Budgeting and Costing Principles
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Questions and Answers

What is a primary difference between absorption costing and variable costing?

  • Variable costing includes fixed manufacturing costs in inventory.
  • Absorption costing only accounts for direct materials in product costs.
  • Variable costing provides a more comprehensive view of company performance.
  • Absorption costing includes fixed manufacturing costs in inventory. (correct)

    • In preparing a production budget, which of the following formulas is correct for determining desired production?

  • Desired Production = (Sales + Desired Ending Inventory) x Beginning Inventory.
  • Desired Production = Total Sales - Desired Ending Inventory.
  • Desired Production = Sales + Desired Ending Inventory - Beginning Inventory. (correct)
  • Desired Production = Sales - Beginning Inventory + Total Sales.

    • What is the role of a cash budget in the budgeting process?

  • It projects the direct materials purchases needed for production.
  • It summarizes overall sales figures for each department.
  • It lists the production costs and reconciles actual and budgeted expenses.
  • It summarizes the cash effects of all other budgets to determine borrowing needs. (correct)

    • Which statement accurately describes segment reporting?

    <p>It presents information that helps evaluate the performance of individual segments.</p> Signup and view all the answers

    What is the first step in the budgeting process according to typical practices?

    <p>Sales budget.</p> Signup and view all the answers

    What is the primary advantage of using a flexible budget over a static budget?

    <p>It adjusts budget items based on actual activity levels.</p> Signup and view all the answers

    What are activity variances primarily concerned with?

    <p>Analyzing differences in costs associated with different activity levels.</p> Signup and view all the answers

    Which type of variance would involve comparing actual spending to budgeted spending?

    <p>Spending variances</p> Signup and view all the answers

    What is a significant limitation of static budgets?

    <p>They do not consider changes in external economic conditions.</p> Signup and view all the answers

    How does revenue variance differ from spending variance?

    <p>Revenue variance focuses on income, while spending variance focuses on expenses.</p> Signup and view all the answers

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