Question 1

Certain budget reports are prepared monthly, whereas others are prepared more frequently depending on the activities being monitored.

Accepted Answer

Certain budget reports, such as income statements and cash flow statements, are typically prepared monthly. However, other reports, such as expense reports and variance analysis reports, may be prepared more frequently, such as weekly or even daily, depending on the activities being monitored.

Question 2

Total budgeted fixed costs appearing on a flexible budget will be the same amount as total fixed costs on the master budget.

Accepted Answer

Total budgeted fixed costs will remain the same whether they are calculated on a master budget or a flexible budget.

Question 3

Flexible budgets are widely used in production and service departments.

Accepted Answer

Flexible budgets allow for adjustments based on changes in production or service levels and are commonly used in these types of departments.

Question 4

A static budget is most useful for evaluating a manager's performance in controlling variable costs.

Accepted Answer

A static budget is based on fixed costs and does not take into account changes in variable costs. Therefore, it is not useful for evaluating a manager's performance in controlling variable costs. A flexible budget, which adjusts for changes in activity level and variable costs, would be more appropriate for this purpose.

Question 5

Policies regarding when a difference between actual and planned results should be investigated are generally more restrictive for noncontrollable items than for controllable items.

Accepted Answer

Policies regarding when a difference between actual and planned results should be investigated are generally more restrictive for controllable items than for noncontrollable items, because managers can directly influence controllable items through their decisions and actions.

Question 6

Flexible budgeting relies on the assumption that unit variable costs will remain constant within the relevant range of activity.

Accepted Answer

Flexible budgeting assumes that unit variable costs will remain constant within the relevant range of activity, while fixed costs will stay the same regardless of changes in activity levels. This allows for greater accuracy in predicting costs and profits at different levels of activity.

Question 7

The master budget is not used in the budgetary control process.

Accepted Answer

The master budget serves as the basis for the budgetary control process. Actual results are compared to the master budget in order to identify variances and take corrective actions.

Question 8

If actual results are different from planned results, the difference must always be investigated by management to achieve effective budgetary control.

Accepted Answer

The answer of If actual results are different from planned...

Question 9

A static budget is one that is geared to one level of activity.

Accepted Answer

A static budget is set for a specific level of activity and does not change, regardless of actual activity levels. It is not flexible and typically used for short-term planning purposes.

Question 10

A static budget is changed only when actual activity is different from the level of activity expected.

Accepted Answer

A static budget remains unchanged regardless of changes in the level of activity; it is set for a specific level of activity and does not adjust with actual activity levels.

Question 11

A flexible budget is prepared before the master budget.

Accepted Answer

A flexible budget is typically prepared after the master budget because it adjusts for actual levels of activity, allowing for more accurate budgeting compared to the fixed estimates used in the master budget.

Question 12

Budget reports comparing actual results with planned objectives should be prepared only once a year.

Accepted Answer

Budget reports should be prepared and compared regularly, not just once a year, to track progress and make any necessary adjustments.

Question 13

A formula used in developing a flexible budget is: Total budgeted cost = fixed cost + (total variable cost per unit × activity level).

Accepted Answer

This formula is correct and is used in developing a flexible budget, where the total budgeted cost is calculated based on the fixed cost and the total variable cost per unit multiplied by the activity level.

Question 14

A flexible budget report will show both actual and budget cost based on the actual activity level achieved.

Accepted Answer

A flexible budget report adjusts the budgeted costs according to the actual activity level achieved, which allows for a more accurate comparison of actual costs with budgeted costs. Therefore, a flexible budget report will show both actual and budget costs.

Question 15

The activity index used in preparing a flexible budget should not influence the variable costs that are being budgeted.

Accepted Answer

The activity index (or base) directly influences variable costs in a flexible budget, as these costs are expected to change in proportion to changes in the level of activity.

Question 16

A master budget is most useful in evaluating a manager's performance in controlling costs.

Accepted Answer

A master budget is a comprehensive financial planning document that outlines an organization's financial and operational goals, but it is not specifically designed for evaluating a manager's performance in controlling costs. Variance analysis, which compares actual costs to budgeted costs, is more directly useful for this purpose.

Question 17

A distinction should be made between controllable and noncontrollable costs when reporting information under responsibility accounting.

Accepted Answer

A key aspect of responsibility accounting is identifying costs that can be controlled by a particular individual or department, versus costs that cannot be controlled. This allows for more accurate evaluation of a manager's performance based on factors they can reasonably influence.

Question 18

A flexible budget is a series of static budgets at different levels of activities.

Accepted Answer

A flexible budget is designed to adjust to varying levels of activity by creating different budgets for different activity levels, rather than using a single static budget. This allows for more accurate forecasting and easier comparison of actual results with expected outcomes.

Question 19

A flexible budget can be prepared for each of the types of budgets included in the master budget.

Accepted Answer

A flexible budget can be prepared for any type of budget included in the master budget, including sales, production, direct materials, direct labor, manufacturing overhead, and selling and administrative expenses. The purpose of a flexible budget is to allow for changes in activity levels and provide a more accurate measure of performance evaluation.

Question 20

Management by exception means that management will investigate areas where actual results differ from planned results if the items are material and controllable.

Accepted Answer

Management by exception is a management principle where attention is given to areas that deviate significantly from planned results, only if those areas are material and can be controlled. This avoids micromanagement and allows managers to focus on areas that need improvement while leaving routine operations to continue without constant monitoring.

Quiz 10: Reporting and Analyzing Liabilities