A306 SB Book questions

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

Sales Budget

A flexible budget performance report combines the

activity variances with the revenue and spending variances

The direct materials budget directly relies on the ___ Budget A)sales B)production C)direct labor D)merchandise purchases

production Sales-The production budget relies on sales, but direct materials relies on purchases.

What number does the direct materials budget take directly from the production budget? A)Required production B)Ending inventory of finished goods C)Budgeted sales D)Beginning raw materials inventory

Answer: Required Production Ending inventory of finished goods-Ending inventory of finished goods is on the production budget, but not on the direct materials budget. The direct materials budget uses ending inventory of raw materials. Budgeted sales-Budgeted sales does not appear on the direct materials budget. Beginning raw materials inventory-Inventory on the production budget is not the same type of inventory as on the direct materials budget. The production budget uses finished goods, while the direct materials budget uses raw materials.

Which of the following is needed to prepare a sales budget? A)The budgeted number of units to be sold B)Beginning inventory of finished goods C)Desired ending inventory D)Desired ending inventory of raw materials

Answer: The budgeted number of units to be sold Beginning inventory of finished goods-is needed for the production budget Desired ending inventory-is needed for the production budget Desired ending inventory of raw materials-is for the direct materials budget

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

The spending variance is labeled as favorable when the Blank______. actual cost is less than what the cost should have been at the actual level of activity actual cost is more than what the cost should have been at the actual level of activity amount spent is less than what was spent last period actual cost is less than what the cost should have been at the planned level of activity

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

The materials price variance is the difference between the actual price of materials___ times the actual quantity of materials and the standard price of materials times the standard quantity allowed for production and the standard price for materials with the difference multiplied by the standard quantity of material allowed and the standard price for materials with the difference multiplied by the actual quantity of materials

and the standard price for materials with the difference multiplied by the actual quantity of materials times the actual quantity of materials and the standard price of materials times the standard quantity allowed for production-This is the calculation of the spending variance and the standard price for materials with the difference multiplied by the standard quantity of material allowed-Standard quantity allowed at the standard price is a component of the materials quantity variance.

The labor efficiency variance is generally the responsibility of the accounting purchasing human resources production

production purchasing: Although not generally responsible, the purchasing manager could be held responsible if inferior(poor-quality) materials resulted in extended production time.

An estimate of what revenue and costs should have been, based on the actual level of activity is shown on a profit and loss statement fixed budget flexible budget planning budget

flexible budget

The budgeted income statement does NOT rely on information from the selling and administrative expense ending finished goods inventory sales production

production

A flexible budget shows what budgeted amounts should have been at the actual level of activity. As a result of this change in activity, the flexible budget will show a change in total____ fixed costs revenue variable cost

revenue variable cost fixed costs-they still be the same in the static or master budget

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

revenue and spending

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

sales price per unit

The amount of an input that should have been used to produce the actual output is known as the___

standard quantity or hours

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 May purchases ($140,000 x 75%) $105,000 + April purchases ($120,000 x 25%) $30,000 = $135,000

A performance report shows that the planning revenue was $240,000, the flexible budget revenue was $225,000, and actual revenue was $230,000. The activity variance is

$15000 U

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 spending variance is Blank______.

$300 U $7,500 ÷ 500 = $15 standard rate per unit × 600 = $9,000 flexible budget - $9,300 actual = $300 U

Which of the following are used to calculate the standard quantity per unit of direct materials? Allowance for waste and spoilage Direct materials requirements per unit of finished product Freight and transportation costs

-Allowance for waste and spoilage -Direct materials requirements per unit of finished product Freight and transportation costs Reason: Freight and transportation costs are used in calculating the standard price per unit

Master budget schedules__ may be prepared in any order answer several key questions for a company are based on estimates and assumptions

-answer several key questions for a company -are based on estimates and assumptions may be prepared in any order-The master budget follows a specific sequence, starting with the sales budget.

Budgets do what

-define goals and objectives(planning) that can serve as benchmarks for evaluating subsequent performance(control) -coordinate the activities of the entire organization by integrating the plans of its various parts -and the budgeting process can uncover potential bottlenecks before they occur(planning) -force managers to think about and plan for the future(planning)

The materials price variance is ___ -generally the responsibility of the purchasing manager -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 unfavorable when lower than standard quality materials are purchased: Low quality materials will generally cause a favorable price variance

Possible causes of a spending variance include paying less than expected for inputs using too many inputs for the actual level of activity producing more or less product than expected changes in technology

-paying less than expected for inputs -using too many inputs for the actual level of activity -changes in technology

Self-Imposed budget

-prepared with full cooperation & participation of managers at all levels. -Can be associated with any type of budget.

Unfavorable labor rate variances may occur as a result of Blank______. -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 -work interruptions caused by faulty equipment

-skilled workers being assigned to jobs requiring little skill -overtime premiums being charged to the direct labor account -unskilled workers being assigned to a task that requires a set of skills: Unskilled workers being assigned to a task that requires a set of skills would cause a favorable rate variance and an unfavorable efficiency variance. -work interruptions caused by faulty equipment's :Work interruptions caused by faulty equipment would be a cause of an unfavorable efficiency, not rate variance

The standard price of the material is used in the calculation of the material quantity variance because -materials are acquired at their standard prices, not their actual prices -actual prices are not known when the material quantity variance is calculated -using actual prices is unfair to the purchasing manager -using actual prices would hold the production manager responsible for the inefficiencies of the purchasing manager

-using actual prices would hold the production manager responsible for the inefficiencies of the purchasing manager actual prices are not known when the material quantity variance is calculated: Material quantity variances are calculated when material is put into production—after the actual purchase of the materials.

If the planned budget revenue for 5,000 units is $120,000, the flexible budget revenue for 4,500 units is $180,000 $120,000 $118,000 $108,000

108,000 $120,000 ÷ 5,000 = $24 per unit × 4,500 = $108,000

If desired ending inventory is 25% of next month's sales, the number of units to be produced in March is

17000 March sales 16,000 + End. inv. (25% of April sales) 5,000 - Beg. inv. (25% of March sales) 4,000 = 17,000 units

Madison Corporation's expected beginning cash balance is $35,000. Cash collections are budgeted at $50,000 and cash disbursements are estimated to be $80,000. The minimum required cash balance is $20,000 and the company can borrow as much as needed in increments of $10,000. Calculate the expected ending cash balance for the month. Multiple choice question. $25,000 $20,000 $5,000

Answer:$25,000 $35,000 + $50,000 - $80,000 = $5,000. Since they can borrow in increments of $10,000 they must borrow $20,000 to meet or exceed the minimum cash balance making the ending balance $25,000.

A company can consider making investments or repay outstanding principal and interest when A)the cash excess is greater than the minimum required cash balance B)there is a cash deficiency C)the cash excess is less than the minimum required cash balance D)the cash excess equals the minimum required cash balance

Answer:the cash excess is greater than the minimum required cash balance

Which of the following is needed to calculate raw materials to be purchased on the direct materials budget? Beginning inventory of raw materials Budgeted unit sales Ending finished goods inventory Raw materials required per unit

Beginning inventory of raw materials Raw materials required per unit Budgeted unit sales-The budgeted production, not sales, is used for the direct materials budget. Ending finished goods inventory-This is needed for the production budget

The receipts, disbursements, excess or deficiency, and financing section are all parts of the Blank______ budget. selling and administrative expense sales production cash

CASH

Which of the following is not found in the financing section of the cash budget? Cash deficiency Repayments Interest Borrowings

Cash deficiency The cash budget is composed of four main sections: 1)The cash receipts section-lists all cash inflows, except financing, during budget period, major source is from sales 2) The cash disbursements section-summarizes all cash payments that are planned for the budget period, like raw materials, direct labor payments, manufacturing overhead, etc. Also equipment & dividends 3)The cash excess or deficiency section-Beg cash balance + cash receipts(inflows)=total cash available-cash disbursements(outflows)=excess of cash available over disbursements 4)The financing section-details the borrowings and principal and interest repayments. We assume all borrowings take place on the first day of borrowings period and all repayments on the last day.

On the cash budget, what is subtracted from total cash available to find the cash excess or deficiency? Selling and administrative expenses Noncash items Cash inflows Cash disbursements

Cash disbursements(outflows) Selling and administrative expenses-Selling and administrative expenses are a part of the cash disbursement section. Noncash items-Noncash items do not appear in the cash budget. Cash inflows-Cash inflows are added and should already be included in the total cash available.

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

False 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.

An integrated business plan that formally lays out the company's goals is called the Blank______ budget. A)Profit Planning B) Master C) Sales D)Self-imposed

Master Profit planning-A budget that refers to preparing a number of budgets that together form an integrated business plan Self-imposed-A budget that is prepared with the full cooperation and participation of managers at all levels and could be associated with any type of budget. Sales-A detailed budget showing the expected sales for the budget period

Which of the following statements are true? -Assigning highly skilled, highly paid workers to low skill, low pay level jobs will cause a favorable labor rate variance. -Wage rates paid to workers are unpredictable in most companies. -Overtime premiums can cause an unfavorable labor rate variance. -How production supervisors use direct labor workers can lead to labor rate variances.

Overtime premiums can cause an unfavorable labor rate variance. How production supervisors use direct labor workers can lead to labor rate variances. Assigning highly skilled, highly paid workers to low skill, low pay level jobs will cause a favorable labor rate variance.-will be unfavorable Wage rates paid to workers are unpredictable in most companies.-opposite is true, wage rates are predictable

In a manufacturing company, the budgets for manufacturing costs, including the direct materials budget, the direct labor budget, and the manufacturing overhead budget are all based on the ___budget

Production

In a manufacturing company, the Blank______ budget shows the number of units that must be manufactured to satisfy sales needs and provide for the desired ending inventory. Direct Materials Production Sales Cash

Production Direct Materials-The direct materials budget details the raw materials that must be purchased to fulfill the production budget and to provide for adequate inventories. Sales-The sales budget is a detailed schedule showing the expected sales for the budgeted period Cash-The cash budget shows the inflows and outflows of cash.

The cash budget uses information from several other budgets. Which of the following budgets is NOT used to prepare the cash budget? Direct labor Production Selling and administrative Sales

Production is NOT used to prepare the cash budget

Profit planning budget

Profit planning-Profit planning is a process used by businesses to achieve their planned levels of profits by preparing a number of budgets that together form an integrated business plan known as the master budget. responsibility accounting-Responsibility accounting is the idea that a manager should be held responsible for only those items they can actually control. the budget period-The budget period is the length of time a budget should cover.

Which of the following is needed to calculate raw materials to be purchased on the direct materials budget? Ending finished goods inventory Budgeted unit sales Raw materials required per unit Beginning inventory of raw materials

Raw materials required per unit Beginning inventory of raw materials Ending finished goods inventory-This is needed for the production budget Budgeted unit sales-The budgeted production, not sales, is used for the direct materials budget.

What is usually the major source of receipts in the receipts section of the cash budget? Interest received Gains Sales Insurance proceeds

Sales Interest received-Interest may be a source of cash receipts, but would not be the major source. Gains-Gains may be a source of cash receipts, but would not be the major source. Insurance proceeds-Insurance proceeds may be a source of cash receipts, but would not be the major source.

In large organizations, many smaller individual budgets submitted by department heads and other responsible people comprise the___ budget manufacturing overhead ending finished goods inventory cash selling and administrative

Selling and administrative budget manufacturing overhead-The manufacturing overhead budget lists all costs of production other than direct materials and direct labor. ending finished goods inventory-The ending finished goods inventory budget calculates cost of unsold units. cash-The cash budget shows the inflows and outflows of cash.

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(n)

Spending variance (or revenue)

Material Variances are the responsibility of___

The production manager is generally responsible for the quantity variance and the purchasing manager is generally responsible for the price variance.

Which statement regarding variable overhead variance analysis is true? -Efficient use of variable overhead results in a favorable variable overhead efficiency variance. -The variable overhead efficiency variance may depend on the efficiency of direct labor. -Variable overhead variances are easy to interpret. -The variable overhead efficiency variance uses exactly the same inputs as the direct labor efficiency variance.

The variable overhead efficiency variance may depend on the efficiency of direct labor. Efficient use of variable overhead results in a favorable variable overhead efficiency variance: The variable overhead efficiency variance does not reveal anything about efficient use of resources other than direct labor. Variable overhead variances are easy to interpret. The interpretation of variable overhead variances is not as clear as labor and material variances. The variable overhead efficiency variance uses exactly the same inputs as the direct labor efficiency variance. There is one exception—the labor variance uses the direct labor rate and the overhead variance uses the variable overhead rate.

Managers reluctance to constantly adjust the workforce in response to decreases in the amount of work that needs to be done often leads to an unfavorable labor efficiency variance. True False

True False:If demand is insufficient to keep everyone busy and workers are not laid off, it results in an unfavorable labor efficiency variance.

Fixed costs are often more controllable than variable costs. True False

True It is fairly easy to adjust some fixed costs such as advertising or insurance. It is often more difficult to change variable costs that are related to activity.

Companies use the _____ _____ cycle to evaluate and improve performance.

Variance analysis

A detailed plan for the future that is usually expressed in formal quantitative terms is Profit planning responsibility accounting a budget the budget period

a budget Profit planning-Profit planning is a process used by businesses to achieve their planned levels of profits by preparing a number of budgets that together form an integrated business plan known as the master budget. responsibility accounting-Responsibility accounting is the idea that a manager should be held responsible for only those items they can actually control. the budget period-The budget period is the length of time a budget should cover.

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) Blank______ variance. activity revenue spending

activity Revenue: A revenue variance is the difference between how much revenue should have been given at the actual level of activity and the actual revenue Spending: A spending variance is the difference between how much a cost should have been given the actual level of activity and the actual amount of the cost.

The flexible budget performance report consists of Blank______ activity variances the manager's performance evaluations the planning budget, flexible budget and actual results revenue and spending variances

activity variances the planning budget, flexible budget and actual results revenue and spending variances

A flexible budget performance report combines the net income for two periods activity variances with the revenue and spending variances manager's performance with the employee's performance

activity variances with the revenue and spending variances

Required borrowings on a cash budget is calculated by subtracting the desired ending cash balance from the amount of cash excess subtracting the beginning cash balance from the amount of the cash deficiency adding the desired ending cash balance to the amount of the cash deficiency adding the desired ending cash balance to the amount of cash excess

adding the desired ending cash balance to the amount of the cash deficiency The correct calculation would be to subtract the amount of cash excess from the desired ending cash balance.

The receipts section of the cash budget lists all cash inflows, except from financing total sales for the period all cash inflows total credit sales

all cash inflows, except from financing (which detail the borrowings and principal and interests payments that take place during budgeting) total sales for the period-Only sales where cash was collected would be included. all cash inflows-Any cash inflows from financing would be in the financing section of the cash budget, not the receipts section. total credit sales-Credit sales would not be included unless cash were collected from them in the same period.

To prepare a budgeted balance sheet as of December 31, 2023, data is needed from the ____ December 31, 2022. balance sheet as of statement of cash flows for the year ended income statement for the year ended

balance sheet as of The budgeted balance sheet is developed using data from the balance sheet from the beginning of the budget period and data contained in the various schedules Income statement for 2020 is needed. income statement for the year ended-Income statement for 2020 is needed.

The variance analysis cycle ______. is used to assign blame for poor performance begins with the preparation of performance reports includes the investigation of all variances begins with the preparation of the budget

begins with the preparation of performance reports DOES NOT ASSIGN BLAME FOR POOR PERFORMANCE is used to assign blame for poor performance includes the investigation of all variances-only significant variances are investigated begins with the preparation of the budget-it begins with the preparation of the performance report

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

control/controlling

A spending variance is the Blank______ projected amount to be spent actual amount spent difference between the budgeted cost of the item and the actual cost of the item difference between what a cost should have been at the actual level of activity and the actual amount of the cost

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

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 Blank______ variance.

efficiency

Unfavorable activity variances may not indicate bad performance because increased activity should result in higher variable costs increased activity should result in higher fixed costs Reason: Fixed costs should not change with changes in activity. costs should not change as activity changes

increased activity should result in higher variable costs increased activity should result in higher fixed costs-Fixed costs should not change with changes in activity.

The cash budget uses information from the budgeted balance sheet and income statement is prepared near the end of the master budget process is the first budget prepared in the master budget process

is prepared near the end of the master budget process uses information from the budgeted balance sheet and income statement-The budgeted statements are prepared after the cash budget. is the first budget prepared in the master budget process-The sales budget is the first budget prepared

Poor supervision is one possible cause of an unfavorable Blank______ variance. labor efficiency fixed overhead budget labor rate material price

labor efficiency fixed overhead budget-The fixed overhead budget variance is the difference between actual and budgeted fixed overhead. labor rate-The labor rate variance is based on the wage rate of employees and has nothing to do with supervision. material price-The material price variance is based on the price paid for goods and has nothing to do with usage or supervision.

Responsibility accounting

managers should be held responsible for only those items that they can actually control to a significant extent

The calculation of unit product cost requires information from the selling and administrative cash manufacturing overhead ending finished goods inventory

manufacturing overhead selling and administrative-The calculation of unit product cost requires information about direct materials, direct labor and manufacturing overhead. cash-The calculation of unit product cost requires information about direct materials, direct labor and manufacturing overhead. ending finished goods inventory-The calculation of unit product cost requires information about direct materials, direct labor and manufacturing overhead.

An integrated business plan that formally lays out the company's goals is called the master sales self-imposed profit planning

master sales-A sales budget is a detailed budget showing the expected sales for the budget period. self-imposed-A self-imposed budget is a budget that is prepared with the full cooperation and participation of managers at all levels and could be associated with any type of budget. profit planning-A profit planning budget refers to preparing a number of budgets that together form an integrated business plan.(master)

If poor-quality materials results in excessive labor processing time, the _____ manager will probably be held responsible for the labor efficiency variance. Assume they were purchased human resources purchasing production

purchasing Possible causes of an unfavorable labor efficiency variance includes: poorly trained or motivated workers; poor-quality materials, requiring more labor time; faulty equipment causing breakdowns and work interruptions; and poor supervision of workers

Borrowing money is required whenever the cash excess equals the minimum required cash balance there is a cash deficiency the cash excess is greater than the minimum required cash balance the cash excess is less than the minimum required cash balance

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

When direct labor is used as the overhead allocation base, the variable overhead efficiency variance ___ cannot be calculated will always be unfavorable explains how efficient overhead resources were used will be favorable when the direct labor efficiency variance is favorable

will be favorable when the direct labor efficiency variance is favorable explains how efficient overhead resources were used-It depends on the efficiency of direct labor