Question 1

Which of the following is not a component of the total profit variance?
A)Sales volume variance.
B)Flexible budget variance.
C)Sales price variance.
D)Market size and share variance.
E)All of the above are components of the total profit variance.

Accepted Answer

The answer of Which of the following is not a...

Question 2

The Farmington Company has a flexible budget based on direct labor hours.At the 100,000 hours level, the budget shows the following variable overhead costs: Indirect materials $\quad$$ 16,000
Indirect labor $\quad$$\quad$$ 44,000 At an activity level of 120,000 hours, total variable costs will be:
A)$19,200
B)$60,000
C)$52,800
D)$72,000

Accepted Answer

Variable costs change in proportion to the activity level. At 120,000 hours, which is 20% more than 100,000 hours, the costs will increase by 20%. The total variable costs at 100,000 hours are $16,000 + $44,000 = $60,000. Increasing this by 20% gives $60,000 * 1.2 = $72,000.

Question 3

Jackie's Jewelry Company reported the following budgeted and actual results based on sales of 100 units of product: $\begin{array}{llll}&\text { Flexible Budget }&\text { "As if" Budget }&\text { Actual Results }\
\text { Direct Labor } & \$ 800 & \$ 700 & \$ 850 \
\text { Direct Materials } & \$ 400 & \$ 450 & \$ 450 \
\text { Overhead } & \$ 600 & \$ 600 & \$ 610
\end{array}$ The company's total input quantity variance is:
A)$50 favorable.
B)$160 unfavorable.
C)$150 favorable.
D)$50 unfavorable.

Accepted Answer

The total input quantity variance is the sum of the direct labor quantity variance, the direct materials quantity variance, and the overhead quantity variance. The direct labor quantity variance is $50 unfavorable ($850 actual - $800 flexible budget). The direct materials quantity variance is $0 ($450 actual - $450 flexible budget). The overhead quantity variance is $10 unfavorable ($610 actual - $600 flexible budget). Therefore, the total input quantity variance is $50 unfavorable ($50 + $0 + $10).

Question 4

If the labor efficiency variance is $1,000unfavorable, then:
A)Budgeted labor rate exceeded actual labor rate.
B)Actual labor rate exceeded budgeted labor rate.
C)Budgeted labor input exceeded actual labor input.
D)Actual labor input exceeded budgeted labor input.
E)None of the above.

Accepted Answer

An unfavorable labor efficiency variance occurs when the actual labor input (hours worked, for example) exceeds the budgeted or standard labor input required to produce a certain amount of goods. This means more labor was used than planned, leading to higher costs.

Question 5

The formula for the sales volume variance is:
A)(Actual Sales Quantity - Budgeted Sales Quantity) x Actual Unit Contribution Margin
B)(Budgeted Sales Quantity - Actual Sales Quantity) x Total Profit Variance
C)Flexible Budget Profit - Master Budget Profit.
D)(Budgeted Sales Quantity - Actual Sales Quantity) ÷ Total Profit Variance
E)(Actual Sales Quantity - Budgeted Sales Quantity) ÷ Actual Unit Contribution Margin

Accepted Answer

The answer of The formula for the sales volume variance...

Question 6

PVC Pro produces PVC pipe in 12 foot lengths.The following information was provided concerning its labor and materials $$\begin{array} { | l | c | } 
\hline  { \text { Actual Data } } \
\hline \text { Produced } & 12,200 \text { units } \
\hline \text { Materials used } & \text { 4,650 lbs. @ \$7.00 per pound } \
\hline \text { Labor worked } & 7,450 \text { hrs. costing \$80,460 } \
\hline
\end{array}$$ $$\begin{array} { | l | r | } 
\hline  { \text { Budget Data } } \
\hline \text { Budgeted units } & 12,000 \text { units } \
\hline \text { Budgeted materials per pipe } & 0.40 \mathrm { lb } . \mid @ \$ 7.10 \text { per pound } \
\hline \text { Budgeted labor per pipe } & 0.60 \text { hours @ } \$ 11.00 \text { per hour } \
\hline
\end{array}$$
How much is the materials price variance?
A)$1,530 F
B)$465 F
C)$1,050 F
D)$1,065 F

Accepted Answer

The answer of PVC Pro produces PVC pipe in 12...

Question 7

The formula for calculating an input price variance is:
A)(Actual volume less budgeted volume) x actual price.
B)(Budgeted volume less actual volume) x budgeted price.
C)(Budgeted price less actual price) x actual volume.
D)(Actual price less budgeted price) x budgeted volume,

Accepted Answer

The input price variance is the difference between the budgeted price and the actual price of inputs used multiplied by the actual volume, as opposed to the budgeted volume. This formula allows for the calculation of the variance in cost due to the difference in price, rather than the difference in volume.

Question 8

A favorable materials price variance will occur when:
A)Actual costs of materials were less than budgeted
B)More material was used than was budgeted
C)Actual cost of materials were greater than budgeted
D)Less material was used than was budgeted

Accepted Answer

A favorable materials price variance occurs when the actual cost of materials is less than the budgeted cost of materials. This means that the company saved money on the materials they purchased.

Question 9

The two major components of the total profit variance are:
A)Sales volume variance and flexible budget variance.
B)Price variance and quantity variance.
C)Sales volume variance and sales mix variance.
D)Flexible budget variance and quantity variance.
E)None of the above.

Accepted Answer

The total profit variance is primarily composed of the sales volume variance, which measures the impact of the difference in the actual quantity sold from the expected quantity, and the flexible budget variance, which assesses the difference between the actual results and the budgeted amounts based on the actual sales volume.

Question 10

The starting point for preparing a monthly budget is:
A)Projecting sales.
B)Projecting production.
C)Projecting cash inflows.
D)Projecting cash outflows.
E)Projecting material needs.

Accepted Answer

Projecting sales is typically the starting point for preparing a monthly budget because sales projections help determine the levels of production, cash inflows, cash outflows, and material needs required to meet those sales targets.

Question 11

The purpose of creating a flexible budget is to:
A)Determine how much of the difference between actual and budgeted profits was due strictly to the difference between budgeted and actual sales.
B)Determine how much of the difference between actual and budgeted profits was due strictly to the difference between budgeted and actual variable costs.
C)Determine how much of the difference between actual and budgeted profits was due strictly to the difference between budgeted and actual fixed costs.
D)Determine which department is responsible for the overall budget variance.

Accepted Answer

The purpose of creating a flexible budget is to determine how much of the difference between actual and budgeted profits was due strictly to the difference between budgeted and actual sales. A flexible budget adjusts to changes in activity levels, allowing for a more accurate analysis of the effect of changes in sales on profits. By comparing actual results to a flexible budget based on the actual level of activity, the portion of the variance due to sales volume can be isolated.

Question 12

Sales commissions for the Grant Company are budgeted based on a percent of sales.The sales department budgeted sales of $150,000 for total commissions of $4,500.If actual sales totaled $170,000 the flexible budget will show total commissions of:
A)$24,500
B)$5,100
C)$4,500
D)$15,500

Accepted Answer

To find the answer, we need to first determine the commission rate. We can do this by dividing the total commissions by the budgeted sales:

$4,500 ÷ $150,000 = 0.03 or 3%

Now we can use this rate to calculate the total commissions for the actual sales amount:

$170,000 x 0.03 = $5,100

Therefore, the flexible budget will show total commissions of $5,100.

Question 13

The following material budgets have been developed for the Criders Company. $\begin{array}{ll}
\text { Price per pound } & \$ 6.50 \
\text { Pounds per unit } & 1 \
\text { Purchase price variance } & \$ 3,200 \text { unfavorable }
\end{array}$ If the company purchased 16,000 units, the actual price per pound of material purchased must have been:
A)$6.70
B)$5.00
C)$6.30
D)$5.80

Accepted Answer

The purchase price variance formula is: (Actual Price - Standard Price) x Actual Quantity. Given the variance is $3,200 unfavorable and the standard price is $6.50, we can set up the equation: (Actual Price - $6.50) x 16,000 = $3,200. Solving for the Actual Price gives us $6.70.

Question 14

Variance analysis is an important tool because:
A)It helps management determine where bottlenecks in the production process occurred
B)It helps management determine better pricing strategies
C)It helps management determine why actual profits varied from budgeted profits
D)It helps management determine which department operated most efficiently.

Accepted Answer

Variance analysis allows management to compare and analyze actual financial results against budgeted or expected results. By identifying the reasons for the variances, such as unexpected expenses or lower than expected sales, management can make decisions to improve future performance and profitability. This makes C the best choice as it directly addresses the purpose of variance analysis in determining why actual profits varied from budgeted profits. The other choices, while related to performance analysis, do not specifically relate to the purpose of variance analysis.

Question 15

Which of the following statements is not true?
A)If actual sales are greater than budgeted sales, the result is a favorable variance.
B)If actual cost is greater than budgeted cost, the result is an unfavorable variance.
C)If budgeted sales are greater than actual sales, the result is an unfavorable variance.
D)If budgeted cost is greater than actual cost, the result is an unfavorable variance.
E)If actual cost is less than budgeted cost, the result is a favorable variance.

Accepted Answer

D) If budgeted cost is greater than actual cost, the result is actually a favorable variance, not an unfavorable one, because spending less than planned is generally considered positive in budgeting.

Question 16

For what purpose is a flexible budget used?
A)To provide various possible outcomes for management to consider.
B)To adjust input prices so that future variances are eliminated.
C)To insure that profit does not drop below a predetermined level.
D)To identify the sources of variances.

Accepted Answer

The answer of For what purpose is a flexible budget...

Question 17

The controller for Navia, Inc.created a budget prior to the current period.At the end of the period, the controller compared the budget with the actual results.For what purpose is the controller using budgets?
A)Coordination
B)Control
C)Variances
D)Planning

Accepted Answer

The controller is using budgets for control purposes by comparing budgeted figures with actual results to manage and monitor the performance of the organization.

Question 18

Which of the following items would differ in amount when comparing the master and flexible budgets for a freight company in which actual sales resulted in $2,500,000 based on 8,000 shipments during a period that 7,800 shipments were budgeted?
A)Total sales revenue.
B)Equipment costs.
C)Rent.
D)All of the above will differ.

Accepted Answer

Total sales revenue would differ as it is directly related to the number of shipments made. Equipment costs and rent are typically fixed costs and would not be affected by a change in the number of shipments.

Question 19

Given the following data, calculate total profit variance. $$\begin{array} { l l l } 
& \text { Master Budget } & \text { Actual Results } \
\text { Revenue } & \$ 73,000 & \$ 75,000 \
\text { Variable costs } & \$ 23,000 & \$ 20,000 \
\text { Contribution marg in } & \$ 50,000 & \$ 55,000 \
\text { Fixed costs } & \$ 15,000 & \$ 10,000 \
\text { Profit before taxes } & \$ 35,000 & \$ 45,000
\end{array}$$
A)$2,000 Favorable.
B)$2,000 Unfavorable.
C)$10,000 Unfavorable.
D)$10,000 Favorable.
E)$5,000 Favorable.

Accepted Answer

The total profit variance is calculated as the difference between the actual profit and the budgeted profit. Here, the actual profit is $45,000 and the budgeted profit is $35,000, resulting in a $10,000 favorable variance.

Question 20

Which of the following would not result in a variance from budget:
A)A machine breaks down.
B)Budgets are set in a manner making them difficult to achieve.
C)A supplier raises prices.
D)The Chief Executive Officer takes a week of vacation.

Accepted Answer

The Chief Executive Officer taking a week of vacation would not result in a variance from budget as it does not involve any changes in the planned activities or expenditures of the organization.

Quiz 8: Budgetary Control and Variance Analysis

Which of the following is not a component of the total profit variance?

The Farmington Company has a flexible budget based on direct labor hours.At the 100,000 hours level, the budget shows the following variable overhead costs: Indirect materials \quad $ 16,000 Indirect labor \quad\quad $ 44,000 At an activity level of 120,000 hours, total variable costs will be:

If the labor efficiency variance is $1,000unfavorable, then:

The formula for the sales volume variance is:

The formula for calculating an input price variance is:

A favorable materials price variance will occur when:

The two major components of the total profit variance are:

The starting point for preparing a monthly budget is:

The purpose of creating a flexible budget is to:

Sales commissions for the Grant Company are budgeted based on a percent of sales.The sales department budgeted sales of $150,000 for total commissions of $4,500.If actual sales totaled $170,000 the flexible budget will show total commissions of:

Variance analysis is an important tool because:

Which of the following statements is not true?

For what purpose is a flexible budget used?

The controller for Navia, Inc.created a budget prior to the current period.At the end of the period, the controller compared the budget with the actual results.For what purpose is the controller using budgets?

Which of the following items would differ in amount when comparing the master and flexible budgets for a freight company in which actual sales resulted in $2,500,000 based on 8,000 shipments during a period that 7,800 shipments were budgeted?

Which of the following would not result in a variance from budget: