Question 1

A flexible budget depicted graphically

Accepted Answer

The answer of A flexible budget depicted graphically
...

Question 2

Under management by exception which differences between planned and actual results should be investigated?

Accepted Answer

Under management by exception, the focus is on identifying and investigating significant deviations from the planned results. Therefore, only material differences (those that have a significant impact on the outcome) and controllable differences (those that can be influenced or changed by management) should be investigated.

Question 3

The flexible budget

Accepted Answer

The flexible budget is a series of static budgets at different levels of activity, which enables businesses to adjust their budgets based on varying levels of activity. It does not replace the master budget, but rather serves as a tool for businesses to evaluate their performance against different levels of activity.

Question 4

A company's planned activity level for next year is expected to be 100000 machine hours. At this level of activity the company budgeted the following manufacturing overhead costs: $\begin{array}{lrlr}\text { Variable }&&\text { Fixed }\
\hline \text { Indirect materials } & \$ 140,000 & \text { Depreciation } & \$ 60,000 \
\text { Indirect labor } & 200,000 & \text { Taxes } & 10,000 \
\text { Factory supplies } & 20,000 & \text { Supervision } & 50,000
\end{array}$ A flexible budget prepared at the 80000 machine hours level of activity would show total manufacturing overhead costs of

Accepted Answer

The flexible budget at 80,000 machine hours would include both variable and fixed costs. Variable costs change with the level of activity, so they would be adjusted to 80% of their original budget (since 80,000 is 80% of 100,000 hours). Fixed costs remain the same regardless of the level of activity. Therefore, the calculation is as follows:- Variable costs at 100,000 hours: $140,000 (Indirect materials) + $200,000 (Indirect labor) + $20,000 (Factory supplies) = $360,000.- Variable costs at 80,000 hours (80% of original): $360,000 * 0.8 = $288,000.- Fixed costs (unchanged): $60,000 (Depreciation) + $10,000 (Taxes) + $50,000 (Supervision) = $120,000.- Total costs at 80,000 hours: $288,000 (Variable) + $120,000 (Fixed) = $408,000.

Question 5

The activity index used in preparing the flexible budget

Accepted Answer

The activity index used in preparing the flexible budget should significantly influence the costs that are being budgeted because it is based on the level of activity expected to occur and serves as a basis for estimating expenses. A higher level of activity will result in higher costs, and a lower activity level will result in lower costs. Therefore, it is important to choose an appropriate activity index that reflects the actual level of activity and its impact on costs. The activity index can be different for different departments depending on the nature of their operations. The choice of activity index is not prescribed by generally accepted accounting principles but is based on the specific circumstances of the organization.

Question 6

Sales results that are evaluated by a static budget might show
1) favorable differences that are not justified.
2) unfavorable differences that are not justified.

Accepted Answer

A static budget assumes that all variables remain constant, but in reality, sales results may be affected by various factors such as market demand, economic conditions, and competition. Therefore, favorable or unfavorable differences between actual sales and the static budget may not be justified and may lead to incorrect conclusions about sales performance.

Question 7

Within the relevant range of activity the behavior of total costs is assumed to be

Accepted Answer

Within the relevant range of activity, total costs are assumed to be linear and upward sloping. This means that as production or activity level increases, total costs increase at a constant rate.

Question 8

Nikoto Steel Co. budgeted manufacturing costs for 50000 tons of steel are: Fixed manufacturing costs $\quad \$ 50,000$ per month
Variable manufacturing costs $\quad \$ 12.00$ per ton of steel Nikoto produced 40000 tons of steel during March. How much is the flexible budget for total manufacturing costs for March?

Accepted Answer

The answer of Nikoto Steel Co. budgeted manufacturing costs for...

Question 9

A flexible budget can be prepared for which of the following budgets comprising the master budget?

Accepted Answer

A flexible budget can be prepared for all the budgets comprising the master budget, including sales, overhead, and direct materials. A flexible budget is a budget that adjusts the budgeted amounts based on the actual level of activity achieved, and it is useful for monitoring and controlling costs.

Question 10

Best Shingle's budgeted manufacturing costs for 50000 squares of shingles are: Fixed manufacturing costs $\quad\quad\quad \$ 12,000$
Variable manufacturing costs $\quad\quad\$ 16.00$ per square Best produced 40000 squares of shingles during March. How much are budgeted total manufacturing costs in March?

Accepted Answer

The total manufacturing costs for March can be calculated by adding the fixed manufacturing costs to the variable manufacturing costs for the actual production. Fixed costs remain the same at $12,000. Variable costs are $16.00 per square for 40,000 squares, which equals $640,000. Adding these together gives $12,000 + $640,000 = $652,000.

Question 11

Smart Manufacturing budgeted costs for 50000 linear feet of block are: Fixed manufacturing costs$\quad\quad\$ 24,000$ per month
Variable manufacturing costs$\quad\$ 16.00$ per linear foot Smart installed 40000 linear feet of block during March. How much is budgeted total manufacturing costs in March?

Accepted Answer

The total budgeted manufacturing costs for March can be calculated by adding the fixed manufacturing costs to the variable manufacturing costs for the actual production. Fixed costs are $24,000. Variable costs are $16.00 per linear foot for 40,000 linear feet, which equals $640,000. Therefore, the total budgeted costs are $24,000 (fixed) + $640,000 (variable) = $664,000.

Question 12

If a company plans to sell 48000 units of product but sells 60000 the most appropriate comparison of the cost data associated with the sales will be by a budget based on

Accepted Answer

The most appropriate comparison of the cost data would be by a budget based on 60000 units of activity, as this reflects the actual level of sales and provides the most accurate basis for analyzing variances and performance.

Question 13

Management by exception

Accepted Answer

Management by exception focuses on identifying and addressing cases that deviate significantly from the norm or expectations, which are considered "material differences." This approach helps in prioritizing issues that could have a significant impact on performance, rather than investigating every minor variance.

Question 14

Shane Industries prepared a fixed budget of 60000 direct labor hours with estimated overhead costs of $300000 for variable overhead and $90000 for fixed overhead. Shane then prepared a flexible budget at 57000 labor hours. How much is total overhead costs at this level of activity?

Accepted Answer

The answer of Shane Industries prepared a fixed budget of...

Question 15

Stone Industries uses flexible budgets. At normal capacity of 16000 units budgeted manufacturing overhead is: $48000 variable and $270000 fixed. If Stone had actual overhead costs of $321000 for 18000 units produced what is the difference between actual and budgeted costs?

Accepted Answer

The answer of Stone Industries uses flexible budgets. At normal...

Question 16

The selection of levels of activity to depict a flexible budget
1) will be within the relevant range.
2) is largely a matter of expediency.
3) is governed by generally accepted accounting principles.

Accepted Answer

1) The levels of activity chosen for a flexible budget should always be within the relevant range to ensure accuracy and relevance.

2) The selection of levels of activity may be a matter of expediency, as it may not always be possible or practical to include every possible level of activity in the budget. However, this should not take precedence over relevance and accuracy.

3) Generally accepted accounting principles do not specifically govern the selection of levels of activity for a flexible budget, but rather prescribe rules and guidelines for financial reporting in general.

Question 17

For June Gold Corp. estimated sales revenue at $600000. It pays sales commissions that are 4% of sales. The sales manager's salary is $285000 estimated shipping expenses total 1% of sales and miscellaneous selling expenses are $15000. How much are budgeted selling expenses for the month of July if sales are expected to be $540000?

Accepted Answer

Budgeted selling expenses include sales commissions (4% of $540,000 = $21,600), sales manager's salary ($285,000), shipping expenses (1% of $540,000 = $5,400), and miscellaneous selling expenses ($15,000). Total = $21,600 + $285,000 + $5,400 + $15,000 = $327,000.

Question 18

A flexible budget

Accepted Answer

A flexible budget projects budget data for various levels of activity, allowing management to adjust their plans and budget goals based on changes in activity levels. It is a useful tool for controlling variable costs and for evaluating actual results against budgeted data at different activity levels. A flexible budget is not prepared when management cannot agree on objectives for the company and can be used for evaluation purposes as budgeted data can be adjusted to reflect actual results.

Question 19

In the Dichter Co. indirect labor is budgeted for $72000 and factory supervision is budgeted for $24000 at normal capacity of 160000 direct labor hours. If 180000 direct labor hours are worked flexible budget total for these costs is

Accepted Answer

The answer of In the Dichter Co. indirect labor is...

Question 20

A static budget is not appropriate in evaluating a manager's effectiveness if a company has

Accepted Answer

A static budget assumes that costs remain the same regardless of changes in activity levels, which is only appropriate if a company has primarily fixed costs. If a company has substantial variable costs, a static budget will not accurately reflect the impact of changes in activity levels on costs and revenues, which makes it inappropriate for evaluating a manager's effectiveness.

Quiz 24: Budgetary Control and Responsibility Accounting