Question 1

If the budgeted activity level is greater than the actual activity level,then the total budgeted costs of the master budget will be greater than the total budgeted costs of the flexible budget.The master budget is based on the budgeted activity level,while the flexible budget is based on the actual activity level.

Accepted Answer

True

Question 2

Variance analysis for fixed production costs is virtually the same as for variable production costs.There are no efficiency variances for fixed production costs.

Accepted Answer

False

Question 3

The sales price variance is the actual selling price per unit times the difference between budgeted number of units and the actual number of units sold.Sales price variance is the difference between actual and budgeted selling price times the actual number sold.

Accepted Answer

The explanation states the formula for sales price variance incorrectly. The correct formula is: sales price variance = (actual selling price - budgeted selling price) x actual number sold.

Question 4

In general,and holding all other things constant,an unfavorable variance decreases operating profits.Just as a favorable variance increases profits,an unfavorable variance decreases profits.

Accepted Answer

An unfavorable variance is one that occurs when actual costs are higher than expected or actual revenue is lower than expected. This means that the company is spending more money or earning less revenue than it had planned for, which results in decreased operating profits. Conversely, a favorable variance occurs when actual costs are lower than expected or actual revenue is higher than expected, which increases operating profits.

Question 5

In essence,the terms "master budget" and "operating budget" mean the same thing and can be used interchangeably.The operating budget is part of the master budget,along with financial budgets.

Accepted Answer

The master budget includes both the operating budget and financial budgets, so they are not interchangeable terms.

Question 6

The standard cost for a unit of output is the standard price per unit of input times the standard number of inputs per one unit of output.This is the definition of standard cost.

Accepted Answer

This is the correct definition of standard cost.

Question 7

It is possible to have a favorable direct material price variance and an unfavorable direct material efficiency variance.Purchasing a lower quality material will yield a favorable price variance (since it is less costly)but may result in an unfavorable efficiency because of higher than expected waste due to poor quality.

Accepted Answer

This statement is true. It is possible to have a favorable direct material price variance and an unfavorable direct material efficiency variance if lower quality materials are purchased, resulting in cost savings but increased waste.

Question 8

A favorable variance is not necessarily good,and an unfavorable variance is not necessarily bad.A favorable or unfavorable variance in one period may have long term impacts in the opposite direction.

Accepted Answer

A favorable variance may lead to complacency or overspending in the future, while an unfavorable variance may force a company to make necessary improvements or cost-cutting measures that ultimately benefit the company in the long run. Therefore, short-term variances should be examined in the context of their potential long-term impacts.

Question 9

The difference between operating profits in the master budget and operating profits in the flexible budget is called a sales price variance.This is a sales activity variance.

Accepted Answer

The difference between operating profits in the master budget and operating profits in the flexible budget is called a profit variance. The sales price variance is a type of sales variance that measures the impact of the difference between the planned and actual selling price of a product.

Question 10

Variances are the difference between actual results and budgeted results.This is a definition of a variance.

Accepted Answer

The statement accurately defines what a variance is.

Question 11

The production volume variance is the difference between fixed costs on the flexible budget and the fixed costs on the master budget.The production volume variance is the difference between the fixed costs on the flexible budget and the fixed overhead applied to production.

Accepted Answer

The production volume variance is the difference between the fixed overhead applied to production on the flexible budget and the fixed overhead applied to production on the master budget.

Question 12

Both the actual material used and the standard quantity allowed for material is based on the actual output attained.Standard quantity allowed = standard per unit × actual output.

Accepted Answer

This statement is true as the standard quantity allowed for material is calculated based on the standard per unit multiplied by the actual output attained.

Question 13

The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials used in production.The materials price variance is computed by multiplying the difference between the actual and standard price by the actual quantity of materials purchased.

Accepted Answer

The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials purchased, not the actual quantity of materials used in production.

Question 14

Production cost variances are input variances,while sales activity variances are output variances.Costs are based on inputs,revenues are based on outputs.

Accepted Answer

Production cost variances are based on the difference between actual input costs and expected input costs, which are a measure of input efficiency. Sales activity variances, on the other hand, are based on the difference between actual sales revenue and expected sales revenue, which are a measure of output efficiency. Therefore, production cost variances are input variances and sales activity variances are output variances.

Question 15

The sales activity variance is the result of a difference between budgeted units sold and actual units sold.This is the definition of the sales activity variance.

Accepted Answer

The definition stated accurately describes the sales activity variance.

Question 16

The flexible and master budget amounts are the same for fixed marketing and administrative costs.Fixed costs do not change with changes in activity level within the relevant range.

Accepted Answer

Fixed costs remain constant within the relevant range, regardless of changes in activity level. Therefore, the flexible budget and master budget amounts for fixed marketing and administrative costs will be the same.

Question 17

The budget (or spending)variance for fixed production costs is the difference between the actual fixed costs and the budgeted fixed costs on the master budget.This is the definition of the budget/spending variance.

Accepted Answer

The statement accurately defines the budget/spending variance for fixed production costs.

Question 18

The direct labor efficiency variance can be the result of poor supervision or poor scheduling by divisional managers.Poor scheduling may cause wasted time.

Accepted Answer

Poor scheduling can lead to inefficient use of labor, resulting in a direct labor efficiency variance. This can be caused by divisional managers not properly coordinating work schedules, leading to wasted time and reduced productivity.

Question 19

The terms "master budget" and "flexible budget" mean the same thing and can be used interchangeably.A master budget and a static budget mean the same thing.

Accepted Answer

A master budget and a flexible budget are not the same thing. A master budget is a comprehensive financial plan that includes all of the budgets for an entire organization, while a flexible budget adjusts to changes in activity levels. Similarly, a static budget is not the same as a master budget. A static budget is based on a fixed level of activity and does not adjust for changes in activity levels, whereas a master budget typically includes multiple budgets that are designed to adjust to different levels of activity.

Question 20

A flexible budget adjusts the static budget to reflect the actual activity level achieved during the period.This is a basic principle of a flexible budget.

Accepted Answer

A flexible budget is designed to adjust the static budget based on the actual activity level achieved during the period. This allows for greater accuracy in budgeting and helps to ensure that the budget reflects the actual costs and revenues associated with the level of activity that was achieved.

Quiz 16: Fundamentals of Variance Analysis