Question 1

The master budget is an example of a flexible budget.

Accepted Answer

The master budget is an example of a static budget,

Question 2

All differences between the flexible budget and actual performance result from selling prices and costs, rather than from differences in sales volume.

Accepted Answer

The flexible budget is based on the actual sales volume, so any differences between the flexible budget and actual performance must be due to differences in selling prices or costs.

Question 3

The flexible budget variance is influenced most heavily by forces external to the operating process.

Accepted Answer

-The flexible budget variance is influenced most heavily by the actions of operations personnel,

Question 4

The major factor in the amount of material used in production is the quality of the material.

Accepted Answer

The quality of the material directly affects the amount of material used in production. Higher quality materials require less material to achieve the same level of performance, while lower quality materials require more material to compensate for their deficiencies.

Question 5

The flexible budget variance for direct labor is separated into two components: a direct labor rate variance and a direct labor price variance.

Accepted Answer

The flexible budget variance for direct labor is separated into two components: a direct labor rate variance and a direct labor efficiency variance,

Question 6

A variance is labeled as "favorable" or "unfavorable" indicating the effect on managers' bonuses.

Accepted Answer

A variance is labeled as "favorable" or "unfavorable" indicating the effect on operating income,

Question 7

Since a flexible budget is based on actual sales volume, it cannot be prepared until after the end of the period.

Accepted Answer

A flexible budget is prepared based on the actual sales volume achieved during the period, therefore it cannot be prepared until after the end of the period when the actual sales volume is known.

Question 8

The difference between actual sales volume and the flexible budget sales volume has no impact on the price and quantity variances.

Accepted Answer

This is because the price and quantity variances are calculated based on the difference between the actual and flexible budget prices and quantities, and not the sales volume. The difference in sales volume only affects the overall revenue and gross profit.

Question 9

The sales volume variance is the difference between the flexible budget and the static budget.

Accepted Answer

The sales volume variance is calculated by subtracting the static budget from the actual results, as it measures the impact of a change in sales volume on the overall budget.

Question 10

A favorable variance occurs when the flexible budget operating income amount is greater than the actual operating income.

Accepted Answer

A favorable variance occurs when the flexible budget operating income is less than the actual operating income,

Question 11

The flexible budget variance is the difference between the static budgeted amounts and the flexible budgeted amounts.

Accepted Answer

The flexible budget variance is the difference between the actual results and the flexible budget,

Question 12

Because the production managers are the ones to negotiate the purchase price, they are typically held accountable for the direct materials price variance.

Accepted Answer

Because the purchasing agents are the ones to negotiate the purchase price, they are typically held accountable for the direct materials price variance,

Question 13

The flexible budget variance reflects how efficiently the company operated in producing a given level of sales.

Accepted Answer

The flexible budget variance compares actual costs to the costs that would have been incurred if the company had achieved the level of sales in the flexible budget. Therefore, it reflects the efficiency of the company in producing that level of sales.

Question 14

For a static budget, the difference between actual results and budgeted results is referred to as budget slack.

Accepted Answer

For a static budget, the difference between actual results and budgeted results is referred to as a static budget variance,

Question 15

A flexible budget is a budget based on the budgeted sales volume at the beginning of the period.

Accepted Answer

A flexible budget is a budget based on the actual sales volume achieved during the period,

Question 16

An unfavorable variance is a variance that decreases operating income relative to the budgeted amount.

Accepted Answer

An unfavorable variance means actual results are worse than budgeted results, which would result in a decrease in operating income.

Question 17

The direct materials price variance is calculated using the standard quantity of direct materials purchased, the actual price paid for the direct materials, and the standard price for the direct materials purchased.

Accepted Answer

The direct materials price variance is calculated using the actual quantity of direct materials purchased, the actual price paid for the direct materials, and the standard price for the direct materials purchased,

Question 18

The direct materials quantity variance is caused by using more or less material than the standard quantity allowed for actual production.

Accepted Answer

The direct materials quantity variance compares the actual quantity of materials used during production to the standard quantity allowed for the actual production. If more or less materials than the standard amount are used, it results in a direct materials quantity variance.

Question 19

Management by exception focuses on all variances, regardless of size or importance.

Accepted Answer

Management by exception focuses only on those variances management deems important,

Question 20

A material variance is one that is large enough to make a difference in the outcome of a decision.

Accepted Answer

A material variance is one that is significant enough to impact the decision-making process.

Quiz 6: Performance Evaluation: Variance Analysis