Exam 2 Practice

9 Assume that the amount of one of a company's variable expenses in its flexible budget is $40,000. The actual amount of expense is $42,000 and the amount in the company's planning budget is $44,000. The spending variance for this expense is:

2,000 Unfavorable. Actual expense = flexible budget. 42,000 - 40,000

9 Assume that the amount of one of a company's variable expenses in its flexible budget is $40,000. The actual amount of expense is $42,000 and the amount in the company's planning budget is $44,000. The activity variance for this expense is:

4,000 Favorable. Activity variance is planning - flexible. 44,000 - 40,000

9 Assume that the amount of one of a company's variable expenses in its flexible budget is $76,000. The actual amount of expense is $72,000 and the amount in the company's planning budget is $78,000. The amount of revenue variance is:

4,000 Unfavorable. Flex budg. - actual revenue.

CH. 9 Which of the following statements is true?

A planning budget is prepared before the period begins and is valid for only the planned level of activity

9 Planning Budget

Cost formulas x planned numbers. Then add both numbers

9 Flex budget

Cost formulas x the actual result/number. Then add both numebers

8 Assume a company is preparing a budget for its first two months of operations. During the first and second months, it expects credit sales of $50,000 and $60,000, respectively. The company expects to collect 40% of its credit sales in the month of the sale and the remaining 60% in the following month. What amount of accounts receivable would the company report in its balance sheet at the end of the second month?

Credit sales in month 2 x Cash collection percentage for subsequent month. $60,000 x 60% = 36,000

8 Which of the following equations is false with respect to the direct materials budget?

Estimated sales in units of finished goods x units of raw materials needed per unit of finished goods = units of raw materials needed to meet production

Which of the following statements is true with respect to the materials quantity variance

It is computed using the standard price

8 Which of the following statements is false with respect to a budgeted income statement

Its net income should equal the net cash flows from the cash budget

9 The company's planned level of activity was 2,000 hours and its actual level of activity was 1,900 hours. How much utilities expense would be included in the planning budget

Utilites given equation. 150 + (2,000 x 0.75) = 1,650

Which of the following statements is true? -Variable costing treats direct materials as a period cost. -Variable costing treats direct labor as a period cost. -Variable costing treats variable manufacturing overhead as a period cost. -Variable costing treats fixed manufacturing overhead as a period cost.

Variable costing treats fixed manufacturing overhead as a period cost.

9 An activity variance is calculated by comparing the

planning budget to the flexible budget

9 Assume that a company's planned level of activity is 1,000 hours and its actual level of activity is 1,100 hours. Based on this info, the company's activity variance for cost will be:

unfavorable. Because the actual was higher than planned 1,100 > 1,000

8 If all of the company's sales are on account, what is the budgeted net operating income for may. (accounts receivable, May 1st and accounts receivable May 31st)

$5,000. Step 1: Calculate the sales: Accounts receievable May 31 $20,000 (+) Cash collections from customers 115,000 (-) Accounts receivable, May 1st. 15,000 = Sales =$120,000 Step 2: Calculate NOI Sales + COGS = GM + Selling & admin exp. = NOI

9 Assume the following info for one of a company's variable expenses: - The amount of the expense in the planning budget is $9,000 - The cost formula is $9.00 per hour - The actual level of activity is 900 hours - The spending variance is $200 unfavorable The actual amount of the expense must be:

$8,300. Act results x cost budget formulas + spending var. <---- Cost = 9.00x9 + 200

Which of the following statements is false? -Absorption costing treats fixed administrative expense as a period cost. - Absorption costing treats sales commissions as a period cost. -Absorption costing treats fixed manufacturing overhead as a period cost. -Absorption costing treats variable manufacturing overhead as a product cost.

Absorption costing treats fixed manufacturing overhead as a period cost

9 What amount of revenue would appear in the company's flexible budget?

Actual results x planned revenue. 55 x 200 = 11,000

8 What is the equation used to prepare a production budget?

Budgeted unit sales + Desired units of ending finished goods - units of beginning finished goods inventory

8 Which of the following statements is false?

Budgets enable each department to function independently from other departments

8 Assume a company is preparing a budget for its first two months of operations. During the first and second months, it expects credit sales of $40,000 and $77,000, respectively. The company expects to collect 30% of its credit sales in the month of the sale and the remaining 70% in the following month. What are the expected cash collections from credit sales during the first month?

Credit sales in month 1 x Cash collection percentage. $40,000 x 30% = 12,000

In absorption costing, a complete definition of unit product cost includes:

Direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead.

Which of the following statements is true? -In absorption costing, variable manufacturing overhead costs flows through the inventory accounts on the balance sheet before being recorded as part of cost of goods sold on the income statement. -In absorption costing, variable manufacturing overhead costs flows through the inventory accounts on the balance sheet before being recorded as part of selling and administrative expenses on the income statement. -In absorption costing, variable manufacturing overhead costs flows through the inventory accounts on the balance sheet before being recorded as sales revenue on the income statement. -In absorption costing, variable manufacturing overhead costs are recorded as period expenses on the income statement as incurred.

In absorption costing, variable manufacturing overhead costs flows through the inventory accounts on the balance sheet before being recorded as part of cost of goods sold on the income statement.

Which of the following statements is true with respect to the labor spending variance

It encompasses the labor rate and efficiency variances

When the units produced are less than the units sold, which of the following equations explains the difference between absorption costing and variable costing net operating income?

Number of units released from ending inventory × fixed manufacturing overhead cost per unit

9 The company's planned level of activity was 2,000 hours and its actual level of activity was 1,850 hours. How much supplies expense would be included in the planning budget

Planned level of activity x Cost formula (Supplies, variable)

8 Which of the following statements is true?

Planning involves developing goals and preparing various budgets to achieve those goals.

The standard direct material cost per unit of finished goods is computed in which of the following ways?

Standard quantity per unit of finished goods * standard price per unit of direct material

9 Which of the following statements is true?

The activity for revenue will be unfavorable if the actual level of activity is less than the planned level of activity

9 Which of the following statements is true?

The activity variance for a variable expense will be unfavorable if the actual level of activity is greater than the planned level of activity

8 Which of the following is not one of the sections within a cash budget?

The investing section

8 Which of the following estimates is not used in preparing a sales budget including a schedule of expected cash collections?

The percent of next quarter's unit sales in ending inventory.

9 Which of the following is statements is true?

The spending variance for a fixed expense will be favorable if the amount of the expense contained in the flexible budget is greater than the actual amount of the expense. Act < Flex Budget

Which of the following statements is true? - When the units produced are greater than the units sold, absorption costing income will be greater than variable costing income because absorption costing defers some fixed manufacturing overhead cost in ending inventory whereas variable costing expenses each period's fixed manufacturing overhead on the income statement. - When the units produced are greater than the units sold, absorption costing income will be less than variable costing income because absorption costing defers some fixed manufacturing overhead cost in ending inventory whereas variable costing expenses each period's fixed manufacturing overhead on the income statement. - When the units produced are greater than the units sold, absorption costing income will be greater than variable costing income because absorption costing defers some variable manufacturing overhead cost in ending inventory whereas variable costing expenses each period's variable manufacturing overhead on the income statement. -When the units produced are greater than the units sold, absorption costing income will be less than variable costing income because absorption costing defers some variable manufacturing overhead cost in ending inventory whereas variable costing expenses each period's variable manufacturing overhead on the income statement.

When the units produced are greater than the units sold, absorption costing income will be greater than variable costing income because absorption costing defers some fixed manufacturing overhead cost in ending inventory whereas variable costing expenses each period's fixed manufacturing overhead on the income statement.

Which of the following statements is true? - When the units produced are less than the units sold, absorption costing income will be greater than variable costing income because absorption costing releases some fixed manufacturing overhead cost from ending inventory whereas variable costing expenses each period's fixed manufacturing overhead on the income statement. - When the units produced are less than the units sold, absorption costing income will be less than variable costing income because absorption costing releases some fixed manufacturing overhead cost from ending inventory whereas variable costing expenses each period's fixed manufacturing overhead on the income statement. - When the units produced are less than the units sold, absorption costing income will be greater than variable costing income because absorption costing releases some variable manufacturing overhead cost from ending inventory whereas variable costing expenses each period's variable manufacturing overhead on the income statement. - When the units produced are less than the units sold, absorption costing income will be less than variable costing income because absorption costing releases some variable manufacturing overhead cost from ending inventory whereas variable costing expenses each period's variable manufacturing overhead on the income statement.

When the units produced are less than the units sold, absorption costing income will be less than variable costing income because absorption costing releases some fixed manufacturing overhead cost from ending inventory whereas variable costing expenses each period's fixed manufacturing overhead on the income statement.

9 Assume that a company's planned level of activity is 1,100 hours and its actual level of activity is 1,000 hours. Based on this info, the company's activity variance for its variable expense will be:

all favorable. Cost/expense came in underbudget

9 Assume that a company's planned level of activity is 1,000 hours and its actual level of activity is 1,100 hours. Based on this info, the company's activity variance for revenue will be:

favorable. Because the actual was higher than planned 1,100 > 1,000