Questions and Answers
Budget _____ compare actual results to budgeted results.
report
The fixed budget indicates sales of $50,000. Actual sales were $55,000. What is the variance?
$5,000 favorable
A flexible budget prepared (______/after) the period begins allows management to make adjustments to increase profits or decrease losses.
before
Standard costs have which of the following characteristics? (Check all that apply)
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All of the following individuals work to help set standard costs:
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Budget reports are commonly prepared for: (Check all that apply)
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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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Which of the following is the correct formula?
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A flexible budget has which of the following characteristics?
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Preset costs for delivering a product or service under normal conditions are called ______ costs.
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ABC Company has set the following standards for one unit of product... Compute the direct materials price variance.
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Costs developed which identify what products should cost are called?
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XYZ Company makes one product and has calculated the following for direct labor... Compute the direct labor cost variance.
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Which of the following are examples of an overhead allocation base?
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The overhead variance is the difference between:
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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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A manufacturing company has an unfavorable volume variance. Which statement is true?
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XYZ Company makes one product and has calculated the following amounts for direct materials...Compute the direct materials price variance.
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A company had a standard sales price of $1.79 per unit... Calculate the sales price variance.
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ABC Company has set the following standards for one unit of product... Compute the direct labor variance.
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Step 1 of computing a standard overhead rate is to:
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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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The difference between the actual amount paid and the standard price paid to purchase an overhead item is called a:
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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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At the end of the accounting period, if the net amount of the variances is immaterial, the variance accounts are closed to:
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Actual sales volume for a period is 5,000 units... What is the sales price variance?
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The accounting department of a manufacturing company is a(n):
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XYZ Company makes one product and has calculated the following amounts for direct labor... Compute the direct labor cost variance.
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Reports to ______ managers are usually less detailed because they need to concentrate on the key issues.
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A(n) ________ variance occurs when management pays an amount different from the standard price to acquire an overhead item.
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Profit centers commonly use _____ to report profit center performance:
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When recording journal entries for production costs using a standard cost accounting system, the debit to Work in Process Inventory is for the ______ amount.
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Controllable costs are the same as direct costs.
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A department that incurs costs without generating revenues is considered a(n):
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A retail store has 10,000 square feet of space... What is the amount of rent allocated to Department A?
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An example of a cost that a department manager would not control is:
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A responsibility accounting performance report contains which of the following items? (Check all that apply)
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A departmental contribution to overhead report is based on:
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Decisions related to allocating expenses include: (Check all that apply)
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If a company has $2,000,000 in average assets... What income does the company need to earn?
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Property insurance matches:
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A company incurs advertising costs of $10,000... What is the amount of advertising allocated to Department 3?
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During the period, a company reports Sales of $48,000... What is the profit margin?
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Departmental income statements include:
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Some disadvantages of relying solely on financial measures include that: (Check all that apply)
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Which report is more effective in evaluating the performance of profit centers?
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A manufacturing division has average assets of $1,800,000 and income of $720,000... What is the division's return on investment?
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The balanced scorecard is a unique system of performance measures in that it: (Check all that apply)
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Transfer prices: (Check all that apply)
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During the period, a company reports Sales of $38,000... What is the profit margin?
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The cash conversion cycle is computed as:
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Evaluating a manager's performance based solely on financial measures has limitations. Therefore, companies should consider using ------- measures to help evaluate manager performance.
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Costs which are incurred to produce two or more products at the same time are called _____ costs:
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Financial matches:
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Transfer pricing can use the following approaches:
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The ______ conversion cycle measures the average time it takes to convert cash outflows into cash inflows.
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Costs incurred to produce or purchase two or more products at the same time are called ______ costs.
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Study Notes
Budgeting and Variances
- A budget report compares actual financial results to budgeted figures to assess performance.
- Fixed budget forecasts sales of $50,000; with actual sales at $55,000, the $5,000 variance is deemed favorable.
- Flexible budgets are prepared before a period begins, allowing adjustments to optimize profits.
Standard Costs
- Standard costs are preset costs for delivering products/services under normal conditions.
- Characteristics include involvement of production managers, utilization to analyze variances, and application across manufacturing.
- Standard costs help define the expected inputs (Standard Quantity) and prices (Standard Price).
Cost Analysis
- Key personnel in setting standard costs include engineers, purchasing managers, and managerial accountants.
- Budget reports are often prepared for a month, quarter, or year.
- Favorable variance signifies higher than expected income; unfavorable signifies less.
Variance Formulas
- Cost variance formula: Cost variance = (AQ x AP) - (SQ x SP), where AQ = Actual Quantity, AP = Actual Price, SQ = Standard Quantity, SP = Standard Price.
- An overhead variance differentiates actual overhead from standard overhead applied.
Specific Variance Calculations
- Direct materials price variance for ABC Company is $720 favorable based on standard versus actual costs.
- Direct labor cost variance for XYZ Company is $1,000 favorable.
- Direct labor variances are defined as the difference between actual quantity of input used versus standard quantity expected.
Sales Price and Volume Variances
- Sales price variance calculated as the difference between actual and budgeted sales prices multiplied by actual volume sold.
- An unfavorable volume variance indicates not achieving the forecasted operating level.
Management Reports and Performance Evaluation
- Management reports, like departmental contribution to overhead reports, provide insights for profit center performance.
- Reports to upper-level managers focus on key issues and are usually less detailed.
Responsibility and Performance Accounting
- Cost centers incur costs without generating revenue; profit centers generate income.
- Volume variances due to production levels need investigation; they affect overall performance assessments.
Key Financial Measures
- Profit margin is calculated as the income over sales (Income/Sales); an example yields a profit margin of 5.2%.
- Cash conversion cycle measures efficiency in converting cash outflows to inflows.
Transfer Prices and Expense Allocation
- Transfer prices affect division income, are internal to the same company, and can be market-based or cost-based.
- Expense allocations include direct and indirect costs, with advertisements allocated based on sales percentages.
Non-Financial Performance Measurement
- Companies should balance financial measures with non-financial metrics for comprehensive performance assessment.
- Limitations of exclusively financial evaluations highlight the need for broader measurement perspectives.
Joint Costs
- Costs incurred to produce multiple products simultaneously are referred to as joint costs.
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Description
Test your knowledge on budgeting concepts, variances, and cost analysis. This quiz covers fixed and flexible budgets, standard costs, and the implications of favorable and unfavorable variances. Ideal for finance and accounting students looking to enhance their understanding.
