Questions and Answers
Budget _________ compare actual results to budgeted results.
reports
What is the variance when the fixed budget indicates sales of $50,000 and actual sales were $55,000?
$5,000 favorable
A flexible budget has which of the following characteristics? (Select all that apply)
At a sales volume of 50 units, budgeted direct materials will be $ _______.
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At a sales volume of 60 units, budgeted direct materials will be $ _______.
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True or false: A flexible budget reporting sales volumes at three different levels will have the same fixed costs.
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Budget reports are commonly prepared for which of the following time periods? (Select all that apply)
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What is the first step in preparing a flexible budget?
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When compared to the budgeted amount, if the actual cost or revenue contributes to a higher income, then the variance is considered ___________.
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Preset costs for delivering a product or service under normal conditions are called ___________ costs.
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A flexible budget prepared (before/after)____________ the period begins allows management to make adjustments to increase profits or decrease losses.
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What are costs developed which identify what products should cost called?
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At a sales volume of 50 units, budgeted sales will be $ __________.
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At a sales volume of 60 units, budgeted sales will be $____________.
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If a company budgets administrative salaries at $5,000 at a sales level of 1,000 units, what will be the budgeted administrative salaries at a sales level of 1,200 units?
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Match the cost variance component to its definition.
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When preparing a flexible budget, variable costs are expressed as a constant amount _____, and fixed costs are expressed as a constant amount _____.
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A ____________ variance is the difference between the actual quantity of input used and the standard quantity of input that should have been used.
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Standard costs have which of the following characteristics? (Select all that apply)
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Compute the direct materials price variance given ABC Company's data.
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Which individuals typically help to set standard costs? (Select all that apply)
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Compute the direct labor variance given ABC Company's production data.
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Compute the direct labor rate variance given ABC Company's production data.
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What is the correct formula for cost variance?
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The main factors that can cause a variance include which of the following? (Select all that apply)
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Compute the direct materials price variance given XYZ Company's calculated amounts.
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Compute the direct labor cost variance given XYZ Company's calculated amounts.
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The standard overhead rate is computed separately for which types of costs? (Select all that apply)
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The overhead variance is the difference between what and what?
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A company has budgeted total overhead at actual units produced of $10,400 and actual total overhead of $12,000. What is the controllable variance?
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Why is the controllable variance so called?
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Step 1 of computing a standard overhead rate is to:
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Management uses a(n) _____________ budget to establish the standard overhead rate.
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True or false: A manufacturing company has an unfavorable volume variance. Therefore, the company reached its predicted operating level.
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The standard overhead applied is based on the _________ level of activity multiplied by the predetermined overhead rate.
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A company had a standard sales price of $1.79 per unit and expected to sell 10,000 units. Due to a downturn in the economy, the product was marked down to $1.59 per unit. What is the sales price variance?
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A company has budgeted total overhead of $10,575 at actual units produced and actual total overhead of $9,775. What is the controllable variance?
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The controllable variance is the difference between the actual total overhead and what?
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Which of the following are examples of an overhead allocation base? (Select all that apply)
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True or false: Volume variances are due to not producing at the predicted (expected) activity level. Therefore, the volume variance does not need to be investigated.
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What is the sales price variance when actual sales volume for a period is 5,000 units, budgeted sales volume is 4,500, actual selling price per unit is $15, and budgeted price per unit is $15.75?
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Study Notes
Budgeting and Variances
- Budget reports compare actual results to budgeted results.
- A fixed budget indicates sales of $50,000; actual sales of $55,000 create a $5,000 favorable variance.
- Flexible budgets evaluate past performance and compare various activity levels.
- A flexible budget prepared before the period begins allows for adjustments to maximize profits or minimize losses.
Costs and Sales
- Direct materials cost $1.80 per unit; Budgeted sales at 50 and 60 units yield direct material costs of $90 and $108 respectively.
- Budgeted administrative salaries remain $5,000 regardless of a change in sales volume from 1,000 to 1,200 units.
Variance Calculations
- Variance considered favorable if actual contributions lead to higher income.
- Standard costs identify expected costs for products/services under normal conditions.
- Direct materials price variance computed from actual quantity and price, resulting in $720 favorable for the ABC Company example.
- Direct labor variance for ABC Company calculated as $24,400 unfavorable based on actual hours and pay.
- Formula for cost variance is Cost Variance = (AQ x AP) - (SQ x SP).
Overhead and Efficiency
- Overhead allocation bases include machine hours and direct labor hours, with standard overhead rates calculated for both fixed and variable costs.
- The overhead variance reflects actual total overhead versus standard overhead applied.
Sales Price Variance
- A company with a standard sales price of $1.79, sold at a markdown of $1.59 and sold 9,500 units, leading to a sales price variance of $1,900 unfavorable.
Control and Management
- Controllable variance indicates deviations due to management's operational control.
- The actual sales volume of 5,000 against a budgeted 4,500 results in a sales price variance of $3,750.
Standards and Reporting
- Standard costs help management analyze variances; production managers play a role in determining production requirements.
- Volume variances highlight performance discrepancies that should be investigated, even if unfavorable.
Fixed and Variable Costs
- Variable costs are recorded as a constant amount per unit, while fixed costs remain total regardless of activity levels.
- Cost management requires understanding both quantity and price variances for effective financial performance.
Studying That Suits You
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Description
Test your knowledge with these flashcards on Chapter 21 of ACCT 202. The quiz covers key concepts in budgeting, variances, and flexible budgets. Perfect for students looking to reinforce their understanding of accounting principles.
