A306 Exam 3: SB Ch. 8, 9, 10
What is the correct order of events in the start of the Variance Analysis cycle?
Prepare performance report, analyze variances, note satisfactory and unsatisfactory results, and raise questions
Which of the following budgets are directly based on information from the sales budget?
Selling & administrative expense Production
Manufacturing overhead (MOH)
Units X direct labor hours =budgeted direct labor hours X VMOH = budgeted variable MOH + fixed MOH = budgeted total MOH costs
A detailed plan for the future that is usually expressed in formal quantitative terms is Blank______.
a budget
A&F Cowboy Novelties provides you with the following information: Budgeted selling price per unit: $10 Actual selling price per unit: $12 Flexible budget sales in dollars: $24,000 What is the sales price variance? a. $4,800 F b. $4,800 U c. $4,000 U d. $4,000 F e. None of these
a. $4,800 F
AirMeals Inc prepares in-flight meals for a number of major airlines. During the most recent week, the company prepared 4,000 dinners using 1,150 direct labor hours. The company paid these direct labor workers a total of $11,500 for this work. The budget assumed each meal takes 0.30 direct labor hours to prepare and direct labor workers will be paid $9.50 per hour. What is the labor rate variance for the most recent week? a. $575 U b. $100 U c. $475 F d. $575 F e. $11,500 F
a. $575 U
Which variances require the Master (Planning) Budget to calculate? a. Total Profit Variance and Sales Volume Variance b. Total Profit Variance and All Variable Cost variances c. Sales Volume Variance and Sales Price Variance d. Sales Price Variance and Fixed Cost Spending Variance e. All Variable Cost variances and Fixed Cost variances
a. Total Profit Variance and Sales Volume Variance
when a flexible budget is compared to the planning budget
activity variances are the result
The cash budget ______.
is prepared near the end of the master budget process
Cash receipts
lists all cash inflows for the budget period (except from financing section)
Risks of not knowing in advance how much labor time will be needed throughout the budget period includes_____
low employee morale labor shortages erratic layoffs
Using budgeting assumptions when preparing the master budget, ______.
makes it easier to answer "what-if" questions
unfavorable spending variance
the cost was greater than it should have been, given the actual level of activity
The first line of the direct labor budget consists of the budgeted units expected to be ______ during the period.
produced budgeted units produced X labor hours per unit = budgeted direct labor hours X budgeted labor cost per hour =budgeted direct labor cost
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
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/planning
Facing labor shortages or having to hire or lay off workers at awkward times are consequences of
neglecting direct labor budgeting
Developing goals and preparing various budgets to achieve those goals is part of ______
planning
why create budgets?
planning and controlling
In large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the Blank______ budget.
selling and administrative
budget
set of assumptions, specify goals and how to achieve them for specific time period
Cash budget
shows how cash resources will be acquired and used. determined by the sales budget, selling and administrative expense budget, and MOH budget
first step in budgeting process: sales budget
shows the expected sales for the budget period. Influences selling and administrative budgets and production budget
cash disbursements
summarizes all cash payments that are planned for the budget period
Required borrowings on a cash budget is calculated by Blank______.
adding the desired ending cash balance to the amount of the cash deficiency
The company provides the following information: Material price variance: 800 F Material spending variance: 250 F Budgeted material per unit: 1.5 feet Budgeted material price: $6 per foot Actual units produced: 100 units Budgeted units to be produced: 120 units Determine the actual number of feet of material used. Round to nearest whole foot, if needed. a. 138 feet b. 150 feet c. 242 feet d. 272 feet e. None of the above
c. 242 feet
Which of the following will not directly 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 will impact the labor budget
d. Expected number of units sold
revenue variance
difference between the actual total revenue and what the total revenue should have been, given the actual level of activity for the period.
The number of working hours required to satisfy the production budget is shown on the
direct labor
controlling
gather feedback and evaluate performance
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
All costs of production other than direct materials and direct labor are shown on the ______ budget.
manufacturing overhead
The calculation of unit product cost requires information from the ______ budget
manufacturing overhead
An integrated business plan that formally lays out the company's goals is called the ______ budget.
master
Rawles company makes all sales on account 35% of sales are collected in the month of sale, 60% in the following month, and the remaining 5% is collected two months after the sale. Bad debts can be ignored. November 2019 sales were $100,000 and December 2019 sales were $250,000. budgeted sales for the first quarter of 2020 are: January: 175,000 February: 200,000 March: 220,000 what are the expected cash collections in February?
$187,500 February expected cash collections: Dec Sales: $250,000 X 5%= $12,500 Jan Sales: $175,000 X 60%= $105,000 Feb sales: $200,000 X 35%= $70,000 February cash collections: 12,500+175,000+70,000= $187,500
Cash Budget four main sections
1. cash receipts 2. cash disbursements 3. cash excess or deficiency 4. the financing section
Rawles company makes all sales on account 35% of sales are collected in the month of sale, 60% in the following month, and the remaining 5% is collected two months after the sale. Bad debts can be ignored. November 2019 sales were $100,000 and December 2019 sales were $250,000. budgeted sales for the first quarter of 2020 are: January: 175,000 February: 200,000 March: 220,000 what is the accounts receivable balance on March 30, 2020?
153,000 Accounts receivable on March 30, 2020: February sales: $10,000 (175,000 X 5%) March sales: $143,000(220,000 X 60% + 220,000 X 5%) 10,000+143,000=$153,000
budgeted income statement
Cm Statement: units sold revenues Variable costs: DM DL VMOH VS&A Contribution Margin Fixed costs: FMOH FS&A Net Operating Income
Which statement is true regarding budgets and budget variances? a. If sales volume exceeds expectations, actual profit will always 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 flexible 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 the flexible budget profit
b. For most organizations, a budget is the benchmark for evaluating actual performance
Which of the following budget(s) are directly impacted by finished goods inventory? a. Sales budget b. Production budget c. Raw material purchases budget d. Labor budget e. B and C
b. Production budget
Because it is needed for the schedule of expected cash collections, the annual master budget file includes the _____ ______ from last year.
balance sheet
Because it is needed for the schedule of expected cash collections, the annual master budget file includes the _______ ______ from last year.
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 final schedule of the master budget is the ______.
budgeted balance sheet
Towne Snow Removal's cost formula for its vehicle operating cost is $1,470 per month plus $399 persnow-day. For the month of November, the company's planned level of activity was 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. $5,230 c. $4,609 d. $5,061 e. None of these
d. $5,061
PL Inc provides you with the following information for one of its products: Month Budgeted sales in units January 4,000 February 3,000 March 5,000 The budget assumes ending finished goods inventory equals 25% of the following month's sales. What is the budgeted production in units for February? a. 1,250 units b. 4,250 units c. 2,500 units d. 3,500 units e. None of the above
d. 3,500 units
ending finished goods inventory budget
determined by direct materials, direct labor, and MOH
for November and December, Samples Gates Corporation has budgeted direct materials cash flows of $1,0000 and $1,200 respectively. cash collections from sales are $20,000 (NOV) and $22,000(DEC). variable MOH (in cash) will be $500 (NOV) and $700 (DEC(. fixed expenses are estimated to be $10,000 cash each month. November cash beginning balance is $5,400 and direct labor expense for the month will be $2,000. the capital budget includes the purchase of a new machine in December for $17,000 cash. Assume there are no financing amounts budgeted on the November cash budget. if the budget shows a cash deficiency in December of $1,000, what is the budgeted December labor cost?
$6,000
Which of the following is correct regarding budgeting?
Conflict in creating a budget comes from an inherent tension between planning and control
S&P Enterprises has scheduled direct material purchases of $100,000 in January, $130,000 in February and $150,000 in March. The company pays for 75% of its purchases in the month of purchase and 25% the month after the purchase. Calculate the expected cash disbursements for the month of February.
February: 130,000 X .75=97,500 January: 100,000 X .25= 25,000 97,500+25,000=122,500
Which of the following is needed to calculate raw materials to be purchased on the direct materials budget?
Raw materials required per unit Beginning inventory of raw materials
Cash excess or deficiency
beginning cash balance + cash receipts = total cash available -less cash disbursements = excess (deficiency) of cash available over disbursements
purchases budget (Direct Materials)
budgeted production X materials per unit = total materials for production + desired ending inventory = total needed - beginning inventory = budgeted raw materials purchases (units) X budgeted material price per unit = budgeted raw material purchases($)
production budget (in units)
budgeted sales - desired ending inventory =total needed - beginning inventory =budgeted production
Given budgeted sales of 10,000 units, desired ending inventory of 5,000 units, and beginning inventory of 2,000 units, required production is______ units.
budgeted sales - desired ending inventory =total needed - beginning inventory =budgeted production 10,000+5,000=15,000-2,000= 13,000
Labor Budget (Direct Labor) (no beginning or ending inventory for people)
budgeted units (production) X labor hours per unit = budgeted direct labor hours X budgeted labor cost per hour = budgeted direct labor cost
David purchases all of his products on credit. He estimates that he pays 70% of his accounts payable in the month of purchase, 20% in the month following the purchase, and 10% in the month thereafter. Below is information about expected purchases for the next 6 months: Purchases- Jan: $80,000 Feb: $95,000 Mar: $90,000 Apr: $110,000 May: $115,000 Jun: $90,000 What are David's budgeted cash outflows for June? a. $90,000 b. $63,000 c. $97,000 d. $86,000 e. None of these
c. $97,000
Which statement below regarding budgets is false? a. A budget is a plan for using the company's resources. b. Strategic plans focus on long-term plans. c. In a centralized decision-making environment, the manager delegates decision making to individualswith relevant experience and knowledge. d. Firms spend considerable time and effort in preparing a revenue budget, as its accuracy is crucial inputting together a good master budget. e. The purposes of budgets include planning and control
c. In a centralized decision-making environment, the manager delegates decision making to individualswith relevant experience and knowledge.
Which of the following is not found in the financing section of the cash budget?
cash deficiency
Revenue variances can be caused by
changes in selling price poor accounting controls changes in the mix of products sold
Budgets ______.
communicate management's plan throughout the organization
master budget
culminates in a cash budget, a budgeted income statement, and a budgeted balance sheet
Cash Budget: operating inflows (borrowings)
desired ending cash balance + deficiency of cash available over disbursements = minimum required borrowings
In a manufacturing company, the ________budget is prepared right after the sales budget.
production
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
The budgeted income statement does NOT rely on information from the ______ budget.
production
The cash budget uses information from several other budgets. Which of the following budgets is NOT used to prepare the cash budget?
production
which of the following is not one of the ways price and quantity are determined for the Revenue Budget? 1. competitors' prices 2. current events-politically and legally 3. projected raw material and direct labor costs 4. historic sales levels and trends
projected raw material and direct labor costs
bottom-up approach (participative)
pros: ownership, team motivation, and accuracy cons: super star syndrome
top-down approach
pros: save time, reduces "super star" syndrome cons: overlook opportunities, underperformance, and low morale
income statement
provides an estimate of net income for the budget period. Relies on information from the sales budget, ending finished goods inventory budget, selling and administrative budget, and cash budget
when actual results are compared to the flexible budget
revenue and spending variances are the result
favorable revenue variance
revenue was larger than should have been expected, given the actual level of activity
Both the production and selling and administrative expense budgets are prepared using information directly from 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
The cost of unsold units is computed on the ______ budget.
ending finished goods inventory
unfavorable revenue variance
revenue was less than it should have been, given the actual level of activity
if cash deficiency exists during any budget period or if there is cash excess during any budget period that is less than the minimum required cash balance
the company will need to borrow money
favorable spending variance
the cost was less than expected, given the actual level of activity
Beginning cash for the year equals beginning cash of the first month or quarter and ending cash for the year equals ending cash of the last month or quarter.
true
Many of the schedules in a master budget are based on a variety of management estimates and assumptions.
true
Selling and Administrative budget
units (sold) X VS&A rate =budgeted VS&A + FS&A = budgeted S&A costs
What is the correct order of events in creating the cash budget in a master budget?
Record beginning cash balance, ask and answer questions, calculate cash inflows and outflows, calculate deficiency, calculate financing needs, and determine ending cash balance
Which of the following is the correct order for the first five budgets in creating a master budget?
Revenue, production, direct materials/labor/MOH
plannning
develop goals and prepare budgets to acheive them
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. All of the above
Budgeted GAAP Income Statement
units sold revenues COGS Gross Margin Selling and Admin Net Op Incomr
Production Budget
used to determine the direct materials, direct labor, and manufacturing overhead budgets
if activity is higher than expected
variable costs should be higher than expected
if activity is lower than expected
variable costs should be lower than expected
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
Variance analysis provides management with good information. However, it is delayed. What is an example(s) 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. All of the above
budgets______
encourage managers to think about and plan for the future and the budgeting process can uncover potential bottlenecks before they occur coordinate the activities of the entire organization by integrating the plans of its various parts define goals and objectives that can serve as benchmarks for evaluating subsequent performance
flexible budget
estimate of what revenues and costs should have been, given the actual level of activity for the period
Last schedule in master budget: balance sheet
estimates a company's assets, liabilities, and stockholders' equity
Cash Budget Financing section
excess (deficiency) financing: borrowing repayments interest total financing ending balance
