Question 1

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

Accepted Answer

The master budget is the cornerstone of the budgetary control process. It sets the goals and targets for the organization and serves as the basis for monitoring and controlling actual results.

Question 2

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

Accepted Answer

Flexible budgeting is designed to adjust for changes in activity levels. It assumes that unit variable costs will remain constant within the relevant range of activity, while fixed costs will remain constant in total. This allows for more accurate budgeting and forecasting as activity levels can be adjusted for without having to recalculate all costs.

Question 3

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

Accepted Answer

Budget reports should be prepared on a regular basis, typically monthly or quarterly, to allow for timely corrective action if actual results diverge from planned objectives.

Question 4

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 investigations of variances (differences between actual and planned results) are generally more stringent for controllable items, as they are under the direct influence of management, than for noncontrollable items, which are influenced by external factors beyond the organization's control.

Question 5

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 financial statements and income statements, are typically prepared monthly, whereas other reports, such as cash flow forecasts or variance analyses, may be prepared more frequently, such as weekly or bi-weekly, depending on the activities being monitored and the needs of the organization.

Question 6

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

Accepted Answer

A static budget is based on a single, fixed level of activity and is not adjusted even if the actual level of activity differs from what was estimated.

Question 7

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 8

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

Accepted Answer

A flexible budget report is designed to adjust to changes in activity levels and will therefore show both actual and budget costs based on the activity level achieved. This allows for more accurate comparison and analysis of performance.

Question 9

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

Accepted Answer

A flexible budget adjusts to changes in activity levels by creating a new set of budgets for each level of activity. This allows for better tracking and management of actual expenses and revenues as they relate to varying levels of activity.

Question 10

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 11

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

Accepted Answer

This is the correct formula for developing a flexible budget as it takes into account both fixed costs and variable costs based on the level of activity.

Question 12

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 13

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

Accepted Answer

A static budget is fixed and not adjusted for changes in activity levels, therefore it is not useful for evaluating a manager's performance in controlling variable costs which are affected by activity levels. A flexible budget, which adjusts for changes in activity levels, is better suited for this purpose.

Question 14

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 do not change with changes in activity levels, therefore they will remain the same amount on both the flexible budget and the master budget.

Question 15

Flexible budgets are widely used in production and service departments.

Accepted Answer

Flexible budgets are commonly used in production and service departments as they allow for adjustments based on actual activity levels. This helps to provide more accurate cost and revenue projections and supports better decision-making.

Question 16

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 each type of budget included in the master budget, as it allows for adjustments to be made based on actual results and changes in operating conditions. This helps to provide a more accurate picture of expected costs and revenues, and can assist in efficient resource allocation and decision-making.

Question 17

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 18

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 19

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 focuses on investigating situations where actual results significantly deviate from planned results, but only if these areas are deemed material and controllable. This approach is meant to streamline the management process by allowing managers to focus only on the areas that need their attention, rather than constantly micromanaging every aspect of a project or task.

Question 20

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

Accepted Answer

Responsibility accounting involves assigning responsibility for costs to specific individuals or departments, and differentiating between controllable costs (costs that can be directly influenced by individuals or departments) and noncontrollable costs (costs that cannot be directly influenced). This helps in effective cost management and decision-making.

Quiz 10: Reporting and Analyzing Liabilities