Deck 23: Flexible Budgets and Standard Costs

Question 1

Fixed budgets are also known as flexible budgets.

Answer 1

False

Question 2

When computing a price variance, the quantity is held constant.

Answer 2

True

Question 3

Variable budget is another name for a flexible budget.

Answer 3

True

Question 4

A budget performance report shows budgeted amounts, actual amounts, and differences between budgeted and actual amounts.

Question 5

A fixed budget is based on a single predicted amount of sales or other activity measure.

Question 6

Management by exception means that managers focus on the most significant differences between actual costs and standard costs.

Question 7

Cost variances are ignored under management by exception.

Question 8

Standard costs are preset costs for delivering a product or service under normal conditions.

Question 9

Companies promoting continuous improvement strive to achieve practical standards rather than ideal standards.

Question 10

When computing a price variance, the price is held constant.

Question 11

While companies strive to achieve ideal standards, reality implies that some loss of materials usually occurs with any process.

Question 12

When standard costs are used, factory overhead is assigned to products with a predetermined standard overhead rate.

Question 13

A flexible budget is based on a single predicted amount of sales or other activity measure.

Question 14

Within the same flexible budget performance report, it is impossible to have both favorable and unfavorable variances.

Question 15

Fixed budget performance reports compare actual results with the results expected under a fixed budget.

Question 16

A cost variance is the difference between actual cost and standard cost.

Question 17

A cost variance can be further separated into the quantity variance and the price variance.

Question 18

Another name for a static budget is a variable budget.

Question 19

Standard material costs, standard labor costs, and standard overhead costs can be obtained from standard cost tables published by the Institute of Management Accountants.

Question 20

Standard costs can be used by management to assess the reasonableness of actual costs incurred.

Question 21

A direct labor cost variance can be divided into price and quantity variances, which are almost always called controllable and volume variances.

Question 22

A flexible budget expresses variable costs on a per unit basis and fixed costs on a total basis.

Question 23

A variable or flexible budget is so named because it only focuses on variable costs.

Question 24

The purchasing department is usually responsible for the price paid for materials.

Question 25

A flexible budget expresses all costs on a per unit basis, regardless of cost behavior.

Question 26

An unfavorable variance is recorded with a debit because it reflects additional costs higher than the standard cost.

Question 27

A volume variance occurs when the company operates at a different capacity level than was expected.

Question 28

A fixed budget performance report never provides useful information for evaluating variances.

Question 29

A favorable direct materials price variance might lead to an unfavorable direct materials quantity variance because the company purchased inferior materials.

Question 30

One possible explanation for direct labor rate and efficiency variances is the use of workers with different skill levels.

Question 31

When the actual cost of direct materials used exceeds the standard cost, the company must have experienced an unfavorable direct materials price variance.

Question 32

The total sales variance can be divided into the sales price variance and the sales volume variance.

Question 33

If ending variance account balances are immaterial, they can be closed directly to Cost of Goods Sold.

Question 34

If ending variance account balances are material, they should always be closed directly to Cost of Goods Sold.

Question 35

An overhead cost variance is the difference between the total overhead actually incurred for the period and the standard overhead applied to products.

Question 36

The usefulness of a flexible budget depends on the valid classification of variable and fixed costs.

Question 37

In sales variance analysis, the budgeted amount of unit sales is the predicted activity level and the budgeted cost of the goods sold can be treated as a "standard" price.

Question 38

The anticipated costs incurred under normal conditions to produce a specific product or to perform a specific service are:

A) Fixed costs.
B) Variable costs.
C) Standard costs.
D) Product costs.
E) Period costs.

Question 39

A volume variance is the difference between overhead at maximum volume of production and the standard volume of production.

Question 40

Standard costs are:

A) Established by the IMA.
B) Uniform among companies within an industry.
C) Preset costs for delivering a product or service under normal conditions.
D) Actual costs incurred to produce a specific product or perform a service.
E) Rarely achieved.

Question 41

A company provided the following direct materials cost information. Compute the direct materials quantity variance. $\text {Standard costs assigned:}$
$\begin{array}{llr} \text {Direct materials standard cost \( (405,000 \) units @\$2.00/unit) } & \$ 810,000\\ \text { Actual costs:} &\\ \text {Direct Materials costs incurred ( 403,750 units@\$2.20/unit) } &\$ 888,250 \end{array}$

A) $78,250 Favorable.
B) $2.500 Favorable.
C) $2,750 Unfavorable
D) $2,500 Unfavorable.
E) $2,750 Favorable.

Question 42

A budget based on several different levels of activity, often including both a best-case and worst-case scenario, is called a:

A) Rolling budget.
B) Merchandise purchases budget.
C) Fixed budget.
D) Production budget.
E) Flexible budget.

Question 43

In this type of control system, the master budget is based on a single prediction for sales volume, and the budgeted amount for each cost essentially assumes that a specific amount of sales will occur:

A) Variable budget.
B) Flexible budget.
C) Fixed budget.
D) Sales budget.
E) Standard budget.

Question 44

The difference between actual quantity of input used and the standard quantity of input used results in a:

A) Quantity variance.
B) Standard variance.
C) Budget variance.
D) Controllable variance.
E) Price variance.

Question 45

A flexible budget may be prepared:

A) Only when the company encounters excessive costs.
B) At any time in the planning period.
C) During the operating period only.
D) Before the operating period only.
E) After the operating period only.

Question 46

A company provided the following direct materials cost information. Compute the total direct materials cost variance. $\text {Standard costs assigned:}$
$\begin{array}{llr} \text {Direct materials standard cost \( (405,000 \) units @\$2.00/unit) } & \$ 810,000\\ \text { Actual costs:} &\\ \text {Direct Materials costs incurred ( 403,750 units@\$2.20/unit) } &\$ 888,250 \end{array}$

A) $80,750 Unfavorable.
B) $2,500 Favorable.
C) $80,750 Favorable.
D) $78,250 Favorable.
E) $78,250 Unfavorable.

Question 47

Variable budget is another name for:

A) Manufacturing budget.
B) Flexible budget.
C) Rolling budget.
D) Fixed budget.
E) Cash budget.

Question 48

A flexible budget performance report compares the differences between:

A) Budgeted performance over several periods.
B) Actual performance over several periods.
C) Actual performance and standard costs at the budgeted sales volume.
D) Actual performance and budgeted performance based on actual sales volume.
E) Actual performance and budgeted performance based on budgeted sales volume.

Question 49

An analytical technique used by management to focus attention on the most significant variances and give less attention to the areas where performance is reasonably close to standard is known as:

A) Performance management.
B) Management by variance.
C) Management by objectives.
D) Controllable management.
E) Management by exception.

Question 50

Static budget is another name for:

A) Variable budget.
B) Master budget.
C) Flexible budget.
D) Standard budget.
E) Fixed budget.

Question 51

An internal report that helps management analyze the difference between actual performance and budgeted performance based on the actual sales volume (or other level of activity) is called a(n):

A) Static budget performance report.
B) Master budget performance report.
C) Flexible budget performance report.
D) Sales budget performance report.
E) Operating budget performance report.

Question 52

The difference between actual price per unit of input and the standard price per unit of input results in a:

A) Standard variance.
B) Controllable variance.
C) Volume variance.
D) Quantity variance.
E) Price variance.

Question 53

Standard costs are used in the calculation of:

A) Quantity variances only.
B) Quantity and sales variances.
C) Price and quantity variances.
D) Price variances only.
E) Price, quantity, and sales variances.

Question 54

Sales variance analysis is used by managers for:

A) Budgeting purposes only.
B) Planning and control purposes.
C) Planning and budgeting purposes.
D) Planning purposes only.
E) Control purposes only.

Question 55

A company provided the following direct materials cost information. Compute the direct materials price variance. $\text {Standard costs assigned:}$
$\begin{array}{llr} \text {Direct materials standard cost \( (405,000 \) units @\$2.00/unit) } & \$ 810,000\\ \text { Actual costs:} &\\ \text {Direct Materials costs incurred ( 403,750 units@\$2.20/unit) } &\$ 888,250 \end{array}$

A) $81,000 Unfavorable.
B) $80,750 Favorable.
C) $78,250 Favorable.
D) $80,750 Unfavorable.
E) $81,000 Favorable.

Question 56

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The sales expected if the company produces and sells 16,000 units is:

A) $24,000.
B) $18,000.
C) $48,000.
D) $40,000.
E) $64,000.

Question 57

Identify the situation below that will result in a favorable variance.

A) Actual costs are higher than budgeted costs.
B) Actual income is lower than expected income.
C) Actual revenue is higher than budgeted revenue.
D) Actual expenses are higher than budgeted expenses.
E) Actual revenue is lower than budgeted revenue.

Question 58

The difference between the actual cost incurred and the standard cost is called the:

A) Flexible variance.
B) Price variance.
C) Controllable variance.
D) Cost variance.
E) Volume variance.

Question 59

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The variable costs expected if the company produces and sells 16,000 units is:

A) $64,000.
B) $48,000.
C) $40,000.
D) $24,000.
E) $18,000.

Question 60

Which of the following is not part of the flow of events in variance analysis:

A) Identifying questions and their explanations.
B) Working to ensure that all variances are favorable.
C) Preparing a standard cost performance report.
D) Taking corrective and strategic actions.
E) Computing and analyzing variances.

Question 61

A company's flexible budget for 12,000 units of production showed total contribution margin of $24,000 and fixed costs, $16,000. The operating income expected if the company produces and sells 15,000 units is:

A) $10,000.
B) $18,667.
C) $14,000.
D) $34,000.
E) $8,000.

Question 62

Which department is often responsible for the direct materials price variance?

A) The accounting department.
B) The budgeting department.
C) The purchasing department.
D) The finance department.
E) The production department.

Question 63

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000.

-Based on this information, the budgeted amount of variable costs for 20,000 units would be:

A) $99,000.
B) $30,000.
C) $90,000.
D) $150,000.
E) $66,000.

Question 64

Based on predicted production of 12,000 units, a company anticipates $150,000 of fixed costs and $123,000 of variable costs. The flexible budget amounts of fixed and variable costs for 10,000 units are:

A) $125,000 fixed and $123,000 variable.
B) $102,500 fixed and $150,000 variable.
C) $125,000 fixed and $102,500 variable.
D) $150,000 fixed and $123,000 variable.
E) $150,000 fixed and $102,500 variable.

Question 65

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000.

- Based on this information, the budgeted amount of contribution margin for 20,000 units would be:

A) $99,000.
B) $60,000.
C) $90,000.
D) $66,000.
E) $150,000.

Question 66

A company's flexible budget for 12,000 units of production showed per unit contribution margin of $3.00 and fixed costs, $20,000. The operating income expected if the company produces and sells 18,000 units is:

A) $10,000.
B) $34,000.
C) $18,667.
D) $24,000.
E) $16,000.

Question 67

Georgia, Inc. has collected the following data on one of its products. The direct materials price variance is: Direct materials standard (4 lbs. @ $1/lb.) $ 4 per finished unit
Total direct materials cost variance-unfavorable $ 13,750 Actual direct materials used 150,000 lbs.
^{Actual finished units produced 30,000} units

A) $16,250 unfavorable.
B) $16,250 favorable.
C) $30,000 unfavorable.
D) $33,000 favorable.
E) $13,750 unfavorable.

Question 68

Georgia, Inc. has collected the following data on one of its products. The direct materials quantity variance is: Direct materials standard (4 lbs. @ $1/lb.) $ 4 per finished unit
Total direct materials cost variance-unfavorable $ 13,750 Actual direct materials used 150,000 lbs.
^{Actual finished units produced 30,000} units

A) $30,000 unfavorable.
B) $13,750 favorable.
C) $30,000 favorable.
D) $16,250 favorable.
E) $13,750 unfavorable.

Question 69

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The contribution margin expected if the company produces and sells 16,000 units is:

A) $18,000.
B) $64,000.
C) $48,000.
D) $40,000.
E) $24,000.

Question 70

Based on a predicted level of production and sales of 30,000 units, a company anticipates total contribution margin of $105,000, fixed costs of $40,000, and operating income of $65,000. Based on this information, the budgeted operating income for 28,000 units would be:

A) $72,500.
B) $52,000.
C) $135,333.
D) $105,000.
E) $58,000.

Question 71

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000.

-Based on this information, the budgeted amount of operating income for 20,000 units would be:

A) $32,727.
B) $30,000.
C) $150,000.
D) $69,000.
E) $60,000.

Question 72

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The operating income expected if the company produces and sells 16,000 units is:

A) $ 2,667.
B) $18,667.
C) $14,000.
D) $24,000.
E) $35,000.

Question 73

Based on a predicted level of production and sales of 12,000 units, a company anticipates reporting operating income of $26,000 after deducting variable costs of $72,000 and fixed costs of $10,000. Based on this information, the budgeted amounts of fixed and variable costs for 15,000 units would be:

A) $12,500 of fixed costs and $90,000 of variable costs.
B) $10,000 of fixed costs and $72,000 of variable costs.
C) $10,000 of fixed costs and $81,000 of variable costs.
D) $10,000 of fixed costs and $90,000 of variable costs.
E) $12,500 of fixed costs and $72,000 of variable costs.

Question 74

Product A has a sales price of $10 per unit. Based on a 10,000-unit production level, the variable costs are $6 per unit and the fixed costs are $3 per unit. Using a flexible budget for 12,500 units, what is the budgeted operating income from Product A?

A) $35,000.
B) $30,000.
C) $25,000.
D) $12,500.
E) $20,000.

Question 75

Georgia, Inc. has collected the following data on one of its products. The actual cost of the direct materials used is: Direct materials standard (4 lbs. @ $1/lb.) $ 4 per finished unit
Total direct materials cost variance-unfavorable $ 13,750 Actual direct materials used 150,000 lbs.
^{Actual finished units produced 30,000} units

A) $106,250.
B) $120,000.
C) $150,000.
D) $158,750.
E) $133,750.

Question 76

Parallel Enterprises has collected the following data on one of its products. During the period the company produced 25,000 units. The direct materials price variance is: Direct materials standard (7 kg. @ $2/kg) $ 14 per finished unit
Actual cost of materials purchased $ 322,500 ^{Actual direct materials purchased and used 150,000} lbs.

A) $50,000 unfavorable.
B) $22,500 unfavorable.
C) $27,500 unfavorable.
D) $22,500 favorable.
E) $50,000 favorable.

Question 77

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The fixed costs expected if the company produces and sells 16,000 units is:

A) $64,000.
B) $16,000.
C) $18,000.
D) $24,000.
E) $48,000.

Question 78

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000.

- Based on this information, the budgeted amount of sales for 20,000 units would be:

A) $181,500.
B) $117,272.
C) $165,000.
D) $141,900.
E) $150,000.

Question 79

A company's flexible budget for 10,000 units of production reflects sales of $200,000; variable costs of $40,000; and fixed costs of $75,000. Calculate the expected level of operating income if the company produces and sells 13,000 units.

A) $133,000.
B) $110,500.
C) $50,500.
D) $85,000.
E) $100,000.

Question 80

Based on a predicted level of production and sales of 22,000 units, a company anticipates total variable costs of $99,000, fixed costs of $30,000, and operating income of $36,000.

- Based on this information, the budgeted amount of fixed costs for 20,000 units would be:

A) $90,000.
B) $30,000.
C) $99,000.
D) $150,000.
E) $66,000.