Question 1

A report based on predicted amounts of revenues and expenses corresponding to the actual level of output is called a:
A) Rolling budget.
B) Production budget.
C) Flexible budget.
D) Merchandise purchases budget.
E) Fixed budget.

Accepted Answer

A flexible budget is a report that adjusts budgeted amounts to correspond with actual levels of output. It is also known as an adjusted budget, variable budget, or sliding-scale budget. This type of budget is useful for monitoring and controlling costs, as well as evaluating performance by comparing actual results to budgeted amounts that are based on the same level of output. Rolling budgets, production budgets, and merchandise purchases budgets are all different types of budgets, but they do not adjust to actual levels of output like a flexible budget does. Fixed budgets are static budgets that do not adjust for changes in activity levels, making them less useful for control and evaluation purposes.

Question 2

A company provided the following direct materials cost information. Compute the cost variance. 
A) $2,500 Favorable.
B) $78,250 Favorable.
C) $78,250 Unfavorable.
D) $80,750 Favorable.
E) $80,750 UnfavorablE.Actual cost $888,250 - Standard cost $810,000 = $78,250 U

Accepted Answer

The cost variance is computed by subtracting the standard cost from the actual cost. In this case, the actual cost is $888,250 and the standard cost is $810,000. Therefore, the cost variance is $78,250 unfavorable.

Question 3

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The operating income expected if the company produces and sells 16,000 units is:
A) $2,667.
B) $14,000.
C) $18,667.
D) $24,000.
E) $35,000.

Accepted Answer

First, we need to determine the variable cost per unit:
Variable cost per unit = Total variable costs / Units produced
Variable cost per unit = $18,000 / 12,000 units
Variable cost per unit = $1.50

Using this information, we can calculate the flexible budget for 16,000 units:
Sales = ($4 per unit)(16,000 units) = $64,000
Variable costs = ($1.50 per unit)(16,000 units) = $24,000
Fixed costs remain the same at $16,000

Total costs = $24,000 + $16,000 = $40,000
Operating income = $64,000 - $40,000 = $24,000

Therefore, the operating income expected if the company produces and sells 16,000 units is $24,000.

Question 4

Product A has a sales price of $10 per unit. Based on a 10,000-unit production level, the variable costs are $6 per unit and the fixed costs are $3 per unit. Using a flexible budget for 12,500 units, what is the budgeted operating income from Product A?
A) $12,500.
B) $25,000.
C) $20,000.
D) $30,000.
E) $35,000.

Accepted Answer

First, calculate the contribution margin per unit for Product A:

Sales price per unit - Variable costs per unit = $10 - $6 = $4

Next, calculate the total fixed costs for 10,000 units:

Fixed costs per unit * Production level = $3 * 10,000 = $30,000

Using the contribution margin per unit, we can calculate the flexible budgeted total cost for 12,500 units:

Variable costs per unit * Production level = $6 * 12,500 = $75,000

Flexible budgeted total cost = Fixed costs + Variable costs = $30,000 + $75,000 = $105,000

Finally, using the contribution margin per unit and the flexible budgeted total cost, we can calculate the budgeted operating income:

Flexible budgeted revenue = Sales price per unit * Production level = $10 * 12,500 = $125,000

Budgeted operating income = Flexible budgeted revenue - Flexible budgeted total cost = $125,000 - $105,000 = $20,000

Therefore, the answer is C.

Question 5

Sales variance analysis is useful for:
A) Planning purposes only.
B) Budgeting purposes only.
C) Control purposes only.
D) Planning and control purposes.
E) Planning and budgeting purposes.

Accepted Answer

Sales variance analysis is used for both planning and control purposes. It helps in identifying the variances between the budgeted sales and the actual sales, leading to an improvement in decision-making regarding sales forecasting, pricing strategies, cost control, and profit management.

Question 6

Kyle, Inc. has collected the following data on one of its products. The direct materials quantity variance is: 
A) $30,000 favorable.
B) $13,750 unfavorable.
C) $16,250 favorable.
D) $30,000 unfavorable.
E) $13,750 favorablE.

Accepted Answer

The answer of Kyle, Inc. has collected the following data...

Question 7

Identify the situation that will result in a favorable variance.
A) Actual revenue is higher than budgeted revenue.
B) Actual revenue is lower than budgeted revenue.
C) Actual income is lower than expected.
D) Actual costs are higher than budgeted costs.
E) Actual expenses are higher than budgeted expenses.

Accepted Answer

A favorable variance means that the actual results were better than the budgeted results. Therefore, if actual revenue is higher than budgeted revenue, that would result in a favorable variance as it indicates that the company is performing better than expected in terms of generating revenue.

Question 8

A flexible budget is prepared:
A) Before the operating period only.
B) After the operating period only.
C) During the operating period only.
D) At any time in the planning period.
E) A flexible budget should never be prepared.

Accepted Answer

A flexible budget can be prepared at any time during the planning period based on the changing circumstances and actual results. It helps to compare the actual performance with the budgeted performance and adjust the budget accordingly.

Question 9

An analytical technique used by management to focus on the most significant variances and give less attention to the areas where performance is satisfactory is known as:
A) Controllable management.
B) Management by variance.
C) Performance management.
D) Management by objectives.
E) Management by exception.

Accepted Answer

Management by exception is a technique where management focuses on the areas that deviate significantly from the expected or standard performance. By doing so, management can allocate their time and resources more efficiently and effectively. Management can identify and fix the problems that caused the significant variances and also recognize and reward exceptional performance.

Question 10

Variable budget is another name for:
A) Cash budget.
B) Flexible budget.
C) Fixed budget.
D) Manufacturing budget.
E) Rolling budget.

Accepted Answer

A variable budget is also known as a flexible budget. This budget adjusts for changes in activity levels, allowing for fluctuations in revenue and expenses. This type of budget provides greater flexibility and accuracy in budgeting compared to fixed budgets, which remain static regardless of changes in activity levels. Cash budget, manufacturing budget, and rolling budget are all different types of budgets with their own unique characteristics.

Question 11

Static budget is another name for:
A) Standard budget.
B) Flexible budget.
C) Variable budget.
D) Fixed budget.
E) Master budget.

Accepted Answer

Static budget is also known as a fixed budget because it remains constant and does not adjust based on actual results or changes in business conditions.

Question 12

Based on predicted production of 12,000 units, a company anticipates $150,000 of fixed costs and $123,000 of variable costs. The flexible budget amounts of fixed and variable costs for 10,000 units are:
A) $125,000 fixed and $102,500 variable.
B) $125,000 fixed and $123,000 variable.
C) $102,500 fixed and $150,000 variable.
D) $150,000 fixed and $123,000 variable.
E) $150,000 fixed and $102,500 variablE.Fixed costs remain at $150,000

Accepted Answer

The answer of Based on predicted production of 12,000 units,...

Question 13

Which department is often responsible for the direct materials price variance?
A) The accounting department.
B) The production department.
C) The purchasing department.
D) The finance department.
E) The budgeting department.

Accepted Answer

The purchasing department is often responsible for the direct materials price variance as they are the ones who negotiate and purchase the materials needed for production. They are responsible for ensuring that they are getting the best prices for the materials and if there is a variance in the price, they will be responsible for investigating and resolving it.

Question 14

A flexible budget performance report compares the differences between:
A) Actual performance and budgeted performance based on actual sales volume.
B) Actual performance over several periods.
C) Budgeted performance over several periods.
D) Actual performance and budgeted performance based on budgeted sales volume.
E) Actual performance and standard costs at the budgeted sales volume.

Accepted Answer

A flexible budget adjusts for changes in sales volume, so comparing actual performance and budgeted performance based on actual sales volume is the most appropriate comparison to evaluate the effectiveness of the budget. This helps to determine if actual expenses are higher or lower than expected based on actual sales volume.

Question 15

A planning budget based on a single predicted amount of sales or production volume is called a:
A) Sales budget.
B) Standard budget.
C) Flexible budget.
D) Fixed budget.
E) Variable budget.

Accepted Answer

A fixed budget is based on a single predicted amount of sales or production volume and does not change regardless of actual sales or production levels. This type of budget is typically used for long-term planning and is not adjusted for changes in the business environment.

Question 16

Kyle, Inc. has collected the following data on one of its products. The actual cost of the direct materials used is: 
A) $133,750.
B) $150,000.
C) $106,250.
D) $158,750.
E) $120,000.

Accepted Answer

The actual cost of direct materials used is given as $133,750. None of the other options match this value.

Question 17

A company's flexible budget for 10,000 units of production reflects sales of $200,000; variable costs of $40,000; and fixed costs of $75,000. Calculate the expected level of operating income if the company produces and sells 13,000 units.
A) $110,500.
B) $85,000.
C) $133,000.
D) $100,000.
E) $50,500.

Accepted Answer

First, we need to calculate the variable cost per unit:
Variable costs / Number of units = $40,000 / 10,000 = $4 per unit

Using this information, we can calculate the flexible budget for 13,000 units:
Sales: $200,000 / 10,000 units x 13,000 units = $260,000
Variable costs: $4 per unit x 13,000 units = $52,000
Fixed costs: $75,000

Total costs: $127,000 ($75,000 fixed + $52,000 variable)
Expected operating income: $260,000 - $127,000 = $133,000

Therefore, the answer is C, $133,000.

Question 18

An internal report that helps management analyze the difference between actual performance and budgeted performance based on the actual sales volume (or other level of activity), and which presents the differences between actual and budgeted amounts as variances, is called a(n):
A) Sales budget performance report.
B) Flexible budget performance report.
C) Master budget performance report.
D) Static budget performance report.
E) Operating budget performance report.

Accepted Answer

The report described is a flexible budget performance report, as it compares actual performance to a budget that has been adjusted (flexed) to reflect the actual level of activity. This type of report allows management to see the impact of changes in sales volume (or other activity) on overall performance and can be useful in identifying areas where adjustments need to be made in the budget. A master budget performance report would include all aspects of the company's budget (not just sales) and would not take into account changes in activity levels, making it less useful for analyzing performance. A static budget performance report would only compare actual results to the original budget, without adjusting for changes in activity levels, making it less useful for identifying the impact of changes in sales volume or other activity. An operating budget performance report is a more general term that could refer to any type of report that compares actual performance to budgeted performance, without specifying whether the budget is flexible or static.

Question 19

Based on a predicted level of production and sales of 12,000 units, a company anticipates reporting operating income of $26,000 after deducting variable costs of $72,000 and fixed costs of $10,000. Based on this information, the budgeted amounts of fixed and variable costs for 15,000 units would be:
A) $10,000 of fixed costs and $72,000 of variable costs.
B) $10,000 of fixed costs and $90,000 of variable costs.
C) $12,500 of fixed costs and $90,000 of variable costs.
D) $12,500 of fixed costs and $72,000 of variable costs.
E) $10,000 of fixed costs and $81,000 of variable costs.

Accepted Answer

Fixed costs remain constant regardless of the level of production or sales, so they would stay at $10,000. Variable costs change with the level of production or sales. Since the variable costs for 12,000 units are $72,000, for 15,000 units (which is 25% more), the variable costs would increase by 25% to $90,000.

Question 20

Standard costs are used in the calculation of:
A) Price and quantity variances.
B) Price variances only.
C) Quantity variances only.
D) Price, quantity, and sales variances.
E) Quantity and sales variances.

Accepted Answer

Standard costs are used to calculate both price and quantity variances. The price variance measures the difference between the standard price of a unit of input and the actual price paid for that input, while the quantity variance measures the difference between the standard quantity of input used and the actual amount used. Together, these variances provide insight into the reasons for any differences between expected costs and actual costs, allowing managers to identify areas where improvements can be made. Standard costs are not used in the calculation of sales variances.

Quiz 24: Flexible Budgets and Standard Costs

A report based on predicted amounts of revenues and expenses corresponding to the actual level of output is called a:

A company provided the following direct materials cost information. Compute the cost variance.

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The operating income expected if the company produces and sells 16,000 units is:

Product A has a sales price of $10 per unit. Based on a 10,000-unit production level, the variable costs are $6 per unit and the fixed costs are $3 per unit. Using a flexible budget for 12,500 units, what is the budgeted operating income from Product A?

Sales variance analysis is useful for:

Kyle, Inc. has collected the following data on one of its products. The direct materials quantity variance is:

Identify the situation that will result in a favorable variance.

A flexible budget is prepared:

An analytical technique used by management to focus on the most significant variances and give less attention to the areas where performance is satisfactory is known as:

Variable budget is another name for:

Static budget is another name for:

Based on predicted production of 12,000 units, a company anticipates $150,000 of fixed costs and $123,000 of variable costs. The flexible budget amounts of fixed and variable costs for 10,000 units are:

Which department is often responsible for the direct materials price variance?

A flexible budget performance report compares the differences between:

A planning budget based on a single predicted amount of sales or production volume is called a:

Kyle, Inc. has collected the following data on one of its products. The actual cost of the direct materials used is:

A company's flexible budget for 10,000 units of production reflects sales of $200,000; variable costs of $40,000; and fixed costs of $75,000. Calculate the expected level of operating income if the company produces and sells 13,000 units.

An internal report that helps management analyze the difference between actual performance and budgeted performance based on the actual sales volume (or other level of activity) , and which presents the differences between actual and budgeted amounts as variances, is called a(n) :

Based on a predicted level of production and sales of 12,000 units, a company anticipates reporting operating income of $26,000 after deducting variable costs of $72,000 and fixed costs of $10,000. Based on this information, the budgeted amounts of fixed and variable costs for 15,000 units would be:

Standard costs are used in the calculation of: