Question 1

What budgeted amounts appear on the flexible budget?

Accepted Answer

The flexible budget shows the budgeted amounts for the actual activity level that was achieved. This allows for a more accurate comparison between actual costs and what should have been spent based on the actual level of activity. A and B are incorrect because they either show the original budgeted amounts or actual costs for a different level of activity. D is incorrect because it refers to actual costs for an estimated activity level, which is not relevant to the flexible budget.

Question 2

Boland Manufacturing prepared a 2019 budget for 120,000 units of product. Actual production in 2019 was 130,000 units. To be most useful, what amounts should a performance report for this company compare?

Accepted Answer

To provide a meaningful comparison and accurately assess performance, it's important to compare actual results with a budget adjusted for the actual level of activity. Comparing the actual results for 130,000 units with a revised budget for the same number of units ensures that differences due to volume variances are eliminated, allowing for a focus on efficiency and price variances.

Question 3

The master budget of Windy Co. shows that the planned activity level for next year is expected to be 50,000 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 60,000 machine hours would show total manufacturing overhead costs of

Accepted Answer

The answer of The master budget of Windy Co. shows...

Question 4

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 a static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels. A static budget is based on a specific level of sales, production or other metric and is not adjusted for changes in activity levels. A flexible budget, on the other hand, can be adjusted to reflect changes in activity levels. This makes a flexible budget more useful for companies that experience significant changes in activity levels over time.

Question 5

A static budget

Accepted Answer

A static budget shows planned results at the original budgeted activity level and does not change regardless of actual activity levels. It may be used as a benchmark for evaluating performance, but it cannot be used for variance analysis as actual activity levels are not considered. Therefore, options A and B are incorrect. Option D is partially correct, but it does not capture the essence of a static budget being fixed and not responsive to changes in activity levels.

Question 6

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

Accepted Answer

Costs that are not responsive to changes in activity level are fixed costs. Fixed costs remain constant regardless of the level of activity or output.

Question 7

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 remain constant regardless of the level of activity. Therefore, they would be the same on both a flexible and static budget, even if the activity level differs.

Question 8

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 9

Another name for the static budget is

Accepted Answer

The static budget is also known as the master budget because it is a comprehensive plan of a company's financial activities for a specific time period. It includes all aspects of the budget, such as revenue, expenses, capital expenditures, and cash flows, and serves as a benchmark for performance evaluation. The other options (B, C, and D) refer to different types of budgets but are not synonyms for the static budget.

Question 10

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 means that variable costs will be included and reported separately from fixed costs. The budget can be prepared at any level of activity within the relevant range, rather than only at 1,000 unit increments.

Question 11

On the basis of the budget reports,

Accepted Answer

All of the given options are correct. Budget reports provide valuable information about actual results compared to planned results. Management can analyze these differences and take corrective action if necessary. Additionally, if there are significant variances, management may need to modify future plans to ensure that the company remains on track to achieving its goals.

Question 12

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

Accepted Answer

A static budget is appropriate for evaluating a manager's performance if actual activity closely approximates the master budget activity because it allows for a fair comparison of actual results to the planned budget. If actual activity is significantly higher or lower than the master budget activity, a flexible budget would be more appropriate for performance evaluation. The frequency of reporting (annual or otherwise) or whether the company is for-profit or not-for-profit does not necessarily affect the appropriateness of a static budget.

Question 13

The purpose of the departmental overhead cost report is to

Accepted Answer

The purpose of the departmental overhead cost report is to control overhead costs. This report helps managers to identify and control the indirect costs associated with running a department or production process, and to ensure that these costs are assigned accurately to the products or services being sold. By tracking and analyzing these costs over time, managers can identify areas where they can reduce overhead costs and improve efficiency, which can ultimately lead to increased profitability.

Question 14

A static budget is appropriate for

Accepted Answer

A static budget is appropriate for fixed overhead costs because these costs do not vary with changes in production or sales levels. A static budget assumes a fixed level of activity and provides a benchmark for comparing actual performance to expected performance. On the other hand, variable overhead costs vary with changes in production or sales levels, and direct materials costs are affected by changes in production levels as well as changes in input prices. Therefore, a flexible budget may be more appropriate for variable overhead costs and direct materials costs.

Question 15

The comparison of differences between actual and planned results

Accepted Answer

The comparison of differences between actual and planned results is usually done through periodic budget reports. These reports allow for the analysis of the company's financial performance and identify areas where actual results differ from budgeted results.

Question 16

A department has budgeted monthly manufacturing overhead cost of $540,000 plus $3 per direct labor hour. If a flexible budget report reflects $1,044,000 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. Subtracting the fixed cost from the total gives the variable cost portion, which is $1,044,000 - $540,000 = $504,000. Since the variable cost is $3 per direct labor hour, the actual level of activity (direct labor hours) is $504,000 / $3 per hour = 168,000 direct labor hours.

Question 17

The purpose of the sales budget report is to

Accepted Answer

The primary purpose of the sales budget report is to determine whether sales goals are being met by comparing actual sales to budgeted sales.

Question 18

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 the favorable difference for the second quarter is greater than the unfavorable difference for the first quarter, the overall year-to-date results will show a favorable difference. Therefore, option A is correct. Option B is incorrect since the actual sales results exceeded planned results, resulting in a favorable difference. Option C is incorrect as both favorable and unfavorable differences should be taken into account when evaluating the sales budget report. Option D is also incorrect as a sales report showing both favorable and unfavorable differences can be useful for management to identify areas of strength and weakness.

Question 19

A static budget report

Accepted Answer

A static budget report is prepared for a fixed level of activity and assumes that the behavior of costs in response to changes in activity is fixed. Hence, it may be appropriate in evaluating a manager's effectiveness in controlling costs when the behavior of costs in response to changes in activity is fixed. However, it may not be suitable for evaluating a manager's effectiveness in controlling variable costs or when the actual level of activity is materially different from the master budget activity level. Also, it shows costs at only one level of activity, not 2 or 3 different levels of activity.

Question 20

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

Accepted Answer

When the budgeted and actual results are different, there is a budget difference. This indicates that there may have been variances or changes in actual performance compared to the planned budget. A budget error suggests a mistake in the budgeting process, while an anomaly refers to an unexpected deviation from normal patterns. A by-product is a secondary product that is produced alongside the main product.

Quiz 10: Budgetary Control and Responsibility Accounting