cost-accounting-test-bank-chapter-7

Cost Accounting, 15e (Horngren/Datar/Rajan)Chapter 7 Flexible Budgets, Direct-Cost Variances, and Management ControlObjective 7.11) A master budget is _.A) a budget which starts from a zero baseB) developed for a period for a planned outputC) developed at the end of a period D) a type of flexible budget Answer: BDiff: 1Objective: 1AACSB: Analytical thinking2) Management by exception is a practice whereby managers focus more closely on _. A) a static budget B) areas that are not operating as anticipated C) activity-based costingD) exceptional decision-making modelsAnswer: BDiff: 1Objective: 1AACSB: Analytical thinking3) A variance is _.A) the difference between actual fixed cost per unit and standard variable cost per unitB) the standard units of inputs for one output C) the difference between an actual result and a budgeted performanceD) the difference between actual variable cost per unit and standard fixed cost per unit Answer: CDiff: 1Objective: 1AACSB: Analytical thinking4) An unfavorable variance indicates that _.A) the actual costs are less than the budgeted costs B) the actual revenues exceed the budgeted revenues C) the actual units sold are less than the budgeted unitsD) the budgeted contribution margin is more than the actual amount Answer: CDiff: 2Objective: 1AACSB: Analytical thinking5) A favorable variance indicates that _.A) budgeted costs are less than actual costs B) actual revenues exceed budgeted revenues C) actual operating income is less than the budgeted amount D) budgeted contribution margin is more than the actual amount Answer: BDiff: 2Objective: 1AACSB: Analytical thinkingAnswer the following questions using the information below: Lander Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit.ActualBudgetedUnits sold41,000 units40,000 unitsVariable costs$164,000$156,000Fixed costs$46,000$48,0006) What is the static-budget variance of revenues? A) $18,000 favorable B) $18,000 unfavorable C) $6,000 favorable D) $4,000 unfavorable Answer: AExplanation: A) Static-budget variance of revenues = (41,000 units $18) - (40,000 units $18) = $18,000 FDiff: 2Objective: 1AACSB: Application of knowledge7) What is the static-budget variance of variable costs? A) $2,000 favorable B) $8,000 unfavorable C) $4,000 favorable D) $6,000 unfavorable Answer: BExplanation: B) Static-budget variance of variable costs = $164,000 $156,000 = $8,000 UDiff: 2Objective: 1AACSB: Application of knowledge8) What is the static-budget variance of operating income? A) $10,000 favorable B) $10,000 unfavorable C) $12,000 favorable D) $12,000 unfavorable Answer: CExplanation: C) ActualStatic Static-budgetResultsBudgetVarianceUnits sold41,00040,000Revenues$738,000$720,000$18,000FVariable costs164,000156,0008,000UContribution margin$574,000$564,00010,000FFixed costs46,00048,0002,000FOperating income$528,000$516,000$12,000FDiff: 3Objective: 1AACSB: Application of knowledgeAnswer the following questions using the information below: Contrafic Corporation used the following data to evaluate its current operating system. The company sells items for $21 each and used a budgeted selling price of $21 per unit.ActualBudgetedUnits sold180,000 units185,000 unitsVariable costs$1,080,000$1,295,000Fixed costs$ 800,000$ 775,0009) What is the static-budget variance of revenues? A) $105,000 favorable B) $105,000 unfavorable C) $8,000 favorable D) $8,000 unfavorable Answer: BExplanation: B) Static-budget variance of revenues = (180,000 units $21) (185,000 units $21) = $105,000 UDiff: 2Objective: 1AACSB: Application of knowledge10) What is the static-budget variance of variable costs? A) $25,000 favorable B) $25,000 unfavorable C) $215,000 favorable D) $215,000 unfavorable Answer: CExplanation: C) Static-budget variance of variable costs = $1,080,000 $1,295,000 = $215,000 FDiff: 2Objective: 1AACSB: Application of knowledge11) What is the static-budget variance of operating income? A) $85,000 favorable B) $90,000 unfavorable C) $110,000 favorable D) $105,000 unfavorable Answer: AExplanation: A) ActualStaticStatic-budgetResultsBudgetVarianceUnits sold180,000185,000Revenues$3,780,000$3,885,000$(105,000)UVariable costs1,080,0001,295,000(215,000)FContribution margin$2,700,000$2,590,000110,000FFixed costs800,000775,00025,000UOperating income$1,900,000$1,815,000$85,000FDiff: 3Objective: 1AACSB: Application of knowledgeAnswer the following questions using the information below: Coroid Corporation used the following data to evaluate their current operating system. The company sells items for $11 each and had used a budgeted selling price of $12 per unit.ActualBudgetedUnits sold280,000 units275,000 unitsVariable costs$900,000$885,000Fixed costs$ 55,000$ 52,00012) What is the static-budget variance of revenues? A) $55,000 favorable B) $220,000 favorable C) $220,000 unfavorable D) $55,000 unfavorable Answer: CExplanation: C) Static-budget variance of revenues = (280,000 units $11) (275,000 units $12) = $220,000 UDiff: 2Objective: 1AACSB: Application of knowledge13) What is the static-budget variance of variable costs? A) $12,000 favorable B) $12,000 unfavorable C) $15,000 favorable D) $15,000 unfavorable Answer: DExplanation: D) Static-budget variance of variable costs = $900,000 $885,000 = $15,000 UDiff: 2Objective: 1AACSB: Application of knowledge14) What is the static-budget variance of operating income? A) $238,000 favorable B) $238,000 unfavorable C) $235,000 favorable D) $235,000 unfavorable Answer: BExplanation: B) ActualStaticStatic-budgetResultsBudgetVarianceUnits sold280,000275,000Revenues$3,080,000$3,300,000$(220,000)UVariable costs900,000885,000(15,000)UContribution margin $2,180,000$2,415,000235,000UFixed costs55,00052,0003,000UOperating income$2,125,000$2,363,000$238,000UDiff: 3Objective: 1AACSB: Application of knowledge15) Regier Company had planned for operating income of $10 million in the master budget but actually achieved operating income of only $7 million. A) The static-budget variance for operating income is $3 million favorable. B) The static-budget variance for operating income is $3 million unfavorable. C) The flexible-budget variance for operating income is $3 million favorable. D) The flexible-budget variance for operating income is $3 million unfavorable. Answer: BDiff: 2Objective: 1AACSB: Analytical thinking16) A master budget is called a static budget because it is developed around a single planned output level.Answer: TRUEDiff: 1Objective: 1AACSB: Analytical thinking17) When considered in isolation, a favorable variance decreases operating income relative to the budgeted amount.Answer: FALSEExplanation: When considered in isolation, a favorable variance increases operating income relative to the budgeted amount.Diff: 2Objective: 1AACSB: Application of knowledge18) A variance is the difference between the actual cost for the current and expected (or budgeted) performance.Answer: TRUEDiff: 2Objective: 1AACSB: Analytical thinking19) A favorable variance results when actual costs exceed budgeted costs.Answer: FALSEExplanation: An unfavorable variance results when actual costs exceed budgeted costs.Diff: 2Objective: 1AACSB: Analytical thinking20) Management by exception is the practice of concentrating on areas not operating as anticipated (such as a cost overrun) and placing less attention on areas operating as anticipated. Answer: TRUEDiff: 1Objective: 1AACSB: Analytical thinking21) A favorable variance indicates that budgeted costs are less than actual costs.Answer: FALSEExplanation: A favorable variance indicates that budgeted costs are greater than actual costs.Diff: 2Objective: 1AACSB: Analytical thinking22) A favorable variance should be ignored by management. Answer: FALSEExplanation: Favorable variance investigation may lead to improved production methods, other discoveries for future opportunities, or not be good news at all and adversely affect other variances.Diff: 1Objective: 1AACSB: Analytical thinking23) Variances are used for evaluating performance and for motivating managers. Answer: TRUEDiff: 2Objective: 1AACSB: Analytical thinking24) Static-budget variance for operating income is calculated by taking a difference between static-budget operating income and actual operating income.Answer: TRUEDiff: 2Objective: 1AACSB: Analytical thinking25) Explain the difference between a static budget and a flexible budget. Explain what is meant by a static budget variance and a flexible budget variance. Answer: A static budget is one based on the level of output planned at the start of the budget period. A flexible budget calculates budgeted revenue and budgeted costs based on the actual output in the budget period. The only difference between the static budget and the flexible budget is that the static budget is prepared for the planned output, whereas the flexible budget is prepared based on the actual output. A static budget variance is the difference between the actual results and the corresponding budgeted amounts in the static budget. A flexible-budget variance is the difference between an actual result and the corresponding flexible-budget amount based on the actual output in the budget period. Diff: 2Objective: 1AACSB: Analytical thinkingObjective 7.21) The flexible budget contains _.A) budgeted amounts for actual output B) budgeted amounts for planned output C) actual costs for actual output D) actual costs for planned output Answer: ADiff: 1Objective: 2AACSB: Analytical thinking2) Which of the following items will be same for a flexible budget and a master budget? A) total variable cost B) total fixed costs C) total contribution marginD) total revenuesAnswer: BDiff: 2Objective: 2AACSB: Analytical thinking3) A flexible budget _.A) is another name for management by exception B) is developed at the end of the period C) is based on the budgeted level of output D) provides favorable operating results Answer: BDiff: 1Objective: 2AACSB: Analytical thinking4) Which of the following elements are used in calculating revenue in a flexible budget? A) budgeted selling price and actual quantity of outputB) actual selling price and budgeted quantity of outputC) budgeted selling price and budgeted quantity of outputD) actual selling price and actual quantity of outputAnswer: ADiff: 2Objective: 2AACSB: Analytical thinking5) An unfavorable flexible-budget variance for variable costs may be the result of _.A) using more input quantities than were budgeted B) paying lower prices for inputs than were budgeted C) selling output at a higher selling price than budgeted D) selling less quantity compared to the budgeted Answer: ADiff: 3Objective: 2AACSB: Analytical thinking6) In a flexible budget _.A) variable costs are calculated proportionately for the budgeted level of salesB) fixed costs are calculated proportionately for the actual level of salesC) fixed costs are kept at the same level of static budgetD) variable costs are kept at the same level of static budgetAnswer: CDiff: 2Objective: 2AACSB: Analytical thinking7) Which of the following information is needed to prepare a flexible budget? A) actual units sold B) actual variable cost C) actual selling price per unit D) actual fixed costAnswer: ADiff: 3Objective: 2AACSB: Analytical thinking8) Which of the following is true of flexible budget?A) It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.B) It calculates total fixed cost by multiplying actual units by budgeted fixed cost per unit.C) It calculates revenues by multiplying budgeted units by actual selling price per unit.D) It calculates contribution margin by multiplying budgeted units by actual contribution margin per unit.Answer: ADiff: 2Objective: 2AACSB: Analytical thinking9) A flexible-budget variance is $600 favorable for unit-related costs. This indicates that costs were _.A) $600 more than the master budget B) $600 less than for the planned level of activity C) $600 more than standard for the achieved level of activity D) $600 less than standard for the achieved level of activity Answer: DDiff: 2Objective: 2AACSB: Analytical thinkingAnswer the following questions using the information below: Domose Inc. planned to use $150 of material per unit but actually used $147 of material per unit, and planned to make 1,100 units but actually made 900 units.10) The flexible-budget amount for materials is _.A) $165,000 B) $135,000C) $161,700 D) $132,300Answer: BExplanation: B) 900 units $150 = $135,000Diff: 2Objective: 2AACSB: Application of knowledge11) The flexible-budget variance for materials is _.A) $2,700 favorable B) $2,700 unfavorable C) $3,300 unfavorable D) $3,300 favorable Answer: AExplanation: A) ($147 $150) 900 = $2,700 FDiff: 2Objective: 2AACSB: Application of knowledge12) The sales-volume variance for materials is _.A) $2,700 favorable B) $29,400 unfavorable C) $30,000 unfavorable D) $2,700 unfavorable Answer: CExplanation: C) (900 1,100) $150 = $30,000 UDiff: 2Objective: 2AACSB: Application of knowledge13) Dynozz Corporation currently produces cardboard boxes in an automated process. Expected production per month is 15,000 units, direct material costs are $0.50 per unit, and manufacturing overhead costs are $15,000 per month. Manufacturing overhead is all fixed costs. What are the flexible budget for 10,000 and 15,000 units, respectively?A) $15,000; $22,500 B) $15,000; $17,500 C) $20,000; $22,500 D) $20,000; $17,500Answer: CExplanation: C) 10,000 units15,000 unitsMaterials ($0.50)$ 5,000$7,500Machinery15,00015,000Flexible Budgets$20,000$22,500Diff: 2Objective: 2AACSB: Application of knowledgeAnswer the following questions using the information below: Dynondo Incorporated planned to use materials of $12 per unit but actually used materials of $13 per unit, and planned to make 1,500 units but actually made 1,800 units.14) The flexible-budget amount for materials is _.A) $18,000 B) $19,500 C) $21,600 D) $23,400 Answer: CExplanation: C) 1,800 units $12 = $21,600Diff: 2Objective: 2AACSB: Application of knowledge15) The flexible-budget variance for materials is _.A) $1,500 favorable B) $1,800 unfavorable C) $1,500 unfavorable D) $1,800 favorable Answer: BExplanation: B) ($13 $12) 1,800 = $1,800 UDiff: 2Objective: 2AACSB: Application of knowledge16) The sales-volume variance for materials is _. A) $3,600 favorable B) $3,900 unfavorable C) $3,600 unfavorable D) $3,900 favorable Answer: AExplanation: A) (1,800 1,500) $12 = $3,600 FDiff: 2Objective: 2AACSB: Application of knowledgeAnswer the following questions using the information below: Aurous Incorporated planned to use $35 of material per unit but actually used $34 of material per unit, and planned to make 1,500 units but actually made 1,300 units.17) The flexible-budget amount for materials is _.A) $45,500 B) $52,500C) $51,000D) $44,200 Answer: AExplanation: A) 1,300 units $35 = $45,500Diff: 2Objective: 2AACSB: Application of knowledge18) The flexible-budget variance for materials is _.A) $1,500 favorable B) $1,500 unfavorable C) $1,300 unfavorable D) $1,300 favorable Answer: DExplanation: D) ($34 $35) 1,300 = $1,300 FDiff: 2Objective: 2AACSB: Application of knowledge19) The sales-volume variance for materials is _.A) $7,000 favorable B) $7,000 unfavorable C) $6,800 unfavorable D) $6,800 favorable Answer: BExplanation: B) (1,300 1,500) $35 = $7,000 UDiff: 2Objective: 2AACSB: Application of knowledge20) Lunicious Corporation currently produces baseball caps in an automated process. Expected production per month is 15,000 units, direct material costs are $3.50 per unit, and manufacturing overhead costs are $40,000 per month. Manufacturing overhead is entirely fixed costs. What is the flexible budget for 12,000 and 15,000 units, respectively? A) $74,000; $92,500B) $74,000; $84,500 C) $82,000; $92,500 D) $82,000; $84,500Answer: CExplanation: C) 12,000 units15,000 unitsMaterials ($3.00)$42,000$52,500Machinery40,00040,000Flexible Budget $82,000$92,500Diff: 2Objective: 2AACSB: Application of knowledgeAnswer the following questions using the information below: The actual information pertains to the month of September. As a part of the budgeting process, Twilith Fencing Company developed the following static budget for September. Twilith is in the process of preparing the flexible budget and understanding the results.Ac