Question 1

If the standard to produce certain quantity of product is 16,000 hours at a factory overhead rate of $5 ($3 fixed, $2 variable), actual variable factory overhead is $26,400, actual fixed factory overhead is $45,000, and 100% of productive capacity is 15,000 hours, the volume variance is $3,000 favorable.

Accepted Answer

The volume variance is calculated as (Actual hours - Standard hours) x Standard variable factory overhead rate. In this case, the actual hours are 100% of productive capacity, which is 15,000 hours. The standard hours are 16,000 hours. The standard variable factory overhead rate is $2 per hour. Therefore, the volume variance is (15,000 - 16,000) x $2 = $3,000 favorable.

Question 2

The first budget customarily prepared as part of an entity's master budget is the:

Accepted Answer

The first budget prepared as part of an entity's master budget is typically the sales budget, as it serves as the basis for projecting other budgets such as production, direct materials purchases, and cash budgets. The sales budget estimates the expected sales revenue for the budget period and helps to plan for production levels, staffing, and other expenses.

Question 3

A _____ shows the expected results of a responsibility center for only one activity level.

Accepted Answer

A static budget is a budget that shows the expected results of a responsibility center for only one activity level. It is typically prepared at the beginning of the budget period and does not change, regardless of the actual level of activity that occurs during the period.

Question 4

The _____ is an integrated set of operating, investing, and financing budgets for a period of time.

Accepted Answer

The master budget is the integrated set of operating, investing, and financing budgets for a period of time that provide an overall plan for the company's future. The other options (standard budget, budget performance report, and zero-based budget) refer to specific components or reports related to the budgeting process, but not the complete set of budgets that make up the master budget.

Question 5

Microgen Company static budget for 12,000 units of production includes $48,000 for direct materials, $36,000 for direct labor, utilities of $6,000, and supervisor salaries of $18,000.A flexible budget for 14,000 units of production would show:

Accepted Answer

The flexible budget adjusts costs based on changes in the level of activity or volume of production. Direct materials, direct labor, and utilities are variable costs that change with the level of production, while supervisor salaries are fixed costs that remain constant regardless of the level of production. The costs for direct materials, direct labor, and utilities are calculated by multiplying the per unit cost at the original level of production by the new level of production (14,000 units). Supervisor salaries remain unchanged.

Question 6

If the standard to produce a given amount of product is 12,000 hours at a factory overhead rate of $5 ($3 fixed, $2 variable), actual variable factory overhead was $26,400, actual fixed factory overhead was $45,000, and 100% of productive capacity is 15,000 hours, the volume variance was $9,000 favorable.

Accepted Answer

To calculate the volume variance, we need to compare the actual hours worked to the standard hours required to produce the same amount of product.

Actual hours = 15,000 hours (100% of productive capacity)

Standard hours = 12,000 hours

Volume variance = (Actual hours - Standard hours) x Variable overhead rate

Volume variance = (15,000 - 12,000) x $2 = $6,000 unfavorable

Therefore, the statement that the volume variance was $9,000 favorable is false.

Question 7

The process of developing budget estimates by requiring all levels of management to estimate sales, production, and other operating data as though operations were being initiated for the first time is referred to as:

Accepted Answer

The process described is known as zero-based budgeting, where every expense must be justified, rather than simply being based on last year's budget or previous performance. The process requires each level of management to start from scratch, estimating costs as if they were starting anew.

Question 8

Managers plan _____ in a budget in order to provide a cushion for unexpected events or improve the appearance of operations.

Accepted Answer

Budgetary slack is the intentional overestimation of expenses or underestimation of revenues in a budget in order to create a cushion for unexpected events or to make actual results look better compared to the budgeted results. Favorable variance represents actual results that are better than budgeted results, but it is not necessarily intentional. Budgetary margin and opportunity gap are not commonly used terms in budgeting.

Question 9

The difference between the budgeted fixed overhead at 100% of normal capacity and the standard fixed cost for the actual units produced is termed volume variance.

Accepted Answer

The definition given in the statement is correct and describes the volume variance. The difference between budgeted fixed overhead at 100% normal capacity and the actual fixed overhead is called capacity variance.

Question 10

The most effective means of presenting standard factory overhead cost variance data is through a selling overhead cost budget.

Accepted Answer

Standard factory overhead cost variance data should be presented in a factory overhead cost budget, not a selling overhead cost budget. The factory overhead cost budget shows the expected overhead costs for a particular period based on the standard cost system, and it also includes the actual overhead costs incurred and the variances. On the other hand, a selling overhead cost budget shows the expected costs of selling and marketing products, which is not related to the factory overhead costs.

Question 11

The _____ estimates the number of units to be manufactured to meet budgeted sales and desired inventory levels.

Accepted Answer

The production budget estimates the number of units that need to be manufactured to meet the sales and inventory targets. The other budgets mentioned (capital expenditures budget, sales budget, and cash budget) do not directly relate to determining the number of units to be produced.

Question 12

The most effective means of presenting standard factory overhead cost variance data is through a factory overhead cost variance report.

Accepted Answer

A factory overhead cost variance report is a standardized format for presenting variance data related to factory overhead costs. It provides a clear and concise summary of the variances, broken down by type and analyzed in a standardized manner. This allows managers to quickly identify areas of concern and take appropriate corrective action.

Question 13

The _____ budget shows the expected results of a responsibility center for several activity levels.

Accepted Answer

A flexible budget shows expected results at different activity levels, allowing for more accurate forecasting and planning. Standard budgets set specific targets and break-even budgets show the point at which costs and revenue are equal, but neither of these show the expected results at varying levels of activity. A static budget is a budget that remains unchanged, regardless of changes in activity levels, and does not take into account the expected results of different levels of activity.

Question 14

The difference between the actual amount of variable factory overhead cost incurred and the amount of variable factory overhead budgeted for the standard product is termed as variable factory overhead controllable variance.

Accepted Answer

This is an accurate definition of variable factory overhead controllable variance.

Question 15

A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at all times is termed:

Accepted Answer

Continuous budgeting involves maintaining a rolling twelve-month projection into the future at all times, which is updated periodically to reflect actual results and changing circumstances. It differs from traditional budgeting in that it is an ongoing process rather than a once-a-year event.

Question 16

Since the controllable variance measures the efficiency of using variable overhead resources, if budgeted variable overhead exceeds actual results, the variance is favorable.

Accepted Answer

A favorable variance occurs when the actual spending on variable overhead is less than what was budgeted, indicating efficient use of resources.

Question 17

Favorable volume variances are never harmful since achieving them encourages managers to run the factory above normal capacity.

Accepted Answer

Favorable volume variances may seem beneficial because they indicate increased production, but they can actually be harmful if the factory is operating above normal capacity. This can lead to increased wear and tear on equipment, potential safety hazards, and higher costs in the long run. It is important for managers to consider the long-term consequences of operating at or above capacity before striving for favorable volume variances.

Question 18

For February, sales revenue is $300,000; sales commissions are 5% of sales; the sales manager's salary is $40,000; advertising expenses are $13,000; shipping expenses total 1% of sales; and miscellaneous selling expenses are $1,100 plus 1/2 of 1% of sales.Total selling expenses for the month of February are:

Accepted Answer

Total selling expenses calculation:- Sales commissions: 5% of $300,000 = $15,000- Sales manager's salary: $40,000- Advertising expenses: $13,000- Shipping expenses: 1% of $300,000 = $3,000- Miscellaneous selling expenses: $1,100 + (0.5% of $300,000) = $1,100 + $1,500 = $2,600Adding these together: $15,000 + $40,000 + $13,000 + $3,000 + $2,600 = $73,600.

Question 19

An unfavorable volume variance may be due to a failure of supervisors to maintain an even flow of work.

Accepted Answer

An unfavorable volume variance typically means that actual production was lower than expected production, which can be caused by a variety of factors including a failure of supervisors to maintain an even flow of work. Therefore, the statement is true.

Question 20

Which of the following processes is involved in budgeting?

Accepted Answer

Budgeting involves periodically comparing actual results with the goals set in the budget to ensure that the organization is staying on track and making adjustments as needed. Assessing the utilization rate of assets and identifying industry standards of stock returns may be part of the budgeting process but are not the main focus. Dismissing managers who fail to achieve operational goals in the budget is not necessarily a process involved in budgeting but rather a consequence for poor performance.

Quiz 13: Budgeting and Standard Costs