Ch9

Mongelli Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms. The Inn's overhead budget for the most recent month appears below: Activity level 90 guests Variable overhead costs: Supplies $234 Laundry 315 Fixed overhead costs: Utilities 220 Salaries and wages 4,290 Depreciation 2,680 Total overhead cost $7,739 The Inn's variable overhead costs are driven by the number of guests. What would be the total budgeted overhead cost for a month if the activity level is 99 guests? A) $7,793.90 B) $61,541.00 C) $8,512.90 D) $7,739.00

A) $7,793.90 Explanation: Variable cost per guest for supplies = $234 ÷ 90 guests = $2.60 per guest Variable cost per guest for laundry = $315 ÷ 90 guests = $3.50 per guest Guests (q) 99 Supplies ($2.60q) $257.40 Laundry ($3.50q) 346.50 Utilities ($220) 220.00 Salaries and wages ($4,290) 4,290.00 Depreciation 2,680.00 Total overhead cost $7,793.90

In a flexible budget, what will happen to fixed costs as the activity level increases? A) The fixed cost per unit will decrease. B) The fixed cost per unit will remain unchanged. C) The fixed cost per unit will increase. D) Fixed costs are not included in a flexible budget.

A) The fixed cost per unit will decrease.

Herlocker Corporation is a shipping container refurbishment company that measures its output by the number of containers refurbished. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. Fixed Element per Month Variable Element per Container Refurbished Revenue $4,600 Employee salaries and wages $42,700 $1,100 Refurbishing materials $600 Other expenses $29,100 When the company prepared its planning budget at the beginning of February, it assumed that 26 containers would have been refurbished. The amount shown for revenue in the planning budget for February would have been closest to: A) $136,300 B) $119,600 C) $133,400 D) $122,200

B) $119,600 Explanation: Planning Budget Containers refurbished (q) 26 Revenue ($4,600q) $119,600

Buckson Framing's cost formula for its supplies cost is $1,350 per month plus $18 per frame. For the month of June, the company planned for activity of 716 frames, but the actual level of activity was 713 frames. The actual supplies cost for the month was $14,820. The supplies cost in the flexible budget for June would be closest to: A) $14,820 B) $14,184 C) $14,178 D) $14,238

B) $14,184

Bugos Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. Fixed Element per Month Variable Element per Customer Served Revenue $4,200 Employee salaries and wages $58,800 $900 Travel expenses $700 Other expenses $33,300 When the company prepared its planning budget at the beginning of March, it assumed that 40 customers would have been served. The amount shown for "Employee salaries and wages" in the planning budget for March would have been closest to: A) $91,200 B) $94,800 C) $92,600 D) $102,889

B) $94,800 Explanation: Planning Budget Customers served (q) 40 Employee salaries and wages ($58,800 + $900q) $94,800

A budget that is based on the actual activity of a period is known as a: A) continuous budget. B) flexible budget. C) static budget. D) master budget.

B) flexible budget.

When using a flexible budget, a decrease in activity within the relevant range: A) decreases variable cost per unit. B) increases variable cost per unit. C) decreases total costs. D) increases total costs.

C) decreases total costs.

Cosden Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. Fixed Element per Month Variable Element per Well Serviced Revenue $4,700 Employee salaries and wages $41,300 $1,000 Servicing materials $600 Other expenses $40,200 When the company prepared its planning budget at the beginning of May, it assumed that 29 wells would have been serviced. However, 31 wells were actually serviced during May. The total expenses in the flexible budget for May would have been closest to: A) $133,100 B) $124,513 C) $127,900 D) $131,100

D) $131,100 Explanation: Flexible Budget Wells serviced (q) 31 Expenses: Employee salaries and wages ($41,300 + $1,000q) $72,300 Servicing materials ($600q) 18,600 Other expenses ($40,200) 40,200 Total expenses $131,100

Dreckman Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for August. Fixed Element per Month Variable Element per Customer Served Actual Total for August Revenue $4,000 $125,500 Employee salaries and wages $46,600 $900 $74,700 Travel expenses $600 $18,800 Other expenses $33,100 $33,500 When the company prepared its planning budget at the beginning of August, it assumed that 36 customers would have been served. However, 31 customers were actually served during August. The "Other expenses" in the flexible budget for August would have been closest to: A) $33,500 B) $38,903 C) $28,847 D) $33,100

D) $33,100 Explanation: Flexible Budget Customers served (q) 31 Other expenses ($33,100 fixed) $33,100

Which of the following may appear on a flexible budget performance report? A) An unfavorable activity variance. B) A favorable revenue variance. C) An unfavorable spending variance. D) All of the above may appear on a flexible budget performance report.

D) All of the above may appear on a flexible budget performance report.