Chapter 6

Assuming a bottom-up process of budget development, which of the following should be initially responsible for developing sales estimates? A. The budget committee B. The sales department C. The marketing department D. The accounting department E. Top management

B. The sales department

A company's flexible budget for 23,000 units of production showed per unit contribution margin of $4.20 and fixed costs, $39,000. The operating income expected if the company produces and sells 26,000 units is: A. $109,200 B. $57,600 C. $39,000 D. $70,200 E. $10,000

D. $70,200 Contribution margin (26,000 × $4.20)= $109,200 Fixed costs= (39,000) Operating income= $70,200

A formal statement of future plans, usually expressed in monetary terms, is a: A. Variance analysis B. Variance report C. Prospectus D. Budget E. Position statement

D. Budget

A company's flexible budget for 14,000 units of production showed sales, $47,600; variable costs, $15,400; and fixed costs, $24,000. The fixed costs expected if the company produces and sells 24,000 units is: A. $24,000 B. $26,400 C. $47,600 D. $71,600 E. $15,400

A. $24,000

A company's flexible budget for 9,000 units of production showed sales, $44,100; variable costs, $14,400; and fixed costs, $17,000. The operating income expected if the company produces and sells 17,000 units is: A. $39,100 B. $31,306 C. $16,250 D. $12,700 E. $750

A. $39,100 Selling price per unit = $44,100 / 9,000 units = $4.90 per unit Variable costs per unit = $14,400 / 9,000 = $1.60 per unit Contribution margin per unit = $4.90 − $1.60 = $3.30 per unit Expected operating income for 17,000 units: Contribution margin (17,000 × $3.30)= $56,100 Fixed costs= (17,000) Operating income= $39,100

The process of planning future business actions and expressing them as a formal plan is called: A. Budgeting B. Standard cost analysis C. Variance analysis D. Cost accounting E. Managerial accounting

A. Budgeting

A company's flexible budget for 19,000 units of production showed sales, $81,700; variable costs, $30,400; and fixed costs, $12,000. The variable costs expected if the company produces and sells 12,000 units is: A. $30,400 B. $19,200 C. $81,700 D. $31,200 E. $93,700

B. $19,200 Variable costs per unit = $30,400 / 19,000 = $1.60 per unit Expected variable costs for 12,000 units = $1.60 per unit × 12,000 units = $19,200

A company's flexible budget for 25,000 units of production showed sales, $82,500; variable costs, $27,500; and fixed costs, $20,000. The fixed costs expected if the company produces and sells 20,000 units is: A. $102,500 B. $20,000 C. $27,500 D. $82,500 E. $22,000

B. $20,000

A company provided the following direct materials cost information. Compute the total direct materials cost variance. Standard costs assigned: Direct materials standard cost (413,000 units @ $3.00 / unit)$1,239,000 Actual costs: Direct materials costs incurred (411,750 units @ $3.20 / unit)$1,317,600 A. $3,750 Favorable B. $78,600 Unfavorable C. $82,350 Favorable D. $82,350 Unfavorable E. $78,600 Favorable

B. $78,600 Unfavorable Actual cost $1,317,600 − Standard cost $1,239,000 = $78,600 U

The most useful budget figures are developed: A. By the CEO B. From the "bottom-up" following a participatory process C. By the budget committee D. After the accounting period has begun E. From the "top-down"

B. From the "bottom-up" following a participatory process

A company provided the following direct materials cost information. Compute the direct materials quantity variance. Standard costs assigned: Direct materials standard cost (460,000 units @ $2.10/unit)$966,000 Actual costs: Direct materials costs incurred (458,550 units @ $2.20/unit)$1,008,810 A. $42,810 Favorable B. $3,190 Favorable C. $3,045 Favorable D. $3,045 Unfavorable E. $3,190 Unfavorable

C. $3,045 Favorable Direct materials quantity variance = $2.10 standard cost per unit × (460,000 standard units − 458,550 actual units) = $3,045 favorable

A company's flexible budget for 8,000 units of production showed sales, $34,400; variable costs, $17,600; and fixed costs, $17,000. The variable costs expected if the company produces and sells 17,000 units is: A. $54,400 B. $17,600 C. $37,400 D. $34,400 E. $51,400

C. $37,400 Variable costs per unit = $17,600 / 8,000 = $2.20 per unit Expected variable costs for 17,000 units = $2.20 per unit × 17,000 units = $37,400.

Admac Technologies has a standard variable overhead rate of $5.10 per machine hour, and each unit produced has a standard time allowed of 3.40 hours. The company's static budget was based on 46,000 units. Actual results for the year follow. Actual units produced: 45,000 Actual machine hours worked: 140,000 Actual variable overhead incurred: $690,000 Admac's variable-overhead efficiency variance is: A. $24,000 favorable B. $24,000 unfavorable C. $66,300 favorable D. $66,300 unfavorable E. None of the answers is correct

C. $66,300 favorable 45,000 × 3.40 = 153,000; 153,000 − 140,000 = 13,000 × $5.10 = $66,300 favorable

Which of the following is not a result of following a well-designed budgeting process? A. Improved coordination of business activities B. Improved communication of management's action plans C. Assurance of future profits D. Improved decision-making processes E. Improved performance evaluations

C. Assurance of future profits

Which of the following is a benefit derived from budgeting? A. Budgeting focuses management's attention on past performance. B. Budgeting avoids the need for incentives to improve employee performance. C. Budgeting provides a basis for evaluating performance. D. Budgeting avoids needing industry and economic factors in decision making. E. Budgeting eliminates the need for coordination across departments.

C. Budgeting provides a basis for evaluating performance.

Product A has a sales price of $17 per unit. Based on a 15,000-unit production level, the variable costs are $9 per unit and the fixed costs are $5 per unit. Using a flexible budget for 17,500 units, what is the budgeted operating income from Product A? A. $75,000 B. $42,500 C. $67,500 D. $65,000 E. $17,500

D. $65,000 Sales ($17 × 17,500 units)= $297,500 Variable costs ($9 × 17,500 units)= (157,500) Fixed costs ($5 × 15,000 units)= (75,000) Operating income= $65,000

Strongheart Enterprises anticipated selling 34,000 units of a major product and paying sales commissions of $7 per unit. Actual sales and sales commissions totaled 34,500 units and $248,800, respectively. If the company used a flexible budget for performance evaluations, Strongheart would report a cost variance of: A. $7,300F B. $10,800U C. $10,800F D. $7,300U E. None of the answers is correct

D. $7,300U 34,500 × $7 = $241,500; $248,800 − $241,500 = $7,300 U

Barrington Bears has developed the following sales forecasts for the next few months. January 500, February 600, March 720, April 800 and May 770. BB has 80 bears on hand on Dec. 31. Normal ending inventory policy is to hold 20% of next month's sales. Each bear needs 0.8 yards of fabric and two pounds of stuffing. Fabric is budgeted to cost $15 per yard and stuffing $4 per pound. Direct labor is paid $18 per hour. Each bear takes 40 minutes to hand-finish. Variable overhead totals $21 per direct labor hour. Fixed overhead amounts to $25,000 per month. Eighty yards of fabric and 100 pounds of stuffing were in stock at year-end. Ten percent and 25% of next month's stuffing and fabric needs respectively are planned for raw materials ending inventory each month. What quantities of fabric and/or stuffing must be purchased in March? A. 1,248 pounds of stuffing B. 747.6 yards of fabric C. 1,630.8 pounds of stuffing D. 600.4 yards of fabric E. None of the choices are correct

D. 600.4 yards of fabric

All of the following are steps in the budgetary control process except: A. Take corrective and strategic actions. B. Establish new objectives and a new budget. C. Develop the budget from planned objectives. D. Communicate differences to supervisors to facilitate promotion decisions. E. Compare actual results to budgeted amounts and analyze differences.

D. Communicate differences to supervisors to facilitate promotion decisions.

Based on a predicted level of production and sales of 15,000 units, a company anticipates reporting operating income of $62,000 after deducting variable costs of $90,000 and fixed costs of $13,000. Based on this information, the budgeted amounts of fixed and variable costs for 18,000 units would be: A. $15,600 of fixed costs and $108,000 of variable costs B. $13,000 of fixed costs and $93,000 of variable costs C. $15,600 of fixed costs and $90,000 of variable costs D. $13,000 of fixed costs and $90,000 of variable costs E. $13,000 of fixed costs and $108,000 of variable costs

E. $13,000 of fixed costs and $108,000 of variable costs Fixed costs should remain fixed at $13,000 Variable costs per unit = $90,000 / 15,000 units = 6.00 per unit Variable costs = (6.00 per unit) × 18,000 units = $108,000

Based on a predicted level of production and sales of 22,400 units, a company anticipates total variable costs of $100,800, fixed costs of $30,400, and operating income of $45,760. Based on this information, the budgeted amount of sales for 20,400 units would be: A. $144,063 B. $194,309 C. $176,960 D. $119,486 E. $161,160

E. $161,160 Sales = variable costs + fixed costs + operating income Sales @ 22,400 units = $100,800 + $30,400 + $45,760 = $176,960 Selling price per unit = $176,960/22,400 = $7.90 per unit Budgeted sales @ 20,400 units = $7.90 × 20,400 = $161,160

Nerve Pain Innovations anticipated that 97,000 process hours would be worked during an upcoming accounting period when, in fact, 103,000 hours were actually worked. One of the company's cost functions is expressed as follows: Y = $16PH + $770,000 where PH is defined as process hours What is Nerve Pain's flexible budget (Y) for the preceding cost function? A. $2,322,000 B. $2,424,000 C. $1,474,825 D. $1,540,000 E. $2,418,000

E. $2,418,000 Y = $16(103,000) + $770,000 = $2,418,000

Milltown Company specializes in selling used cars. During the month, the dealership sold 25 cars at an average price of $15,300 each. The budget for the month was to sell 23 cars at an average price of $16,300. Compute the dealership's sales price variance for the month. A. $25,000 favorable B. $10,300 favorable C. $32,600 favorable D. $32,600 unfavorable E. $25,000 unfavorable

E. $25,000 unfavorable Actual = 25 × $15,300 = $382,500; Flexible = 25 × $16,300 = $407,500 Sales price variance = $25,000 unfavorable

The Step Company has the following information for the year just ended: Budget Actual Sales in units 37,000 34,000 Sales $370,000 $357,000 Less: Variable Expenses 222,000 200,600 Contribution Margin $148,000 $156,400 Less: Fixed Expenses 95,000 116,000 Operating Income $53,000 $40,400 The Step Company's sales-volume variance is: A. $30,000 favorable B. $8,400 favorable C. $13,000 unfavorable D. $16,000 unfavorable E. $30,000 unfavorable

E. $30,000 unfavorable (37,000 − 34,000 units) × ($370,000 ÷ 37,000) = $30,000 unfavorable

Milltown Company specializes in selling used cars. During the month, the dealership sold 20 cars at an average price of $14,800 each. The budget for the month was to sell 18 cars at an average price of $15,800. Compute the dealership's sales volume variance for the month. A. $20,000 favorable B. $20,000 unfavorable C. $11,600 favorable D. $31,600 unfavorable E. $31,600 favorable

E. $31,600 favorable Flexible = 20 × $15,800 = $316,000; Fixed = 18 × 15,800 = $284,400 Sales volume variance = $31,600 favorable

A company provided the following direct materials cost information. Compute the direct materials price variance. Standard costs assigned: Direct materials standard cost (412,000 units @ $3.20/unit)$1,318,400 Actual costs: Direct materials costs incurred (411,450 units @ $3.30/unit)$1,357,785 A. $41,145 Favorable B. $41,200 Favorable C. $1,318,400 Unfavorable D. $1,318,400 Favorable E. $41,145 Unfavorable

E. $41,145 Unfavorable Direct materials price variance = 411,450 actual units × ($3.20 standard price − $3.30 actual price) = $41,145 unfavorable

Based on a predicted level of production and sales of 19,000 units, a company anticipates total variable costs of $85,500, fixed costs of $26,600, and operating income of $36,800. Based on this information, the budgeted amount of variable costs for 17,000 units would be: A. $156,200 B. $63,400 C. $26,600 D. $85,500 E. $76,500

E. $76,500 Variable cost per unit = $85,500 / 19,000 = $4.50 per unit Budgeted variable costs @ 17,000 units = $4.50 × 17,000 = $76,500

Hope, Inc. has a standard variable overhead rate of $5 per machine hour, with each completed unit expected to take 3 machine hours to produce. A review of the company's accounting records found the following: Actual variable overhead: $204,000 Variable-overhead efficiency variance: $18,500U Variable-overhead spending variance: $30,500F How many units did Hope actually produce during the period? A. 15,700 B. 14,800 C. 15,300 D. None of the answers is correct E. 14,400

E. 14,400 $18,500 U + $30,500 F = $12,000 F; $204,000 + $12,000 = $216,000; $216,000 / (3 hrs × $5) = 14,400 units

Which of the following will typically be included in a master budget prepared for a service organization? A. Production budget B. All of these C. Merchandise purchases budget D. Direct materials budget E. Direct labor budget

E. Direct labor budget