Question 1

Assume that actual sales results exceed the planned results for the second quarter. This favorable difference is greater than the unfavorable difference reported for the first quarter sales. Which of the following statements about the sales budget report on June 30 is true?

Accepted Answer

Since actual sales results exceeded the planned results for the second quarter and the favorable difference is greater than the unfavorable difference reported for the first quarter, the year-to-date results will show a favorable difference. Therefore, choice A is the correct answer. Choice B is incorrect because the favorable difference in the second quarter would offset (or at least partially offset) the unfavorable difference reported in the first quarter. Choice C is incorrect because both the favorable and unfavorable differences should be considered in the year-to-date report. Choice D is incorrect because a sales report that shows both favorable and unfavorable differences can still provide useful information for analysis and decision-making.

Question 2

The comparison of differences between actual and planned results

Accepted Answer

The comparison of differences between actual and planned results typically appears on periodic budget reports. Option A is not entirely accurate since external auditors do review financial statements, but their primary focus is on verifying the accuracy of financial information rather than comparing actual and planned results. Option B is also not entirely accurate since while financial statements may include some information on actual and planned results, it is not the primary purpose of financial statements. Option C is not a common approach for comparing actual and planned results in organizations.

Question 3

The purpose of the sales budget report is to

Accepted Answer

The sales budget report primarily aims to determine whether sales goals are being met by comparing actual sales against budgeted figures.

Question 4

A static budget

Accepted Answer

A static budget shows planned results at the original budgeted activity level and does not take into account any changes in activity levels. It is useful for a company to have a static budget as a reference point for performance evaluation and goal setting, but it should also be flexible and adaptable to changes in business operations. Option A is incorrect as a budget is an essential tool in managing a company's finances. Option B is incorrect because a static budget only shows planned results and cannot be used to evaluate performance based on actual costs. Option D is incorrect because a static budget is not changed even if the actual level of activity is different from the original budgeted activity level.

Question 5

A static budget is appropriate for

Accepted Answer

A static budget is appropriate for fixed overhead costs because these costs do not change with changes in the level of production or sales. Direct materials and variable overhead costs are influenced by changes in production or sales volume, so a flexible budget is more appropriate for these costs.

Question 6

A department has budgeted monthly manufacturing overhead cost of $540000 plus $3 per direct labor hour. If a flexible budget report reflects $1044000 for total budgeted manufacturing cost for the month the actual level of activity achieved during the month was

Accepted Answer

The total budgeted manufacturing cost is given as $1,044,000. The fixed component of this cost is $540,000. The variable component is $3 per direct labor hour. To find the actual level of activity (direct labor hours), subtract the fixed cost from the total budgeted cost and then divide by the variable cost per hour: ($1,044,000 - $540,000) / $3 = 168,000 direct labor hours.

Question 7

A static budget is appropriate in evaluating a manager's performance if

Accepted Answer

A static budget is appropriate in evaluating a manager's performance if actual activity closely approximates the master budget activity. This is because a static budget is based on a fixed set of assumptions and does not adjust for changes in actual activity levels. If the actual activity closely approximates the master budget activity, then the static budget can be a good indicator of the manager's performance. However, if actual activity varies significantly from the master budget activity, then a flexible budget may be more appropriate for evaluating the manager's performance.

Question 8

What is the primary difference between a static budget and a flexible budget?

Accepted Answer

The primary difference between a static budget and a flexible budget is that the static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels. In other words, the static budget remains fixed regardless of changes in activity, while the flexible budget adjusts to changes in activity.

Question 9

A static budget report

Accepted Answer

A static budget is designed for a single level of activity and does not change with the actual level of activity. Therefore, it is most appropriate for evaluating a manager's effectiveness in controlling costs that do not change with the level of activity, i.e., fixed costs.

Question 10

Boland Manufacturing prepared a 2016 budget for 120000 units of product. Actual production in 2016 was 130000 units. To be most useful what amounts should a performance report for this company compare?

Accepted Answer

To be most useful, a performance report should compare the actual results for the number of units produced (130,000 units) with a budget prepared for that same level of production (130,000 units). This allows for a fair and relevant comparison of actual performance against planned performance, adjusting for the difference in production volume.

Question 11

Which one of the following would be the same total amount on a flexible budget and a static budget if the activity level is different for the two types of budgets?

Accepted Answer

Fixed manufacturing overhead costs will remain the same regardless of changes in the activity level, so the total amount for fixed manufacturing overhead will be the same on both a flexible and static budget.

Question 12

The master budget of Windy Co. shows that the planned activity level for next year is expected to be 50000 machine hours. At this level of activity the following manufacturing overhead costs are expected: $$\begin{array} { l r } 
\text { Indirect labor } & \$ 720,000 \
\text { Machine supplies } & 180,000 \
\text { Indirect materials } & 210,000 \
\text { Depreciation on factory building } & 150,000 \
\text { Total manufacturing overhead } & \$ 1,260,000
\end{array}$$ A flexible budget for a level of activity of 60000 machine hours would show total manufacturing overhead costs of

Accepted Answer

To calculate the flexible budget for 60,000 machine hours, we need to adjust the variable costs (indirect labor, machine supplies, and indirect materials) while keeping the fixed cost (depreciation on factory building) constant. The variable costs total $1,110,000 ($720,000 + $180,000 + $210,000). The variable cost per machine hour is $1,110,000 / 50,000 = $22.20. For 60,000 machine hours, the variable costs would be 60,000 * $22.20 = $1,332,000. Adding the fixed cost of $150,000 gives a total manufacturing overhead of $1,482,000.

Question 13

In developing a flexible budget within a relevant range of activity

Accepted Answer

In developing a flexible budget within a relevant range of activity, it is necessary to relate variable cost data to the activity index chosen. This is because variable costs vary depending on the level of activity, and the budget should reflect this relationship.

Question 14

When budgeted and actual results are not the same amount there is a budget

Accepted Answer

The term "difference" is the most appropriate term to describe the situation where budgeted and actual results are not the same because it simply means that there is a variance or discrepancy between the two amounts. The term "error" implies that there was a mistake made in the budgeting process or in recording actual results, which may not necessarily be the case. The term "anomaly" implies that the difference is unusual or unexpected, which may not necessarily be the case either. The term "by-product" has a completely different meaning unrelated to budgeting or financial analysis.

Question 15

What budgeted amounts appear on the flexible budget?

Accepted Answer

The flexible budget shows the budgeted amounts for the actual activity level achieved, which makes it a more accurate reflection of costs than the static budget that uses original budgeted amounts at the static budget activity level. Actual costs (B and D) are not included in the flexible budget, as it is a planning tool rather than a post-hoc analysis.

Question 16

The purpose of the departmental overhead cost report is to

Accepted Answer

The departmental overhead cost report is used to control overhead costs. It provides information on the actual overhead costs incurred and compares them to the budgeted or standard costs. This allows the management to identify any inefficiencies or areas where cost savings can be made. The report also helps in the allocation of overhead costs among various departments or products.

Question 17

On the basis of the budget reports

Accepted Answer

All of the given choices are correct. Budget reports are used by management to analyze the difference between actual and planned results, take corrective action, and modify future plans to ensure that the company is on track to achieve its objectives.

Question 18

Top management's reaction to a difference between budgeted and actual sales often depends on

Accepted Answer

The answer of Top management's reaction to a difference between...

Question 19

If costs are not responsive to changes in activity level then these costs can be best described as

Accepted Answer

If costs are not responsive to changes in activity level, then these costs are fixed. Fixed costs do not change with changes in activity level.

Question 20

Another name for the static budget is

Accepted Answer

The static budget is also called the master budget. It is a financial plan that remains unchanged, without any adjustments for changes in volume or activity levels. It provides a benchmark for actual performance and is used for comparison purposes.

Quiz 24: Budgetary Control and Responsibility Accounting