Chapter 9: Flexible Budgets

Question 1

The variance analysis cycle _____

Answer 1

begins with the preparation of performance reports

Question 2

A budget that is prepared at the beginning of the period for a specific level of activity is called a ______ budget.

Answer 2

planning

Question 3

A flexible budget shows what budgeted amounts should have been at the actual level of activity. As a result of this change in activity, the flexible budget will show a change in total _____

Answer 3

• variable cost
• revenue

Question 4

Fancy Nail’s monthly rent is $2,500. The company’s static budget for March was based on the activity level of 2,000 manicures. Total sales was budgeted at $40,000 and nail technician wages (a variable cost based on the number of manicures) was budgeted at $20,000. Actual manicures in March totaled 2,200. Assuming no other expenses, Fancy Nails’ flexible budget will show _____

Answer 4

• net operating income of $19,500
• sales of $44,000

Question 5

The difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period is called a(n) _____ variance.

Answer 5

revenue

Question 6

Companies use the _____ cycle to evaluate and improve performance.

Answer 6

variance analysis

Question 7

A(n) _____ planning budget is suitable for planning but is inappropriate for evaluating how well costs are controlled.

Answer 7

static

Question 8

When preparing a flexible budget, the level of activity _____

Answer 8

affects variable costs only

Question 9

If the planned budget revenue for 5,000 units is $120,000, the flexible budget revenue for 4,500 units is _____

Answer 9

$108,000

Question 10

A revenue variance is the _____

Answer 10

difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period

Question 11

Planning budgets are sometimes called ______ budgets.

Answer 11

static

Question 12

Estimates of what revenues and costs should have been based on the actual level of activity are shown on the _____ budget

Answer 12

flexible

Question 13

The planning budget, based on 1,000 units, shows revenue of $24,000 and $6,250 for supplies. A total of 1,200 units were actually produced and sold. The flexible budget will show _____

Answer 13

• $7,500 for supplies
• $28,800 revenue

Question 14

The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost is a(n) _____ variance.

Answer 14

spending

Question 15

Using multiple cost drivers on a flexible budget report will generally _____

Answer 15

increase accuracy

Question 16

Standards are ______.

Answer 16

• set for each major production input or task
• benchmarks for measuring performance
• compared to the actual quantities and costs of inputs

Question 17

The amount of direct materials that should be used for each unit of finished product, including an allowance for normal inefficiencies, such as scrap and spoilage is defined by the _____ _____ per unit

Answer 17

standard quantity

Question 18

If the activity level for the month is 4,000 units, actual revenue is $6,000, actual variable costs are $0.20 unit, and actual fixed costs total $500, which of the following are true?

Answer 18

• $1,300 in total costs
• $4,700 net income

Question 19

A spending variance is the:

Answer 19

difference between the actual amount of the cost and how much a cost should have been, given the actual level of activity

Question 20

To improve accuracy, variances on a flexible budget should generally be calculated using:

Answer 20

multiple cost drivers

Question 21

A benchmark used in measuring performance is called a(n) _____.

Answer 21

standard

Question 22

Which of the following are used to calculate the standard quantity per unit of direct materials?

Answer 22

• Allowance for normal scrap and spoilage.
• Direct materials requirements per unit of finished product.

Question 23

When 100% peak effort from the most skilled and efficient workers is assumed, the direct labor-hours required per unit is being set using _____ standards.

Answer 23

ideal

Question 24

The standard rate per unit that a company expects to pay for variable overhead equals the ______.

Answer 24

variable portion of the predetermined overhead rate

Question 25

The materials price variance is calculated using the ______ quantity of the input purchased.

Answer 25

actual

Question 26

The materials price variance is the difference between the actual price of materials ______.

Answer 26

and the standard price for materials with the difference multiplied by the actual quantity of materials

Question 27

The difference between the actual amount of materials used in production and the standard amount of materials allowed for the actual output, multiplied by the standard price per unit of materials is the materials _____ variance.

Answer 27

quantity

Question 28

The standard hours per unit include both direct and indirect labor hours.

Answer 28

false

Question 29

The standard cost for ______ manufacturing overhead is computed the same way as the standard cost for direct labor.

Answer 29

variable

Question 30

A price variance is the difference between the ______.

Answer 30

actual price and the standard price multiplied by the actual amount of the input

Question 31

(Actual cost per unit - standard cost per unit) × actual quantity = the materials _____ variance.

Answer 31

price

Question 32

The material quantity variance measures the difference between the _____ quantity of materials used in production and the _____ quantity of materials allowed for the actual output, multiplied by the standard price per unit of materials.

Answer 32

actual; standard

Question 33

The amount of direct labor-hours that should be used to produce one unit of finished goods is the _____ hours per unit.

Answer 33

standard

Question 34

The difference between the standard and the actual direct labor wages per hour is reflected in the labor _____ variance.

Answer 34

rate

Question 35

The difference between the actual hours used and the standard hours allowed for the actual output is used in the calculation of the labor _____ variance.

Answer 35

usage

Question 36

The labor rate variance measures the productivity of direct labor.

Answer 36

false

Question 37

Which statement regarding variable overhead variance analysis is true?

Answer 37

The variable overhead efficiency is calculated by multiplying the variance in the labor hours with the variable portion of the predetermined overhead rate.

Question 38

Most companies compute the material price variance when materials are ______ and the material quantity variance when materials are ______.

Answer 38

purchased, used

Question 39

In a standard costing system, variable and fixed overhead are applied to production using the ______ hours allowed for the ______ production.

Answer 39

standard; actual

Question 40

When direct labor is used as the overhead allocation base, the variable overhead efficiency variance ______.

Answer 40

is favorable when the direct labor efficiency variance is favorable

Question 41

Based on the following information, calculate the amount of overhead applied when using a standard costing system. Budgeted variable overhead $200,000 Budgeted fixed overhead $150,000 Estimated total machine-hours 25,000 Standard machine-hours for actual production 20,000 Actual machine-hours used 20,500

Answer 41

$280,000

Question 42

The materials price variance is generally calculated at the time materials are purchased because ______.

Answer 42

- it simplifies bookkeeping - it allows materials to be carried in the inventory accounts at standard cost - management can generate more timely variance reports

Question 43

In a standard cost system, overhead is applied using the standard hours allowed for the actual production.

Answer 43

true

Question 44

A normal cost system applies overhead to production on the basis of the _____ level of activity, while a standard costing system applies overhead on the basis of _____ hours allowed for the actual output.

Answer 44

actual; standard

Question 45

The calculation of the budget variance uses ______ overhead.

Answer 45

- actual fixed - budgeted fixed

Question 46

Based on the following information, the amount of overhead applied when using a standard cost system equals $_____ Budgeted variable overhead $100,000 Budgeted fixed overhead $50,000 Estimated total machine-hours 20,000 Standard machine-hours for actual production 18,000 Actual machine-hours used 17,500

Answer 46

135,000

Question 47

The volume variance is the difference between ______ fixed overhead.

Answer 47

budgeted and applied

Question 48

In a standard cost system, ______.

Answer 48

every unit of output is charged with the same amount of overhead cost

Question 49

The difference between the actual fixed overhead and the planned fixed overhead is called the _____ variance.

Answer 49

budget

Question 50

Graphic analysis of fixed overhead ______.

Answer 50

offers insight into overhead variances

Question 51

Which of the following statements are true?

Answer 51

- Treating fixed costs as variable is necessary for product costing. - Fixed costs are applied to work in process like they are variable costs.

Question 52

Budgeted fixed overhead - Fixed overhead applied to work in process is the calculation of the _____ variance.

Answer 52

volume

Question 53

In a standard cost system, overhead is applied on the basis of the _____ hours allowed for the _____ output of the period.

Answer 53

standard; actual

Question 54

Graphic analysis of fixed overhead offers insight into the fixed overhead ______.

Answer 54

budget and volume variances

Question 55

Which of the following statements are true?

Answer 55

- A fixed overhead volume variance results from treating fixed manufacturing costs as if they are variable. - Changes in activity have no impact on actual fixed costs within the relevant range. - Treating fixed costs as if they are variable can lead to bad decisions.

Question 56

The accounting equation is: _____ = _____ + Stockholders' Equity.

Answer 56

assets; liability

Question 57

The accounts impacted by closing standard cost variance clearing accounts are ______.

Answer 57

- cost of goods sold - retained earnings

Question 58

Volume variance = ______.

Answer 58

budgeted fixed overhead – fixed overhead applied to work in process

Question 59

If overhead is overapplied, the total of the standard cost overhead variances is _____.

Answer 59

favorable

Question 60

Standard cost variance accounts begin and end each accounting period with a balance of _____.

Answer 60

zero

Question 61

Favorable variances ______ retained earnings and unfavorable variances ______ retained earnings.

Answer 61

increase, decrease

Question 62

STP Inc. has a variable overhead rate variance of $4,000 U, a variable overhead efficiency variance of $1,500 F, a fixed overhead budget variance of $2,000 F and a fixed overhead volume variance of $10,000 U. From the information, it can be determined that overhead was ______.

Answer 62

underapplied