ACG2071 CH.9
the direct labor budget is based on
the required production for the period
1. Which of the following statements about budgeting is CORRECT
B) Budgeting is an aid to planning and control. C) Budgets help to coordinate the activities of the entire organization. D) Budgets promote communication and coordination between departments.
1. Which of the following BEST describes sales volume variance?
B) Difference between the flexible budget and static budget due to differences in volumes
17. In a flexible budget, which of the following amounts stays the same as the volume changes?
B) The total amount of fixed costs
3. Which of the following is an example of the benchmarking function of a budget?
C) Budget figures are used to evaluate the performance of managers.
8. Which of the following describes the sales budget?
C) It depicts the breakdown of sales based on terms of collection.
Which of the following defines an activity variance?
The difference between a revenue or cost item in the flexible budget and the same item in the static planning budget.
The management of Brewster Company compares monthly operating results with a static planning budget prepared at the beginning of the year. Assume that actual sales are less than budget. Which of the following would result in a favorable variance?
Variable food costs but not fixed supervisory salaries
a common starting point in the budgeting process is
past performance
A company 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 would be true.
variable costs would show favorable variances
5. A department store has budgeted cost of sales of $36,000 for its men's suits in March. Management also wants to have $15,000 of men's suits in inventory at the end of March to prepare for the summer season. Beginning inventory of men's suits for March is expected to be $9,000. What dollar amount of men's suits should be purchased in March?
$36,000 + $15,000 - $9,000 = $42,000
9. Argyle Company forecasts sales of $50,000 in January, $60,000 in February, $70,000 in March, and $75,000 in April. The inventory balance at January 1 is $12,000. Cost of goods sold is budgeted at 40% of sales revenue. Argyle wishes to have inventory levels at the end of each month equal to 60% of the cost of goods sold for the following month, plus a "safety cushion" of $1,000. How much should be budgeted for inventory purchases in January?
$50,000 × 40% = $20,000 $60,000 × 40% = $24,000 ($24,000 × 60%) + $1,000 = $15,400 $20,000 + $15,400 - $12,000 = $23,400
Which of the following statements is correct?
A) A flexible budget allows managers to isolate activity variances and revenue and spending variances. B) One of the common errors in preparing performance reports is to implicitly assume that all costs are fixed. C) One of the common errors in preparing performance reports is to implicitly assume that all costs are variable.
Which of the following statements is correct?
B) To generate an overall favorable revenue and spending variance, managers must take actions to protect selling prices. C) Flexible budget performance reports provide more useful information to managers than a simple comparison of budgeted to actual results. D) A flexible budget performance report separates the effects of how well prices were controlled and operations were managed.
2. Which of the following is an example of the planning function of a budget?
D) The budget outlines a specific course of action for the coming period.
18. In a flexible budget, which of the following amounts does NOT stay the same as the volume changes?
D) The total contribution margin
static planning budget is
a budget for a single level of activity
20. Which of the following BEST describes flexible budget variance?
A) Difference between actual amounts and the flexible budget due to differences in price and costs
26. A company is analyzing month-end results compared to both static and flexible budgets. This month the actual fixed expenses were lower than projected in the static budget. What kind of variance would that produce?
A) Favorable flexible budget variance for fixed expenses
25. A company is analyzing month-end results compared to both static and flexible budgets. This month the actual selling price was higher than projected in the static budget. What kind of variance would that produce?
A) Favorable flexible budget variance for sales revenues
Which of the following describes a major weakness of static planning budgets?
A) They are geared only to a single level of activity. B) They cannot be used to assess whether variable costs are under control. C) They force the manager to compare actual costs at one level of activity to budgeted costs at a different level of activity.
27. A favorable flexible budget variance in sales revenues suggests a(n):
A) increase in selling price.
it is important that budgets are accepted by
division managers department heads supervisors
which one of the following is a benefit of budgeting
facilitates the coordination of activities provides definite objectives for evaluating performance requires all levels of management to plan ahead on recurring basis
Comparing actual results to a budget based on the actual activity for the period is possible with the use of a
flexible budget
If the actual total revenue is greater than what the total revenue should have been, given the actual level of activity for the period, the revenue variance is:
labeled as favorable.
If the actual expense incurred is greater than what the expense should have been as set forth in the flexible budget, the variance is:
labeled as unfavorable.
a budget period should be
long enough to provide an obtainable goal under normal business conditions
in a flexible budget which of the following amounts stays the same as the volume changes
price per unit fixed costs variable expense per unit
the total direct labor hours required in preparing a direct labor budget are calculated using the
production budget
which of the following best describes flexible budgets
summarize financial results at several different volume levels
a sales forecast should show forecast for
the firm only
which is true of budgets
they are used in performance evaluation
why are budgets useful in the planning process
they help communicate goals and provide a basis for evaluation
