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Budgeting and Variances Quiz
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Budgeting and Variances Quiz

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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)

<p>They are preset costs for delivering a product or service under normal conditions</p> Signup and view all the answers

All of the following individuals work to help set standard costs:

<p>Engineers</p> Signup and view all the answers

Budget reports are commonly prepared for: (Check all that apply)

<p>A quarter</p> Signup and view all the answers

When compared to the budgeted amount, if the actual cost or revenue contributes to a higher income, then the variance is considered.

<p>favorable</p> Signup and view all the answers

Which of the following is the correct formula?

<p>Cost variance = (AQ x AP) - (SQ x SP)</p> Signup and view all the answers

A flexible budget has which of the following characteristics?

<p>Often based on several levels of activity, Useful to compare what-if scenarios, Useful for evaluating past performance</p> Signup and view all the answers

Preset costs for delivering a product or service under normal conditions are called ______ costs.

<p>standard</p> Signup and view all the answers

ABC Company has set the following standards for one unit of product... Compute the direct materials price variance.

<p>$720 F</p> Signup and view all the answers

Costs developed which identify what products should cost are called?

<p>Standard costs</p> Signup and view all the answers

XYZ Company makes one product and has calculated the following for direct labor... Compute the direct labor cost variance.

<p>$1,000 U</p> Signup and view all the answers

Which of the following are examples of an overhead allocation base?

<p>Machine hours</p> Signup and view all the answers

The overhead variance is the difference between:

<p>actual total overhead and the standard overhead applied</p> Signup and view all the answers

A ______ variance is the difference between the actual quantity of input used and the standard quantity of input that should have been used.

<p>quantity</p> Signup and view all the answers

A manufacturing company has an unfavorable volume variance. Which statement is true?

<p>The company did not reach its predicted operating level.</p> Signup and view all the answers

XYZ Company makes one product and has calculated the following amounts for direct materials...Compute the direct materials price variance.

<p>$5,000 U</p> Signup and view all the answers

A company had a standard sales price of $1.79 per unit... Calculate the sales price variance.

<p>$1,900 U</p> Signup and view all the answers

ABC Company has set the following standards for one unit of product... Compute the direct labor variance.

<p>$24,400 U</p> Signup and view all the answers

Step 1 of computing a standard overhead rate is to:

<p>Determine an allocation base</p> Signup and view all the answers

The standard overhead applied is based on the ______ level of activity multiplied by the predetermined overhead rate.

<p>Actual</p> Signup and view all the answers

The difference between the actual amount paid and the standard price paid to purchase an overhead item is called a:

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

Volume variances are due to not producing at the predicted (expected) activity level. Therefore, the volume variance does not need to be investigated.

<p>False</p> Signup and view all the answers

At the end of the accounting period, if the net amount of the variances is immaterial, the variance accounts are closed to:

<p>Cost of Goods Sold</p> Signup and view all the answers

Actual sales volume for a period is 5,000 units... What is the sales price variance?

<p>$3,750</p> Signup and view all the answers

The accounting department of a manufacturing company is a(n):

<p>Cost center</p> Signup and view all the answers

XYZ Company makes one product and has calculated the following amounts for direct labor... Compute the direct labor cost variance.

<p>$1,000 U</p> Signup and view all the answers

Reports to ______ managers are usually less detailed because they need to concentrate on the key issues.

<p>Upper-level</p> Signup and view all the answers

A(n) ________ variance occurs when management pays an amount different from the standard price to acquire an overhead item.

<p>spending</p> Signup and view all the answers

Profit centers commonly use _____ to report profit center performance:

<p>Departmental income statements</p> Signup and view all the answers

When recording journal entries for production costs using a standard cost accounting system, the debit to Work in Process Inventory is for the ______ amount.

<p>Standard</p> Signup and view all the answers

Controllable costs are the same as direct costs.

<p>False</p> Signup and view all the answers

A department that incurs costs without generating revenues is considered a(n):

<p>Cost center</p> Signup and view all the answers

A retail store has 10,000 square feet of space... What is the amount of rent allocated to Department A?

<p>$1,000.00</p> Signup and view all the answers

An example of a cost that a department manager would not control is:

<p>The manager's own salary</p> Signup and view all the answers

A responsibility accounting performance report contains which of the following items? (Check all that apply)

<p>Budgeted amounts</p> Signup and view all the answers

A departmental contribution to overhead report is based on:

<p>Controllable costs</p> Signup and view all the answers

Decisions related to allocating expenses include: (Check all that apply)

<p>How to allocate indirect expenses</p> Signup and view all the answers

If a company has $2,000,000 in average assets... What income does the company need to earn?

<p>$600,000</p> Signup and view all the answers

Property insurance matches:

<p>Choice Indirect</p> Signup and view all the answers

A company incurs advertising costs of $10,000... What is the amount of advertising allocated to Department 3?

<p>$5,000</p> Signup and view all the answers

During the period, a company reports Sales of $48,000... What is the profit margin?

<p>5.2%</p> Signup and view all the answers

Departmental income statements include:

<p>Direct and indirect expenses</p> Signup and view all the answers

Some disadvantages of relying solely on financial measures include that: (Check all that apply)

<p>Residual income is not as useful when comparing investment centers of different sizes.</p> Signup and view all the answers

Which report is more effective in evaluating the performance of profit centers?

<p>Departmental contribution to overhead reports</p> Signup and view all the answers

A manufacturing division has average assets of $1,800,000 and income of $720,000... What is the division's return on investment?

<p>40</p> Signup and view all the answers

The balanced scorecard is a unique system of performance measures in that it: (Check all that apply)

<p>Has multiple perspectives.</p> Signup and view all the answers

Transfer prices: (Check all that apply)

<p>Are transfers within the same company.</p> Signup and view all the answers

During the period, a company reports Sales of $38,000... What is the profit margin?

<p>3.9%</p> Signup and view all the answers

The cash conversion cycle is computed as:

<p>Days' sales in accounts receivable plus days' sales in inventory minus days' payable outstanding</p> Signup and view all the answers

Evaluating a manager's performance based solely on financial measures has limitations. Therefore, companies should consider using ------- measures to help evaluate manager performance.

<p>nonfinancial or non financial</p> Signup and view all the answers

Costs which are incurred to produce two or more products at the same time are called _____ costs:

<p>Joint</p> Signup and view all the answers

Financial matches:

<p>What do our owners think of us?</p> Signup and view all the answers

Transfer pricing can use the following approaches:

<p>Negotiated price</p> Signup and view all the answers

The ______ conversion cycle measures the average time it takes to convert cash outflows into cash inflows.

<p>cash</p> Signup and view all the answers

Costs incurred to produce or purchase two or more products at the same time are called ______ costs.

<p>joint</p> Signup and view all the answers

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.

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