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
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
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
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
Budgets use a set of assumptions, specify goals and how to achieve them for a _____ time period
specific
allocation basis can be:
units, dlh, sq ft...
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
which of the following budgets is affected by the sales budget? -production -cash -selling and admin -all
all
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 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)
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
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
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
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: All materials variances are generally the responsibility of the production manager.
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
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
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
The budgeted income statement does NOT rely on information from 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
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
which of the following budgets is not affected by the production budget? -direct material -MOH -sales -none
sales
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
The variance analysis cycle:
begins with the preparation of performance reports
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
The purchasing manager is generally responsible for the material _____ variance, and the production manager is generally responsible for the material _____ variance
price, quantity
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 direct labor budget is based on the _______ budget.
production
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
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
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
To calculate total sales on the sales budget, multiply budgeted sales in units by:
sales price per unit
In large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the ______ budget.
selling and administrative
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
Planning budgets are sometimes called _______ budgets.
static
A likely consequence of excessive inventory levels is
storage problems
If the actual cost is greater than what the cost should have been, the variance is labeled as
unfavorable
Companies use the ______ cycle to evaluate and improve performance.
variance analysis
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
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
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
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
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
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
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
Borrowing money is required whenever:
-there is a cash deficiency -the cash excess is less than the minimum required cash balance
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.
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
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
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
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
Performance reports for cost centers:
do not include revenues or net income
The cost of unsold units is computed on the ________ budget.
ending finished goods inventory
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: 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
What costs and revenues should be for the actual level of activity is shown on a (n) _____ budget
flexible
