Question 1

Sweet Baby Diaper Company sells disposable diapers for $.20 each. Variable costs are $.05 per diaper, while fixed costs are $75,000 per month. At a volume of 600,000 diapers per month, what operating income would be shown in the flexible budget?
A) $7,500
B) $45,000
C) $30,000
D) $15,000

Accepted Answer

D) Calculations:
 11ea7fd0_4119_daf5_a768_c7fba6631bfc_TB2654_00

Question 2

The flexible budget is based on the actual number of outputs.

Accepted Answer

The flexible budget is designed to adjust according to the actual level of outputs or activity. It is a type of budget that is used to forecast business performance based on various levels of production or sales, and it can be adjusted quickly and easily to reflect changes in the business environment.

Question 3

A company's flexible budget for 40,000 units of production showed sales of $110,000, variable costs of $60,000, and fixed costs of $41,000. What net operating income would you expect the company to earn if it produces and sells 43,000 units?
A) $17,250
B) $12,750
C) $9,000
D) $11,850

Accepted Answer

B) Calculations:
 11ea7fd0_411a_0206_a768_e1eff1d37a94_TB2654_00

Question 4

The sales volume variance results from the fact that the actual selling price is different than the budgeted selling price.

Accepted Answer

The sales volume variance results from the difference between the actual quantity sold and the budgeted quantity to be sold, not from differences in selling prices.

Question 5

A static budget presents financial data at several different volume levels

Accepted Answer

A static budget presents financial data only at one volume level and does not adjust for changes in actual volume levels.

Question 6

ABBA Manufacturing makes staplers. The budgeted selling price is $10 per stapler, the variable rate is $5 per stapler and budgeted fixed costs are $12,000. What is the budgeted operating income for 5,000 staplers?
A) $15,000
B) $13,000
C) $25,000
D) $50,000

Accepted Answer

B) Calculations: 5,000 × ($10 - $5) - $12,000 = $13,000

Question 7

Portobello Company prepared the following static budget for the coming month:
$\begin{array}{|l|l|r|}
\hline \text { Static Budget } & & \
\hline \text { Units/volume } & & 5,000 \
\hline & \text { Per Unit } & \
\hline \text { Sales revenue } & \$ 3.00 & \$ 15,000 \
\hline \text { Variable expenses } & \$ 1.80 & 9,000 \
\hline \text { Contribution margin } & & 6,000 \
\hline \text { Fixed expenses } & & 5,000 \
\hline \text { Operating income/(1oss) } & & \$ 1,000 \
\hline
\end{array}$
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If a flexible budget was prepared at a volume of 6,000, how much would the operating income be?
A) ($200)
B) $500
C) $2,200
D) $1,000

Accepted Answer

A flexible budget adjusts costs and revenues based on actual activity levels. At 6,000 units, sales revenue would be $3.00 * 6,000 = $18,000, variable expenses would be $1.80 * 6,000 = $10,800, leading to a contribution margin of $7,200. Fixed expenses remain at $5,000, so the operating income would be $7,200 - $5,000 = $2,200.

Question 8

Which of the following BEST describes flexible budgets?
A) Flexible budgets have contingency funds to allow flexibility of spending.
B) Flexible budgets summarize financial results at several different volume levels.
C) Flexible budgets are an integral part of the master budget.
D) Flexible budgets can accommodate several different price structures.

Accepted Answer

Flexible budgets summarize financial results at several different volume levels. They are used to adjust budgeted amounts based on actual activity levels, and can show expected results at different levels of activity. This allows for greater flexibility in planning and decision-making. The other options are not accurate descriptions of flexible budgets.

Question 9

The sales volume variance arises because the number of units actually sold differs from the number of units expected to be sold according to the static budget.

Accepted Answer

The statement correctly defines the sales volume variance.

Question 10

Ibis Company prepared the following static budget for the coming month:
$\begin{array}{|l|l|r|}
\hline \text { Static Budget } & & \
\hline \text { Units/volume } & & 12,000 \
\hline & \text { Per Unit } & \
\hline \text { Sales revenue } & \$ 20.00 & \$ 240,000 \
\hline \text { Variable expenses } & \$ 9.00 & 108,000 \
\hline \text { Contribution margin } & & 132,000 \
\hline \text { Fixed expenses } & & 130,000 \
\hline \text { Operating income/(1oss) } & & \$ 2,000 \
\hline
\end{array}$
-
If a flexible budget was prepared at a volume of 14,000 units, how much would the operating income be?
A) $22,000
B) $17,500
C) $24,000
D) $13,000

Accepted Answer

The flexible budget at 14,000 units would adjust variable costs and revenues but keep fixed costs the same. Sales revenue per unit is $20, so for 14,000 units, it's $280,000 (14,000 * $20). Variable expenses are $9 per unit, so for 14,000 units, it's $126,000 (14,000 * $9). The contribution margin is sales revenue minus variable expenses, which is $280,000 - $126,000 = $154,000. Fixed expenses remain at $130,000. Therefore, the operating income is $154,000 - $130,000 = $24,000.

Question 11

Portobello Company prepared the following static budget for the coming month:
$\begin{array}{|l|l|r|}
\hline \text { Static Budget } & & \
\hline \text { Units/volume } & & 5,000 \
\hline & \text { Per Unit } & \
\hline \text { Sales revenue } & \$ 3.00 & \$ 15,000 \
\hline \text { Variable expenses } & \$ 1.80 & 9,000 \
\hline \text { Contribution margin } & & 6,000 \
\hline \text { Fixed expenses } & & 5,000 \
\hline \text { Operating income/(1oss) } & & \$ 1,000 \
\hline
\end{array}$
-
If a flexible budget was prepared at a volume of 4,000, how much would the operating income be?
A) ($200)
B) $500
C) $2,200
D) $1,000

Accepted Answer

The flexible budget adjusts for the actual volume of 4,000 units. Sales revenue would be $12,000 (4,000 x $3.00), variable expenses $7,200 (4,000 x $1.80), contribution margin $4,800 ($12,000 - $7,200), and fixed expenses remain $5,000. Thus, operating income would be ($200) ($4,800 - $5,000).

Question 12

A static budget is prepared for one level of sales volume.

Accepted Answer

A static budget is prepared based on a single level of sales volume or activity, assuming that the actual sales volume will not deviate significantly from the budgeted level. This budget is not adjusted with changes in sales or other activity levels.

Question 13

In a flexible budget, which of the following amounts stays the same as the volume changes?
A) The total amount of contribution margin
B) The total amount of fixed costs
C) The total amount of variable expenses
D) The total amount of sales revenue

Accepted Answer

Fixed costs remain constant regardless of the volume of activity, so they stay the same in a flexible budget. Contribution margin and sales revenue vary with the volume of activity, while variable expenses change proportionally with the volume of activity.

Question 14

The flexible budget variance arises because the number of units actually sold differs from the static budget units.

Accepted Answer

The flexible budget variance arises because the actual results differ from what would have been expected based on the actual level of activity, not just because the number of units sold differs from the static budget. It adjusts for changes in volume of activity.

Question 15

Flexible budgets are budgets that summarize cost and revenue information at various volume levels within a relevant range.

Accepted Answer

This statement accurately describes flexible budgets.

Question 16

Sweet Baby Diaper Company sells disposable diapers for $.20 each. Variable costs are $.05 per diaper, while fixed costs are $75,000 per month. At a volume of 700,000 diapers per month, what operating income would be shown in the flexible budget?
A) $7,500
B) $45,000
C) $30,000
D) $15,000

Accepted Answer

C) Calculations:
 11ea7fd0_4119_b3e4_a768_cfd6fbfb5186_TB2654_00

Question 17

A variance is the difference between an actual amount and a budgeted amount.

Accepted Answer

This is the definition of a variance.

Question 18

A favorable variance reflects an increase in operating income.

Accepted Answer

A favorable variance means that actual results are better than expected/budgeted results. In the context of operating income, this would mean that actual operating income is higher than expected/budgeted operating income, leading to increased profitability.

Question 19

Ibis Company prepared the following static budget for the coming month:
$\begin{array}{|l|l|r|}
\hline \text { Static Budget } & & \
\hline \text { Units/volume } & & 12,000 \
\hline & \text { Per Unit } & \
\hline \text { Sales revenue } & \$ 20.00 & \$ 240,000 \
\hline \text { Variable expenses } & \$ 9.00 & 108,000 \
\hline \text { Contribution margin } & & 132,000 \
\hline \text { Fixed expenses } & & 130,000 \
\hline \text { Operating income/(1oss) } & & \$ 2,000 \
\hline
\end{array}$
-
If a flexible budget was prepared at a volume of 13,000 units, how much would the operating income be?
A) $22,000
B) $17,500
C) $24,000
D) $13,000

Accepted Answer

The answer of Ibis Company prepared the following static budget...

Question 20

In a flexible budget, which of the following amounts does NOT stay the same as the volume changes?
A) The price per unit
B) The fixed costs
C) The variable expense per unit
D) The total contribution margin

Accepted Answer

The total contribution margin does not stay the same as volume changes because it is dependent on the number of units sold, which affects total revenue and total variable costs.

Quiz 23: Flexible Budgets and Standard Costs

Sweet Baby Diaper Company sells disposable diapers for $.20 each. Variable costs are $.05 per diaper, while fixed costs are $75,000 per month. At a volume of 600,000 diapers per month, what operating income would be shown in the flexible budget?

The flexible budget is based on the actual number of outputs.

A company's flexible budget for 40,000 units of production showed sales of $110,000, variable costs of $60,000, and fixed costs of $41,000. What net operating income would you expect the company to earn if it produces and sells 43,000 units?

The sales volume variance results from the fact that the actual selling price is different than the budgeted selling price.

A static budget presents financial data at several different volume levels

ABBA Manufacturing makes staplers. The budgeted selling price is $10 per stapler, the variable rate is $5 per stapler and budgeted fixed costs are $12,000. What is the budgeted operating income for 5,000 staplers?

Which of the following BEST describes flexible budgets?

The sales volume variance arises because the number of units actually sold differs from the number of units expected to be sold according to the static budget.

A static budget is prepared for one level of sales volume.

In a flexible budget, which of the following amounts stays the same as the volume changes?

The flexible budget variance arises because the number of units actually sold differs from the static budget units.

Flexible budgets are budgets that summarize cost and revenue information at various volume levels within a relevant range.

Sweet Baby Diaper Company sells disposable diapers for $.20 each. Variable costs are $.05 per diaper, while fixed costs are $75,000 per month. At a volume of 700,000 diapers per month, what operating income would be shown in the flexible budget?

A variance is the difference between an actual amount and a budgeted amount.

A favorable variance reflects an increase in operating income.

In a flexible budget, which of the following amounts does NOT stay the same as the volume changes?