the variance under review allows management to monitor any potential trends or patterns in the data. Ignoring it completely could lead to larger variances in the future, while investigating it in full detail may not be necessary if the variance is insignificant. Additionally, the cost of investigation may outweigh the potential benefits in this case. Ignoring it in the hopes of a compensating favourable variance is not a sound strategy as it is uncertain whether such a variance will occur.

Question 4

The adverse (unfavourable)variance is:

Accepted Answer

The adverse variance is the difference between the budgeted amount and the actual amount, and it is unfavourable when the actual amount exceeds the budgeted amount. In option C, the budgeted payment for wages was $42 000, but the actual wages paid were $45 000, resulting in an adverse variance of $3 000. This suggests that the company overspent on wages and may need to take corrective action to reduce costs. The other options have either no variance or a favourable variance, meaning the actual amount was lower than the budgeted amount.

Question 5

An adverse (unfavourable)labour efficiency variance could be caused by:

Accepted Answer

An adverse labor efficiency variance is typically caused by factors that affect the amount of time taken to produce goods, such as machine breakdowns, which can lead to delays and inefficiencies in production.

Question 6

Which of the following could not be a possible cause of an adverse (unfavourable)materials usage variance?

Accepted Answer

An increase in the price of the raw materials would cause an adverse materials price variance, not a materials usage variance. The usage variance relates to the quantity of materials used, not the cost.

Question 7

The reconciliation between budgeted profit and actual profit can be summarised as:

Accepted Answer

The answer of The reconciliation between budgeted profit and actual...

Question 8

The variances which management should investigate each month are:

Accepted Answer

Management should investigate all variances that they deem significant, whether they are favourable or adverse. Favourable variances may indicate areas where the company is performing well, while adverse variances may highlight areas where improvements are needed. It is important to investigate all variances in order to gain a complete understanding of the company's performance and make informed decisions on how to improve it.

Question 9

Which of the following could be the cause of a favourable materials price variance?

Accepted Answer

A favourable materials price variance occurs when the actual cost of materials is less than the expected cost. This can happen if the budgeted price was set too high (A) or if a discount was received on the purchase of materials (B), both leading to spending less than anticipated.

Question 10

What variance does the difference between the actual cost of the direct labour hours worked and the planned cost of the direct labour hours measure?

Accepted Answer

The answer of What variance does the difference between the...

Question 11

The change in the price of raw materials multiplied by the actual materials bought calculates which variance?

Accepted Answer

The materials price variance measures the difference between the actual price paid for raw materials and the expected price. Therefore, multiplying the change in the price of the raw materials by the actual materials bought will give us the materials price variance.

Question 12

If actual sales are $96 000 and budgeted sales are $87 000 and actual advertising paid is $6 100 and budgeted advertising is $7 300, the variances are respectively are: Note: F - Favourable, U - Unfavourable (adverse).

Accepted Answer

Sales variance = Actual sales - Budgeted sales = $96,000 - $87,000 = $9,000 Favourable because actual sales are higher than budgeted. Advertising variance = Budgeted advertising - Actual advertising = $7,300 - $6,100 = $1,200 Favourable because actual spending on advertising is less than budgeted.

Question 13

If actual income is $48 500 and budgeted income is $56 000 and actual utilities is $5 000 and budgeted utilities is $5 500, the variances are respectively: Note: F - Favourable, U - Unfavourable (adverse).

Accepted Answer

The income variance is unfavorable because the actual income ($48,500) is less than the budgeted income ($56,000), resulting in a $7,500 unfavorable variance. The utilities variance is favorable because the actual utilities cost ($5,000) is less than the budgeted utilities cost ($5,500), resulting in a $500 favorable variance.

Question 14

The total direct materials variance is best explained by:

Accepted Answer

The answer of The total direct materials variance is best...

Question 15

Where there is a significant favourable variance management is best advised to:

Accepted Answer

A significant favourable variance may indicate that targets are set too low, but it could also mean that things are not going according to plan. Therefore, management should investigate to find out the cause of the variance and determine whether any action should be taken. Both options B and C are valid courses of action, and management should consider both.

Question 16

Which of these is not a limitation of the traditional approach to control through budgets?

Accepted Answer

The expense of preparing a budget is not considered a limitation of the traditional approach to control through budgets. In fact, budgeting is seen as a necessary expense in order to achieve effective control. The other options (A and B) are both limitations of the traditional approach.

Question 17

Prepare a flexible cost budget for 8 000, 9 000 and 10 000 units of output, given the following data:
Variable costs:
 Direct materials$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$5
Direct labour$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$4
Variable manufacturing overhead$\quad$8 Budgeted fixed manufacturing overhead $90 000.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Prepare a flexible cost budget for 8...

Question 18

Use the information below to answer the following questions.
 $\begin{array}{lll}&\text { Budget for April }&\text { Actual for April }\
\text { Output } &40,000 \text { units } & 40,000 \text { units }\
\text { Sales } & \$ 400,000 & \$ 400,000 \
\text { Raw materials } & \$ 80,000 & \$ 88,000 \
\text { Labour } & \$ 200,000 & \$ 180,000 \
\text { Overheads } & 225,000 & \$ 305,000
\end{array}$
-Refer to the table above. The labour variance can best be described as:

Accepted Answer

The labour variance is favourable because the actual labour cost ($180,000) is lower than the budgeted labour cost ($200,000), indicating efficient use of labour or a reduction in the hourly pay rate.

Question 19

The original budget was set at 15 000 units and estimated variable overheads at $345 000 ($23 per unit). If actual output is 16 000 units, calculate the variable overhead total and unit cost that would be shown in a budget flexed to actual output.

Accepted Answer

The flexed budget for variable overheads would be calculated based on the actual output. Since the original budget was based on $23 per unit for 15,000 units, for 16,000 units, it would be 16,000 units * $23 = $368,000. The unit cost remains the same at $23 because variable costs per unit do not change with the level of output.

Question 20

Budget targets should be:

Accepted Answer

Budget targets should be challenging enough to motivate employees to work harder and improve their performance, but still achievable given the available resources and constraints. Setting easy targets may lead to complacency and underperformance, while setting loose targets may not provide enough direction and may result in overspending. Therefore, the best choice is C, challenging and achievable targets.

Quiz 13: Planning and Budgeting

If budgeted profit is $11 000, favourable variances are $3 100 and unfavourable variances are $7 450, actual profit (loss) is:

Where there is an insignificant adverse variance, management is best advised to:

The adverse (unfavourable) variance is:

An adverse (unfavourable) labour efficiency variance could be caused by:

Which of the following could not be a possible cause of an adverse (unfavourable) materials usage variance?