a306 exam 3

The annual master budget file includes the ________ from last year because it is needed for the schedule of expected cash collections.

balance sheet

A budgeted balance sheet is developed using data from the ______ of the budget period and data contained in the various schedules.

beginning

The variance analysis cycle:

begins with the preparation of performance reports

standards

budget assumptions

The ending finished goods inventory budget computes the:

cost of unsold units

variance analysis provides management with good info, but is

delayed

A significant noncash manufacturing overhead cost for many companies is:

depreciation

A spending variance is the:

difference between what a cost should have been at the actual level of activity and the actual amount of the cost

Performance reports for cost centers:

do not include revenues or net income

The difference between the actual level of activity and the standard activity allowed for the actual output x the variable part of the predetermined overhead rate is the variable overhead ____ variance

efficiency

When actual revenue ______ what the revenue should have been, the variance is labeled favorable.

exceeds

True or false: The labor rate variance measures the productivity of direct labor.

false

fixed costs per flex budget =

fixed costs per master budget

A budget that takes into account how costs are affected by changes in level of activity is a(n) ____ budget

flexible

Revenues and costs are adjusted as the level of activity changes on a ____ budget

flexible

What costs and revenues should be for the actual level of activity is shown on a (n) _____ budget

flexible

sales volume variance

flexible NOI - master NOI

flexible budget vs actual budget

flexible: BP x AQ actual: AP x AQ = revenue/spending variances

budgeting revenue

foundational step or cornerstone in every budget

Options to generate a favorable revenue and spending variance include:

increase operating efficiency protecting the selling price reduce the prices of inputs

Unfavorable activity variances may not indicate bad performance because:

increased activity should result in higher variable costs.

If inventory levels are _______, the result can lead to lost sales or last-minute, high-cost production efforts.

insufficient

general rules to follow in investigating variances

investigate all significant variances, examine trends, consider the big picture

The cash budget:

is prepared near the end of the master budget process

When demand for a product is insufficient to keep all of the production workers busy and no layoffs occur, an unfavorable ___________ variance may occur.

labor efficiency

The difference between the standard and the actual direct labor hourly rates is reflected in the _________ variance

labor rate

Using budget assumptions when preparing the master budget:

makes it easier to answer "what-if" questions

All costs of production other than direct materials and direct labor are shown on the _________ budget.

manufacturing overhead

A number of separate, but interdependent, budgets that formally lay out the company's sales, production, and financial goals are contained in the _____ budget

master

A detailed schedule showing the expected sales for the budget period is presented on the _____ budget

sales

Both the production and selling and administrative expense budgets are prepared using information directly from the _____ budget

sales

The first step in the budgeting process is preparing the ______ budget.

sales

What is usually the major source of receipts in the receipts section of the cash budget?

sales

In large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the ______ budget.

selling and administrative

Budgets use a set of assumptions, specify goals and how to achieve them for a _____ time period

specific

The difference between actual results and the flexible budget amount is a(n) ____ variance.

spending

The difference between how much a cost should have been, given the actual level of activity, and the actual amount of the cost is a

spending

If the actual cost is greater than what the cost should have been, the variance is labeled as

unfavorable

allocation basis can be:

units, dlh, sq ft...

Companies use the ______ cycle to evaluate and improve performance.

variance analysis

the comparison of budget expectations and actual performance is called

variance analysis

When direct labor is used as the overhead allocation base, the variable overhead efficiency variance:

will be favorable when the direct labor efficiency variance is favorable

A planning budget called for 500 units to be produced and total direct labor cost of $7,500. Actual production was 600 units and actual direct labor cost was $9,300. The activity variance is:

$1,500 U

which of the following budgets is affected by the sales budget? -production -cash -selling and admin -all

all

ABC, Inc.'s expected sales for the first six months of the year are as follows. Month Expected Sales January $120,000 February $150,000 March $160,000 April $200,000 May $220,000 June $250,000 Experience has shown that 60% of sales are collected in the month of sale and 40% are collected the month after sale. Calculate expected cash collections for the month of April.

$184,000

The receipts section of the cash budget lists:

all cash inflows, except from financing

The standard price of materials is $4.10 per pound and the standard quantity allowed for actual output is 5,800 pounds. If the actual quantity purchased and used was 6,000 pounds, and the actual price per pound was $4.00, the direct materials price variance is:

$600 F

Using the information provided, calculate the materials quantity variance. Standard price: $3.00 per pound Actual price: $3.20 per pound Actual quantity used: 5,200 pounds Standard quantity allowed: 5,000 pounds

$600 U

The planning budget calls for total variable costs for supplies to be $6,250 based on 1,000 units with planned revenue at $24,000. A total of 1,200 units were actually produced and sold. What amounts should appear on the flexible budget?

$7,500 for supplies $28,800 revenue

The spending variance is:

(AQ x AP) - (SQ x SP)

labor efficiency variance

(SH-AH) x SP

vmoh efficiency variance

(SH-AH) x SP

labor rate variance

(SP-AP) x AH

direct materials price variance

(SP-AP) x AQ

vmoh rate variance

(SP-SA) x AH

direct materials quantity variance

(SQ - AQ) x SP

companies use process control charts to track performance on real time basis:

- # days without an accident - # of on-time deliveries

Standards are: -compared to the actual quantities and costs of inputs -set for each major production input or task -rarely used outside of management accounting -benchmarks for measuring performance

-compared to the actual quantities and costs of inputs -set for each major production input or task -benchmarks for measuring performance

non-financial measures can provide more timely and specific feedback, such as

-customer satisfaction -product quality

The standard price of materials is $3.50 per pound and the standard quantity allowed for actual output is 7,000 pounds. If the actual quantity purchased and used was 6,700 pounds, and the actual price per pound was $3.40, the direct materials price variance is $______

670F

what can cause variable cost spending variances?

anything that impacts variable costs

Which of the following statements is true? -The variance that computes the price difference for materials is called a material rate variance. -Quantity variances are computed for direct materials, direct labor and fixed overhead. -Price variances can only be computed for direct materials and direct labor. -A labor efficiency variance is a quantity variance.

A labor efficiency variance is a quantity variance.

sales price variance

Actual Revenue - Flexible Revenue

Which of the following budgets consider the impact of finished goods inventory? A. Sales B. Production C. Raw material purchases D. Labor E. B and C

B

Which statement is true regarding budgets and budget variances? A. If sales volume exceeds expectations, actual profit will be higher than budgeted profit B. For most organizations, a budget is the benchmark for evaluating actual performance C. A variance is the difference between a budgeted amount and a forecasted amount D. Any profit difference between the master and flex budgets is due solely to the difference between budgeted and actual sales price E. A budget reconciliation is a report that uses variances to reconcile the difference between master budget profit and flex budget profit

B

Which of the following budgets shows the company's planned profit and serves as a benchmark against which subsequent company performance can be measured?

Budgeted income statement

On the cash budget, what is subtracted from total cash available to find the cash excess or deficiency?

Cash disbursements

Which of the following will not impact the calculation of the labor budget? A. Budgeted number of employees B. Expected timing of promotions C. Expected amount and timing of wage rate changes D. Expected number of units sold E. All of the above

D

Once variances from the budget are calculated, in general, which ones should be investigated? A. Significant unfavorable variances expressed in dollars B. Significant favorable variances expressed as a percentage C. Variances that have occurred for multiple periods— indicating a trend D. Significant favorable variances expressed in dollars E. All of the above

E

Variance analysis provides management with good information. However, it is delayed. What is an example of a non-financial control/measure that a company might use to supplement variance analysis? A. Number of days without an accident B. Customer satisfaction surveys C. Product return information D. Number of sick days E. All of the above

E

Variances are labeled as

Favorable (F) or Unfavorable (U)

Which of the following statements is true? -A cost is fixed if it is proportional to activity. -It is easier to significantly reduce variable costs than to reduce fixed costs. -Fixed costs are often more controllable than variable costs.

Fixed costs are often more controllable than variable costs.

In a manufacturing company, which budget is used as the basis for creating the direct materials budget, the direct labor budget, and the manufacturing overhead budget?

Production budget

The cash budget uses information from several other budgets. Which of the following budgets is NOT used to prepare the cash budget?

Production budget

True or false: A spending variance is the difference between how much a cost should have been and the actual cost given the actual level of activity.

True

Which of the following is needed to prepare a sales budget?

The budgeted number of units to be sold

A performance report shows that the planned revenue was $200,000, the flexible budget revenue was $225,000, and actual revenue was $223,000. Which of the following statements are true?

The revenue variance is $2,000 Unfavorable. The activity variance is $25,000 Favorable.

Which statement regarding variable overhead variance analysis is true?

The variable overhead efficiency variance may depend on the efficiency of direct labor.

Which of the following statements is true? -Neither variable nor fixed manufacturing overhead is analyzed using the same basic formulas used for materials and labor. -Both variable and fixed manufacturing overhead is analyzed using the same basic formulas used for materials and labor. -The variable part of manufacturing overhead is analyzed using the same basic formulas used for materials and labor. -The fixed part of manufacturing overhead is analyzed using the same basic formulas used for materials and labor.

The variable part of manufacturing overhead is analyzed using the same basic formulas used for materials and labor.

To calculate a quantity variance, multiply the ____ quantity times the standard price and compare it to the standard quantity allowed times the ___ price

actual, standard

Required borrowings on a cash budget is calculated by:

adding the desired ending cash balance to the amount of the cash deficiency

Bottom-Up Approach (Skills-Based)

advantages: -ownership -team motivation -accuracy disadvantages: -super star syndrome

Top-Down Approach (Meaning-Based)

advantages: -time savings -reduces super star syndrome disadvantages: -overlook day to day -underperformance -morale

When preparing a flexible budget, the level of activity:

affects variable costs only

One option to generate a favorable ______ variance for net operating income is to increase the number of clients.

activity

The difference between a revenue or cost item in the planning budget and the same item in the flexible budget at the actual level of activity is a(n)

activity

The difference between a revenue or cost item in the planning budget and the same item in the flexible budget at the actual level of activity is a(n) _____ variance.

activity

A flexible budget performance report combines the:

activity variances with the revenue and spending variances

The materials price variance is calculated using the ______ quantity of the input purchased.

actual

variances for revenues

actual > budget = favorable actual < budget = favorable

variances for expenses

actual > budget = unfavorable actual < budget = favorable

how to calculate profit variance

actual NOI - master NOI

The spending variance is labeled as favorable when the:

actual cost is less than what the cost should have been at the actual level of activity

A price variance is the difference between the:

actual price and the standard price multiplied by the actual amount of the input

actual budget calculations

actual quantity x actual price

The material quantity variance reflects the difference between the ____ quantity of materials used in production and the _____ quantity allowed for the actual output.

actual, standard

cash budget is ____ the statement of cash flows

not

budgets are a ____ that uses the companys resources to get from where it is to where it wants to be

plan

A budget that is prepared at the beginning of the period for a specific level of activity is a ______ budget.

planning

Developing goals for the budget is , _____ while _____ involves steps taken to ensure that steps towards meeting the goal are being followed.

planning, control

The difference between the actual price paid for the material and what should have been paid according to the standard is reflected in the direct materials _____ variance

price

The labor efficiency variance is the difference between actual hours used and standard hours allowed multiplied by the ______ hourly rate.

standard

Planning budgets are sometimes called _______ budgets.

static

A likely consequence of excessive inventory levels is

storage problems

An unfavorable materials quantity variance occurs when:

the actual amount of material used is greater than the standard amount of material allowed for the actual output

If managers consider it unwise to adjust the workforce in response to changes in workload:

the direct labor workforce is really fixed in the short run

A labor rate variance is ________ when the standard hourly rate is lower than the actual rate.

unfavorable

When the actual cost incurred exceeds the standard cost allowed for the actual level of output, the spending variance is:

unfavorable

When the standard purchase price is less than the actual price paid for materials, the material price variance is ____

unfavorable

The standard price of the material is used in the calculation of the material quantity variance because:

using actual prices would hold the production manager responsible for the inefficiencies of the purchasing manager

The difference between the standard and the actual variable overhead cost is reflected in the

variable overhead rate variance

If the activity level for the month is 4,000 units, actual revenue is $6,000, actual variable costs are $0.20 unit, and actual fixed costs total $500, which of the following are true?

$1,300 in total costs $4,700 net income

If the planned budget revenue for 5,000 units is $120,000, what is the flexible budget revenue if the actual activity is 4,500 units?

$108,000

what can cause fixed costs spending variances?

- Increase in utilities, new equipment, more security, etc - New corporate office equipment results in higher depreciation

Budgets:

communicate management's plan throughout the organization

Gathering feedback to ensure that the plan is being followed is referred to as

control

A revenue variance is the:

difference between what revenue should have been at the actual level of activity and the actual revenue

The number of working hours required to satisfy the production budget is shown on the _____ budget

direct labor

Working hours required to satisfy the production budget are shown on the _______ budget.

direct labor

In a manufacturing company, the ______ budget details the raw materials that must be purchased to fulfill the production budget and provide for adequate inventories

direct materials

In a manufacturing company, the ________ budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories.

direct materials

Payments for direct materials, direct labor, and manufacturing overhead costs are all listed in the _______ section of the cash budget.

disbursements

The difference between the actual hours used and the standard hours allowed for the actual output is used in the calculation of the labor ____ variance

efficiency

The cost of unsold units is computed on the ________ budget.

ending finished goods inventory

inherent tension

exists within advertising between "suits" who favor "safe" advertising that sells the product and "artists" who believe artistic and aesthetic value is what matters (sales manager, production manager, tight but attainable goals)

True or false: A favorable labor rate variance is always favorable for a company.

false

True or false: Activity variances help managers understand why actual net income differs from what it should have been at the actual level of activity.

false

True or false: All materials variances are generally the responsibility of the production manager.

false

True or false: The amounts under the Year column in the cash budget always equal the sum of the amounts for the months or quarters of the budget.

false

True or false: The standard hours or quantity allowed for an input is the amount of the input that should have been used to produce the standard output for the period.

false

A materials price variance is ________ when the standard price is higher than the actual price.

favorable

When the actual hourly rate is lower than the standard hourly rate, the labor rate variance is

favorable

When the actual quantity of materials used is less than the standard quantity allowed, the material quantity variance is labeled as ______

favorable

When the standard cost allowed for the actual output is less than the standard cost allowed for the planned output the activity variance is labeled as:

favorable

A favorable activity variance may not indicate good performance because a favorable activity variance:

for a variable cost will occur simply because the actual level of activity is less than the budgeted level of activity.

A company's planned net profit that serves as a benchmark against which subsequent company performance can be measured is shown on the budgeted

income statement

The calculation of unit product cost requires information from the _______ budget

manufacturing overhead

A number of separate but interdependent budgets that formally lay out a company's sales, production, and financial goals is contained in the _____ budget.

master

master budget vs actual

master : BP x BQ actual: AP x AQ = profit variance

Fixed spending variance

master fixed expenses - actual fixed expenses

Master Budget vs. Flexible Budget

master: BP xBQ flexible: BP x AQ = activity variance

Facing labor shortages or having to hire or lay off workers at awkward times are consequences of:

neglecting to budget the amount of labor time that will be needed

A cost center's performance report does not include:

net operating income

The purchasing manager is generally responsible for the material _____ variance, and the production manager is generally responsible for the material _____ variance

price, quantity

focus is the

process and feedback

The first line of the direct labor budget consists of the budgeted units expected to be ______ during the period.

produced

In a manufacturing company, the ______ budget is prepared right after the sales budget.

production

In a manufacturing company, the ________ budget is used to determine the budgets for manufacturing costs, including the direct materials budget, the direct labor budget, and the manufacturing overhead budget.

production

The budgeted income statement does NOT rely on information from the _______ budget.

production

The direct labor budget is based on the _______ budget.

production

The labor efficiency variance is generally the responsibility of the ______ manager.

production

The materials quantity variance is generally the responsibility of the _____ department manager.

production

The direct materials budget directly relies on the:

production budget

what budget determines the 3 budgets: DM, DL, MOH budgets

production budget

If poor-quality materials results in excessive labor processing time, the _____ manager will probably be held responsible for the labor efficiency variance.

purchasing

The materials price variance is generally the responsibility of the _____ department manager.

purchasing

SP(AQ-SQ) is the formula for the materials _____ variance.

quantity

The difference between the actual materials used in production and the standard amount allowed for the actual output is reflected in the materials ____ variance

quantity

The difference between the amount of an input used and the amount that should have been used, all evaluated at the standard price for the input, is called a(n)

quantity variance

A materials price variance is equivalent to a labor ___ variance and a materials quantity variance is equivalent to a labor ____

rate, efficiency

The material variance terms price and quantity are replaced with the terms ____ and ____ when computing direct labor variances.

rate, hours

The difference between what the total sales should have been, given the actual level of activity for the period, and the actual total sales is a(n) ____ variance

revenue

A cost center's performance report does not include:

revenue net operating income

To understand why actual net operating income differs from what it should have been at the actual level of activity, the ______ variances should be analyzed.

revenue and spending

which of the following budgets is not affected by the production budget? -direct material -MOH -sales -none

sales

To calculate total sales on the sales budget, multiply budgeted sales in units by:

sales price per unit

sales volume per flex budget =

sales volume per actual

Budgeted expenses for areas other than manufacturing are shown on the ______ budget.

selling and administrative

A benchmark used in measuring performance is called a(n) _____

standard

The amount of an input that should have been used to produce the actual output is known as the _____ quantity or hours allowed.

standard

master budget calculations

budget quantity x budget price

The final schedule of the master budget is the:

budgeted balance sheet

A quantity variance is:

calculated using the standard price of the input

A detailed plan for the future that is usually expressed in formal quantitative terms is:

budget

S&P Enterprises has scheduled direct material purchases of $100,000 in January, $130,000 in February and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February.

$122,500

S&P Enterprises has scheduled direct material purchases of $120,000 in April, $140,000 in May and $160,000 in June. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of May.

$135,000

ABC, Inc.'s expected sales for the first six months of the year are as follows. Month Expected Sales January $120,000 February $150,000 March $160,000 April $200,000 May $220,000 June $250,000 Experience has shown that 60% of sales are collected in the month of sale and 40% are collected the month after sale. Calculate expected cash collections for the month of March.

$156,000

Which of the following budgets are needed to calculate unit product costs?

-Direct labor budget -Direct materials budget -Manufacturing overhead budget

Which of the following statements are correct? -When the workforce is fixed, managers should focus on managing the labor efficiency variance. -Excessive inventories contribute to inefficient operations. -Building inventories can reduce unfavorable labor efficiency variances.

-Excessive inventories contribute to inefficient operations. -Building inventories can reduce unfavorable labor efficiency variances.

what can cause a sales price variance

-Price discounts -Low quality product -Price war with competition

Which of the following is needed to calculate raw materials to be purchased on the direct materials budget?

-Raw materials required per unit -Beginning inventory of raw materials

Which of the following budgets are directly based on information from the sales budget?

-Selling and administrative expense budget -Production budget

Variance provides managers with

-a basis for strategy evaluation -early warning of problems -a basis for performance evaluation

The materials price variance is calculated using the: -standard quantity allowed of the input for the actual output -actual price of the input -actual quantity of the input purchased -standard price of the input

-actual price of the input -actual quantity of the input purchased -standard price of the input

The materials price variance is calculated using the: -actual quantity of the input purchased -standard price of the input -standard quantity allowed of the input for the actual output -actual price of the input

-actual quantity of the input purchased -standard price of the input -actual price of the input

Master budget schedules:

-answer several key questions for a company -are based on estimates and assumptions

The materials price variance is: -charged to the production manager when production problems occur -impacted by the delivery method chosen -generally unfavorable when lower than standard quality materials are purchased -generally the responsibility of the purchasing manager

-charged to the production manager when production problems occur -impacted by the delivery method chosen -generally the responsibility of the purchasing manager

budgets purpose

-define goals and objectives -think about and plan for the future -means of allocating resources -evaluate performance and provide incentives -coordinate activities -communicate plans

Excessive inventory on hand, especially in the work in process inventory account, may lead to: -high defect rates -obsolete goods -inefficient operations -price increases in direct materials

-high defect rates -obsolete goods -inefficient operations

planning for budgets

-involves developing and preparing various budgets to achieve those goals

control in preparing budgets

-involves gathering feedback to ensure the plan is working -making changes as needed -verifying all parts of the organization are working together toward the goals

Risks of not knowing in advance how much labor time will be needed throughout the budget period includes:

-labor shortages -low employee morale -erratic layoffs

production managers usually held accountable for labor variances because they can influence the:

-mix of skill levels assigned to work tasks -level of employee motivation -quality of production supervision -quality of training provided to employees

Unfavorable labor rate variances may occur as a result of: -work interruptions caused by faulty equipment. -overtime premiums being charged to the direct labor account. -unskilled workers being assigned to a task that requires a set of skills. -skilled workers being assigned to jobs requiring little skill.

-overtime premiums being charged to the direct labor account. -skilled workers being assigned to jobs requiring little skill.

An unfavorable labor efficiency variance can result from: -poorly motivated workers -faulty equipment -poor-quality materials -the payment of overtime premiums

-poorly motivated workers -faulty equipment -poor-quality materials

Borrowing money is required whenever:

-there is a cash deficiency -the cash excess is less than the minimum required cash balance

budgeting process

-very involved -end results is the guide/benchmark for the company -wide variation across firms and industries -many companies begin with previous budget as baseline --> caution: baseline as usual mentality -iterative: --> each step goes through multiple revisions --> examining targets --> challenging assumptions --> examining alternatives and making choices

Variance Analysis Cycle

1. Prepare standard cost performance report 2. Analyze variances 3. Identify questions 4. Receive explanations 5. Take corrective actions 6. Conduct next period's operations

If a cash budget is prepared by quarter, the beginning cash balance for the year is the same as the beginning cash balance for the _____ quarter and the ending cash balance for the year is the same as the ending cash for the _____ quarter.

1st, 4th

The materials price variance is the difference between the actual price of materials:

and the standard price for materials with the difference multiplied by the actual quantity of materials

To prepare a budgeted balance sheet as of December 31, 2016, data is needed from the:

balance sheet as of December 31, 2015