Question 1

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

Accepted Answer

D

Question 2

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?

Accepted Answer

B) Calculations:
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Question 3

Portobello Company prepared the following static budget for the coming month:  If a flexible budget was prepared at a volume of 6,000, how much would the operating income be?

Accepted Answer

To prepare a flexible budget, we need to identify the variable costs and apply them to the actual volume of activity. The fixed costs will remain the same as the static budget.

Using the static budget, we can identify the total variable costs as $4,800 ($600 per unit x 8 units). At a volume of 6,000, the variable cost per unit would remain the same at $600. The total variable costs would be $3,600, which is calculated as follows:

$600 per unit x 6,000 units = $3,600

The fixed costs remain the same at $9,000.

Therefore, the total cost for a flexible budget at a volume of 6,000 becomes:

Total Costs = Total Fixed Costs + Total Variable Costs 
Total Costs = $9,000 + $3,600 
Total Costs = $12,600

Now, using the formula for operating income:

Operating Income = Total Sales - Total Costs

From the static budget, we know that the total sales at a volume of 8,000 will be $48,000. At a volume of 6,000, we can calculate the sales using the given selling price of $6, as follows:

Total Sales = Selling Price per Unit x Volume 
Total Sales = $6 x 6,000 
Total Sales = $36,000

Therefore, the operating income for a flexible budget at a volume of 6,000 becomes:

Operating Income = Total Sales - Total Costs 
Operating Income = $36,000 - $12,600 
Operating Income = $23,400

This means that the Portobello Company would make an operating income of $23,400 if the flexible budget was prepared at a volume of 6,000. Therefore, the best choice is C.

Question 4

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

Accepted Answer

A static budget is prepared for a specific level of sales volume, meaning it is not adjusted for changes in actual sales or production levels.

Question 5

Ibis Company prepared the following static budget for the coming month:  If a flexible budget was prepared at a volume of 13,000 units, how much would the operating income be?

Accepted Answer

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

Question 6

A favorable variance reflects an increase in operating income.

Accepted Answer

A favorable variance means that actual results are better than expected, so in the case of operating income, it would mean that actual operating income is higher than expected, resulting in an increase in operating income.

Question 7

Ibis Company prepared the following static budget for the coming month:  If a flexible budget was prepared at a volume of 14,000 units, how much would the operating income be?

Accepted Answer

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

Question 8

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?

Accepted Answer

Budgeted operating income = (Budgeted selling price - Variable rate) x Number of units - Budgeted fixed costs

= ($10 - $5) x 5,000 - $12,000

= $5 x 5,000 - $12,000

= $25,000 - $12,000

= $13,000

Therefore, the budgeted operating income for 5,000 staplers is $13,000. Option B is the correct answer.

Question 9

A static budget presents financial data at several different volume levels

Accepted Answer

A static budget presents financial data at a single volume level, typically the projected level of activity for the period.

Question 10

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 sales volume variance is calculated based on the difference between the actual number of units sold and the budgeted or expected number of units sold. This variance is used to analyze the performance of the sales department and to adjust the sales plan accordingly.

Question 11

Portobello Company prepared the following static budget for the coming month:  If a flexible budget was prepared at a volume of 4,000, how much would the operating income be?

Accepted Answer

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

Question 12

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?

Accepted Answer

D) Calculations:
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Question 13

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

Accepted Answer

Flexible budgets allow for adjustments to be made to budgeted amounts based on changes in activity levels within a certain range. This allows for a more accurate picture of expected costs and revenues at different levels of production or sales.

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

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?

Accepted Answer

C) Calculations:
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Question 16

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

Accepted Answer

This is the definition of variance.

Question 17

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

Accepted Answer

In a flexible budget, fixed costs remain the same as the volume changes because they do not vary with changes in production or sales volume. The other options (A, C, and D) all vary based on changes in volume.

Question 18

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 sales volume and the budgeted sales volume, not the difference between the actual selling price and the budgeted selling price.

Question 19

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

Accepted Answer

The flexible budget adjusts based on the actual number of outputs, allowing for more accurate cost estimates and better decision-making.

Question 20

Which of the following BEST describes flexible budgets?

Accepted Answer

Flexible budgets summarize financial results at several different volume levels, allowing for adjustments based on changes in activity levels. This provides a more accurate representation of performance compared to a static budget that only reflects a single level of activity. Contingency funds are not necessarily a feature of flexible budgets, they may or may not be included. While flexible budgets are often a component of a master budget, this is not the defining characteristic of flexible budgets. Similarly, while flexible budgets may be able to accommodate different price structures, this is not a defining feature of flexible budgets.

Quiz 23: Flexible Budgets and Standard Costs