3100 Exam 3

Price variance

(AQ x SP) - (AQ x AP)

Spending Variance

(SQ x SP) - (AQ x AP)

Quantity variance

(SQ x SP) - (AQ x SP)

Advantages of budgeting

- Define goals and objectives - Think about and plan for the future - Means of allocating resources - Uncover potential bottlenecks - Coordinate activities - Communicate plans

Wexell Framing's cost formula for its supplies cost is $1,230 per month plus $10 per frame. For the month of October, the company planned for activity of 592 frames, but the actual level of activity was 597 frames. The actual supplies cost for the month was $7,050. The activity variance for supplies cost in October would be closest to: A: $100 U B: $50 U C: $50 F D: $100 F

B: $50 U

Milano Corporation is working on its direct labor budget for the next two months. Each unit of output requires 0.50 direct labor-hours. The direct labor rate is $9.80 per direct labor-hour. The production budget calls for producing 6,400 units in October and 6,300 units in November. If the direct labor work force is fully adjusted to the total direct labor-hours needed each month, what would be the total combined direct labor cost for the two months? A: $30,870 B: $62,230 C: $31,115 D: $31,360

B: $62,230

Papenfuss 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: 86 Guests Variable Overhead Costs: Supplies $86.00 Laundry $507.40 Fixed Overhead Costs: Utilities $340.00 Salaries and Wages $4,790.00 Depreciation $2,620.00 Total Overhead Cost $8,343.40 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 76 guests? A: $52,848.40 B: $8,274.40 C: $7,373.24 D: $8,343.40

B: $8,274.40

The WRT Corporation makes collections on sales according to the following schedule: 25% in month of sale 65% in month following sale 5% in second month following sale 5% uncollectible The following sales have been budgeted: April $120,000 May $100,000 June $110,000 Budgeted cash collections in June would be: A: $71,000 B: $98,500 C: $115,500 D: $27,500

B: $98,500

Hoppy Corporation compares monthly operating results to a static budget prepared at the beginning of the month. When the actual level of activity is less than budgeted, which of the following would be true? A: Fixed costs would show unfavorable variances. B: Variable costs would show favorable variances. C: Fixed costs would show favorable variances. D: Variable costs would show unfavorable variances.

B: Variable costs would show favorable variances.

Which of the following comparisons best isolates the impact that changes in operating efficiency have on performance? A: static planning budget and flexible budget B: flexible budget and actual results C: master budget and static planning budget D: static planning budget and actual results

B: flexible budget and actual results

Spending variances

Become more useful by breaking them down into price and quantity variances

Standard costs

Benchmarks or "norms" for measuring performance

Olivera Corporation's flexible budget performance report for last month shows that actual indirect materials cost, a variable cost, was $31,178 and that the spending variance for indirect materials cost was $2,261 unfavorable. During that month, the company worked 11,900 machine-hours. Budgeted activity for the month had been 12,200 machine-hours. The cost formula per machine-hour for indirect materials cost must have been closest to: A: $2.74 B: $2.81 C: $2.43 D: $2.37

C: $2.43

Ros Corporation's flexible budget cost formula for indirect materials, a variable cost, is $0.90 per unit of output. If the company's performance report for last month shows a $500 unfavorable spending variance for indirect materials and if 8,000 units of output were produced last month, then the actual costs incurred for indirect materials for the month must have been: A: $7,200 B: $7,650 C: $7,700 D: $6,700

C: $7,700

Mondo Snow Removal's cost formula for its vehicle operating cost is $1,060 per month plus $429 per snow-day. For the month of January, the company planned for activity of 11 snow-days, but the actual level of activity was 13 snow-days. The actual vehicle operating cost for the month was $6,310. The activity variance for vehicle operating cost in January would be closest to: A: $531 F B: $858 F C: $858 U D: $531 U

C: $858 U

Which of the following budgets are prepared before the production budget? A: Direct Materials Budget- Yes, Sales Budget- Yes B: DMB- Yes, SB- No C: DMB- No, SB- Yes D: DMB- No, SB- No

C: DMB- No SB- Yes

When preparing a production budget, the required production equals: A: budgeted sales + beginning inventory - desired ending inventory. B: budgeted sales í beginning inventory - desired ending inventory. C: budgeted sales - beginning inventory + desired ending inventory. D: budgeted sales + beginning inventory + desired ending inventory.

C: budgeted sales - beginning inventory + desired ending inventory.

Self-imposed Budget

A budget that is prepared with the full cooperation and participation of managers at all levels

Budget

A detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period

Peixoto Framing's cost formula for its supplies cost is $1,150 per month plus $14 per frame. For the month of July, the company planned for activity of 556 frames, but the actual level of activity was 555 frames. The actual supplies cost for the month was $9,190. The supplies cost in the planning budget for July would be closest to: A: $8,934 B: $8,920 C: $9,190 D: $9,207

A: $8,934

Which of the following benefits could an organization reasonably expect from an effective budget program? A: Increased Employee Motivation - Yes, Uncover Potential Bottlenecks - Yes B: IEM - Yes UPB - No C: IEM - No UPB - Yes D: IEM - No UPB - No

A: IEM - Yes UPB - Yes

The direct labor budget is based on: A: the required production for the period. B: the required materials purchases for the period. C: the desired ending inventory of finished goods. D: the beginning inventory of finished goods.

A: the required production for the period.

The manufacturing overhead budget at Amrein Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 4,900 direct labor-hours will be required in August. The variable overhead rate is $9.40 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $96,040 per month, which includes depreciation of $7,350. All other fixed manufacturing overhead costs represent current cash flows. The August cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: A: $46,060 B: $142,100 C: $88,690 D: $134,750

D: $134,750

Towne Snow Removal's cost formula for its vehicle operating cost is $1,470 per month plus $399 per snow-day. For the month of November, the company planned for activity of 13 snow-days, but the actual level of activity was 9 snow-days. The actual vehicle operating cost for the month was $5,230. The vehicle operating cost in the flexible budget for November would be closest to: A: $6,657 B: $4,609 C: $5,230 D: $5,061

D: $5,061

Starg Corporation, a retailer, plans to sell 25,000 units of Product X during the month of August. If the company has 9,000 units on hand at the start of the month and plans to have 7,000 units on hand at the end of the month, how many units of Product X must be purchased from the supplier during the month? A: 27,000 B: 25,000 C: 32,000 D: 23,000

D: 23,000

A major weakness of flexible budgets is that: A: they are valid for only a single level of activity. B: they compare actual costs at one level of activity to budgeted costs at a different level of activity. C: they ignore fixed costs. D: none of these is a major weakness of flexible budgets.

D: none of these is a major weakness of flexible budgets.

Quantity standards

Specify how much of an input should be used to make a product or provide a service

Price standards

Specify how much should be paid for each unit of the input

Responsibility Accounting

A system of accountability in which managers are held responsible for those items of revenue and cost—and only those items—over which they can exert significant control. The managers are held responsible for differences between budgeted and actual results.

Planning

Involves developing objectives and preparing various budgets to achieve those objectives

Control

Involves the steps taken by management to increase the likelihood that the objectives set down while planning are attained

Actual price (AP)

The amount actually paid for the input used

Actual quantity (AQ)

The amount of DM, DL, and VMOH actually used

Standard price (SP)

The amount that should have been paid for the input used

Standard quantity (SQ)

The standard of quantity allowed for the actual output of the period

Budgetary Control

The use of budgets to control an orgs activities