Question 1

Gourmet Restaurants has the following flexible-budget formula:
Y = $13PH + $450,000 where PH is defined as process hours.
Which of the following statements is (are) true?
A) Gourmet has $450,000 of fixed costs.
B) Each additional hour of process time is expected to cost Gourmet $13.
C) Y would equal the amount shown as "total cost" in the company's flexible budget.
D) Both Gourmet has $450,000 of fixed costs and each additional hour of process time is expected to cost Gourmet $13.
E) All of the other answers are correct.

Accepted Answer

E

Question 2

Trois Elles Corporation recently prepared a manufacturing cost budget for an output of 50,000 units, as follows: $$\begin{array} { l r } 
\text { Direct materials } & \$ 100,000 \
\text { Direct labor } & 50,000 \
\text { Variable overhead } & 75,000 \
\text { Fixed overhead } & 100,000
\end{array}$$ Actual units produced amounted to 60,000. Actual costs incurred were: direct materials, $110,000; direct labor, $60,000; variable overhead, $100,000; and fixed overhead, $97,000. If Trois Elles evaluated performance by the use of a flexible budget, a performance report would reveal a total variance of:
A) $3,000 favorable.
B) $23,000 favorable.
C) $27,000 unfavorable.
D) $42,000 unfavorable.
E) None of the other answers are correct.

Accepted Answer

The flexible budget for 60,000 units would adjust variable costs proportionally: Direct materials $120,000, Direct labor $60,000, Variable overhead $90,000, Fixed overhead remains $100,000. Comparing actual costs to the flexible budget: Direct materials $10,000 favorable, Direct labor $0 variance, Variable overhead $10,000 unfavorable, Fixed overhead $3,000 favorable. Total variance: $3,000 favorable.

Question 3

Efficient or inefficient use of a specific component of variable overhead (e.g., electricity) will cause the firm to have a variable-overhead efficiency variance.

Accepted Answer

Efficient or inefficient use of a specific component of variable overhead will cause a variance in the variable overhead efficiency.

Question 4

Young Corporation has a high probability of operating at 40,000 activity hours during the upcoming period, and lower probabilities of operating at 30,000 hours and 50,000 hours. The company's flexible budget revealed the following: $$\begin{array} { l c c c } 
& \underline { 30,000 \text { Hours } } & \underline { 40,000 \text { Hours } } & \underline { 50,000 \text { Hours } } \
\text { Variable costs } & \$ 135,000 & \$ 180,000 & \$ 225,000 \
\text { Fixed costs } & 720,000 & 720,000 & 720,000
\end{array}$$ If Young operated at 35,000 hours, its total budgeted cost would be:
A) $877,500.
B) $945,000.
C) $787,500.
D) $997,500.
E) $810,000.

Accepted Answer

The variable cost per hour is $180,000 / 40,000 = $4.50. At 35,000 hours, variable costs are 35,000 * $4.50 = $157,500. Total budgeted cost = $157,500 (variable) + $720,000 (fixed) = $877,500.

Question 5

Del's Diner anticipated that 84,000 process hours would be worked during an upcoming accounting period when, in fact, 90,000 hours were actually worked. One of the company's cost functions is expressed as follows:
Y = $16PH + $640,000 where PH is defined as process hours
What is Del's flexible budget (Y) for the preceding cost function?
A) $1,280,000
B) $2,080,000
C) $1,984,000
D) $1,221,000
E) $2,112,000

Accepted Answer

The answer of Del's Diner anticipated that 84,000 process hours...

Question 6

Gourmet Restaurants has the following flexible-budget formula:
Y = $13PH + $450,000 where PH is defined as process hours.
What is Gourmet's budgeted total cost if its process hours equal 25,000?
A) $325,000.
B) $450,000.
C) $775,000.
D) $1,225,000.
E) Answer cannot be determined from the information provided.

Accepted Answer

We can use the flexible-budget formula to find the budgeted total cost for 25,000 process hours:
Y = $13(25,000) + $450,000
Y = $325,000 + $450,000
Y = $775,000

Question 7

Flexible budgets reflect a company's anticipated costs based on variations in:
A) activity levels.
B) inflation rates.
C) managers.
D) anticipated capital acquisitions.
E) standards.

Accepted Answer

Flexible budgets are designed to reflect a company's anticipated costs based on variations in activity levels. This means that the budget will change based on the amount of work or activity being done by the company. For example, if a company expects to produce more products or services during a given period of time, the flexible budget will reflect the increase in costs associated with that increase in activity.

Question 8

The budget variance arises from a comparison of actual variable overhead expenditures with budgeted variable overhead costs.

Accepted Answer

The answer of The budget variance arises from a comparison...

Question 9

Interspace Merchandising anticipated selling 29,000 units of a major product and paying sales commissions of $6 per unit. Actual sales and sales commissions totaled 31,500 units and $182,700, respectively. If the company used a static budget for performance evaluations, Interstate would report a cost variance of:
A) $6,300U.
B) $6,300F.
C) $8,700U.
D) $8,700F.
E) None of the other answers are correct.

Accepted Answer

The answer of Interspace Merchandising anticipated selling 29,000 units of...

Question 10

Delicious Treats (DT) anticipated that 84,000 process hours would be worked during an upcoming accounting period when, in fact, 92,000 hours were actually worked. One of the company's cost functions is expressed as follows:
Y = $16PH + $640,000 where PH is defined as process hours
What budgeted dollar amount would appear in DT's static budget and flexible budget for the preceding cost function? 
A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Accepted Answer

The answer of Delicious Treats (DT) anticipated that 84,000 process...

Question 11

Zin, Inc. is planning its cash needs for an upcoming period when 85,000 machine hours are expected to be worked. Activity may drop as low as 78,000 hours if some overdue equipment maintenance procedures are performed; on the other hand, activity could jump to 94,000 hours if one of Zin's major competitors likely goes bankrupt. A flexible cash budget to determine cash needs would best be based on:
A) 78,000 hours.
B) 85,000 hours.
C) 94,000 hours.
D) 78,000 hours and 94,000 hours.
E) 78,000 hours, 85,000 hours, and 94,000 hours.

Accepted Answer

Since Zin Inc. is anticipating activity to vary between 78,000 hours and 94,000 hours, the flexible cash budget should be prepared for all three levels of activity. This will provide a more accurate picture of cash needs and enable the company to plan for different scenarios. Therefore, the best choice is to prepare a flexible cash budget for 78,000 hours, 85,000 hours, and 94,000 hours.

Question 12

A flexible budget for 15,000 hours revealed variable manufacturing overhead of $90,000 and fixed manufacturing overhead of $120,000. The budget for 25,000 hours would reveal total overhead costs of $210,000.

Accepted Answer

The variable manufacturing overhead would increase with the hours, so for 25,000 hours, assuming the same rate, the variable overhead would be $150,000 (since $90,000 / 15,000 hours = $6 per hour, then $6 * 25,000 hours = $150,000). The fixed manufacturing overhead would remain the same at $120,000. Therefore, the total overhead costs would be $270,000 ($150,000 variable + $120,000 fixed).

Question 13

Gridiron Merchandising anticipated selling 27,000 units of a major product and paying sales commissions of $6 per unit. Actual sales and sales commissions totaled 27,500 units and $171,400, respectively. If the company used a flexible budget for performance evaluations, Gridiron would report a cost variance of:
A) $6,400U.
B) $6,400F.
C) $9,400U.
D) $9,400F.
E) None of the other answers are correct.

Accepted Answer

The flexible budget for sales commissions would be based on the actual sales volume: 27,500 units x $6 = $165,000. The actual sales commissions were $171,400, resulting in a cost variance of $171,400 - $165,000 = $6,400 unfavorable (U).

Question 14

Flexible budgets reflect a company's anticipated costs based on variations in activity levels.

Accepted Answer

Flexible budgets are designed to adjust for changes in activity levels, allowing a company to project costs and expenses more accurately. This allows for better decision-making and more effective management of resources.

Question 15

The manufacturing overhead applied to Work-in-Process Inventory by a company that uses standard costing would be computed as actual hours times a predetermined (standard) overhead rate.

Accepted Answer

The answer of The manufacturing overhead applied to Work-in-Process Inventory...

Question 16

A flexible budget:
A) parallels a static budget with respect to format and advantages of use.
B) is preferred over a static budget in the evaluation of performance.
C) gives management flexibility in terms of meeting budget goals.
D) can be used to compare actual and budgeted costs at various levels of activity.
E) is both preferred over a static budget in the evaluation of performance and can be used to compare actual and budgeted costs at various levels of activity.

Accepted Answer

A flexible budget is preferred over a static budget in the evaluation of performance as it adjusts for changes in activity levels, giving a more accurate assessment of actual performance. It also allows management flexibility in meeting budget goals as it is designed to change with changes in activity levels. Additionally, it can be used to compare actual and budgeted costs at various levels of activity, providing valuable insights into cost behavior and cost management.

Question 17

Young Corporation has a high probability of operating at 40,000 activity hours during the upcoming period, and lower probabilities of operating at 30,000 hours and 50,000 hours. The company's flexible budget revealed the following: $$\begin{array} { l c c c } 
& \underline { 30,000 \text { Hours } } & \underline { 40,000 \text { Hours } } & \underline { 50,000 \text { Hours } } \
\text { Variable costs } & \$ 135,000 & \$ 180,000 & \$ 225,000 \
\text { Fixed costs } & 720,000 & 720,000 & 720,000
\end{array}$$ Young's flexible-budget formula, where Y is defined as total cost and AH represents activity hours, is:
A) Y = $4.50AH + $24AH.
B) Y = $4.50AH + $720,000.
C) Y = $22.50AH.
D) Y = $180,000 + $18AH.
E) Y = $945,000.

Accepted Answer

The fixed cost is $720,000 at all activity levels. The variable cost per hour is ($225,000 - $180,000) / (50,000 - 40,000) = $4.50. Thus, the flexible-budget formula is Y = $4.50AH + $720,000.

Question 18

Which of the following mathematical expressions is found in a typical flexible-budget formula for overhead?
A) Total activity units + budgeted fixed overhead cost per unit.
B) Budgeted variable overhead cost per unit + budgeted fixed overhead cost.
C) (Budgeted variable overhead cost per unit × total activity units) + budgeted fixed overhead costs.
D) (Budgeted fixed overhead cost per unit × total activity units) + (budgeted variable overhead cost per unit × total activity units).
E) None of the other answers are correct.

Accepted Answer

The typical flexible-budget formula for overhead includes the variable overhead costs, which vary based on the level of activity, as well as the fixed overhead costs. Option A only includes the fixed overhead cost per unit, while option B only includes the variable and fixed overhead costs, without considering the total activity units. Option D includes both the fixed and variable overhead costs, but multiplies them separately by the total activity units, rather than combining them in a single formula. Option C, on the other hand, correctly multiplies the budgeted variable overhead cost per unit by the total activity units and then adds the budgeted fixed overhead costs. This is the most comprehensive and accurate expression for a flexible-budget formula for overhead.

Question 19

A static budget:
A) is based totally on prior year's costs.
B) is based on one anticipated activity level.
C) is based on a range of activity.
D) is preferred over a flexible budget in the evaluation of performance.
E) presents a clear measure of performance when planned activity differs from actual activity.

Accepted Answer

A static budget is based on one anticipated activity level, meaning it does not adjust for changes in actual activity. Therefore, it is not preferred over a flexible budget in the evaluation of performance and does not present a clear measure of performance when planned activity differs from actual activity. Additionally, a static budget is not based totally on prior year's costs or on a range of activity.

Question 20

Bunnie's Bakery anticipated making 17,000 fancy cakes during a recent period, requiring 14,000 hours of process time. Each hour of process time was expected to cost the firm $11. Actual activity for the period was higher than anticipated: 18,000 cakes and 15,200 hours. If each hour of process time actually cost Bunnie $12, what process-time variance would be disclosed on a performance report that incorporated static budgets and flexible budgets? 
A) Choice A
B) Choice B
C) Choice C
D) Choice D
E) Choice E

Accepted Answer

Process-time variance = (Actual hours x Actual rate) - (Actual hours x Budgeted rate)
= (15,200 x $12) - (14,000 x $11)
= $182,400 - $154,000
= $28,400

The performance report that incorporates static and flexible budgets would compare actual hours and costs to both the original budget and the revised flexible budget based on the actual level of activity. The process-time variance would be calculated based on the flexible budget rate of $11 per hour, since that was the rate that was originally budgeted for the planned level of activity. Therefore, the correct answer is choice C.

Quiz 11: Flexible Budgeting and Analysis of Overhead Costs

Gourmet Restaurants has the following flexible-budget formula: Y = $13PH + $450,000 where PH is defined as process hours. Which of the following statements is (are) true?

Efficient or inefficient use of a specific component of variable overhead (e.g., electricity) will cause the firm to have a variable-overhead efficiency variance.

Gourmet Restaurants has the following flexible-budget formula: Y = $13PH + $450,000 where PH is defined as process hours. What is Gourmet's budgeted total cost if its process hours equal 25,000?

Flexible budgets reflect a company's anticipated costs based on variations in:

The budget variance arises from a comparison of actual variable overhead expenditures with budgeted variable overhead costs.

A flexible budget for 15,000 hours revealed variable manufacturing overhead of $90,000 and fixed manufacturing overhead of $120,000. The budget for 25,000 hours would reveal total overhead costs of $210,000.

Flexible budgets reflect a company's anticipated costs based on variations in activity levels.

The manufacturing overhead applied to Work-in-Process Inventory by a company that uses standard costing would be computed as actual hours times a predetermined (standard) overhead rate.

A flexible budget:

Which of the following mathematical expressions is found in a typical flexible-budget formula for overhead?

A static budget: