Exam 4 MC Questions

Budgeted Accounts Receivable

DR A/R CR Sales then DR Cash CR A/R

When preparing the series of annual operating budgets, management usually starts the process with the

sales budget (IN UNITS)

Consider the cost of holding inventory

storage, insurance, obsolescence, shrinkage, damage

Short-term planning that produces "single use" plans such as the annual budget is referred to as

tactical planning

Flexible budget

takes assumptions from master budget & adjust from what actually happens (actual output)

What would be the most likely cause of an unfavorable labor rate variance together with a favorable labor efficiency (usage) variance?

the employment of more highly skilled staff than budgeted

SQA

= SQu * Actual Cost

Unit standard cost

= SQu * SP yes selling price. this is not equal to SQA

All of the following are benefits of budgeting except: a. budgeting provides assurance that the company will achieve its objectives. b. budgeting facilitates the coordination of activities. c. budgeting requires managers to plan ahead. d. budgeting provides specific benchmarks for evaluating performance.

? a. budgeting provides assurance that the company will achieve its objectives

A continuous budget: a. presents a statement of expectations for a period but does not present a firm commitment. b. drops the current month or quarter and adds a future month or a future quarter as the current month or quarter is completed. c. presents the plan for only one level of activity and does not adjust to changes in the level of activity. d. presents the plan for a range of activity so that the plan can be adjusted for changes in activity.

? b. drops the current month or quarter and adds a future month or a future quarter as the current month or quarter is completed.

Production supervisor

assigns the people to each job and for how much we pay the employees

External vs Internal

External: spending - caused by things that are outside the company Internal: efficiency - caused by how well we used our resources

Which of the following is a true statement regarding fixed overhead volume variance?

If production volume is greater than anticipated, then fixed overhead has been under allocated and the fixed overhead volume variance is favorable.

A company uses 2,400 pounds of materials and exceeds the standard by 80 pounds. The quantity variance is $40 unfavorable. What is the standard price?

SP * AQ --- SQA *SP SP (AQ - SQA) SP (2400 - 2320) math to get SP Note: 2400 - 80 = 2320 SQA

A manager purchased better quality materials for a slightly higher cost than anticipated. However, as a result, there was less spoilage than normal. What is the effect on the price and quantity variances respectively?

Unfavorable, unfavorable

Master budget

a budget prepared at the beginning of the period, reflects one level of activity of what you think will happen

What of the following formulas is used to compute variable overhead rate (or spending) variance?

actual hours * (actual rate - standard rate)

An unfavorable materials quantity variance would occur if

actual pounds of materials used were greater than the standard pounds allowed

[CMA Adapted] Flexible budgets a. accommodate changes in the inflation rate. b. accommodate changes in activity levels. c. are used to evaluate capacity utilization. d. are static budgets that have been revised for changes in price(s).

b. accommodate changes in activity levels.

Favorable vs unfavorable

based on the effect of net income favorable: actual income > budgeted income unfavorable: actual income < budgeted income

Select the correct formula to compute cost of goods manufactured

beginning WIP + RM used + DL + factory OH - ending WIP (think about the t-account then make it into one long formula)

The direct labor price (rate) variance was unfavorable and much greater than anticipated. Who would be in the best position to explain why the unfavorable variance occurred?

both the production and human resource supervisors

A flexible budget is

budget that is adjusted to reflect different costs at different activity levels

All of the following are operating budgets except: a. selling and admin budget b. purchases budget c. cash budget d. sales budget

c. cash budget cash is finance not operating

A budget sets the resource constraints under which managers must operate for the upcoming budget period. The control phase includes all of the following except: a. making actual-to-budget comparisons b. providing feedback to operating managers c. investigating variances d. assigning blame for poor performance

d. assigning blame for poor performance they don't assign blame but they do question why do we have poor performance and how can we not

Which statement is true as it related to a standard cost? a. it is the actual cost of a unit of product b. it represents the selling price of a product to produce the most profit c. it is a total budgeted amount in the accounting records d. it is often journalized in the accounting system

d. it is often journalized in the accounting system also note that a standard cost is an estimate not an actual cost. it is also a cost not a price. and it is for one unit so it can not be a budget (a budget in tails that it is more than one unit)

A manufacturing firm would not have need for which of the following budgets? a. sales budget b. production budget c. cash budget d. merchandise purchases budget

d. merchandise purchases budget (EVERY firm needs a cash budget)

Which of the following is prepared first? a. Overhead budget b. capital expenditure budget c. performance statement of cash flows d. sales budget

d. sales budget

Fixed overhead variances

fixed OH costs: lump sum of costs that remain unchanged in total for a given period despite wide changes in the level of activity. these are fixed in the sense they don't automatically inc or dec with the level of activity within the relevant range in total

budgeted manufacturing overhead rate

fixed cost + variable cost = OH

From what does the overhead volume variance result?

fixed overhead costs

Sales budget

forecasted sales in units * expected selling price per unit = sales in dollars

master vs flexible budget

no change between master and flexible when talking about the fixed overhead (fixed OH does not change within the relevant range [variable OH does change within relevant range])

depreciation

not paid in cash, typically with credit so you don't worry about it when doing OH budgets

What is the main difference between static and flexible budgets?

the variable costs are adjusted in a flexible budget

If an actual output is lower than budgeted output which of the following costs would you expect to be lower than the original budget?

total variable costs (change in total) note: variable costs per unit - stays the same per unit fixed costs per unit - change per unit total fixed costs - stays the same

When should we investigate variances?

when the amount of variances are material