Managerial Accounting

Business

Quiz 9 :

Flexible Budgets and Performance Analysis

Quiz 9 :

Flexible Budgets and Performance Analysis

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Refer to the data for Auto Lavage in Exercise9- 9.The company actually washed 8,100 cars in October. Required: Prepare the company's flexible budget for October.
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Follow the format of the flexible budget given in the problem, but use 8,100 cars for each calculation:
Flexible Budget
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Mt. Hood Air offers scenic overflights of Mt. Hood and the Columbia River gorge. Data concerning the company's operations in August appear below: img The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an over flight at a discount. Required: 1. Prepare a flexible budget performance report for August. 2. Which of the variances should be of concern to management Explain.
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1)A performance report is similar to a flexible budget variance report. Remake the planning budget, flexible budget, and actual results so they are side by side. Calculate the variances (differences between each column) and determine if they are favorable (F) or unfavorable (U). If Revenues are higher than planned, it is a favorable outcome. Likewise, if revenues are lower than planned it is an unfavorable out come. The opposite is true with regards to expenses:
Flexible Budget Performance Report
img 2)The overall activity variance due to an increase in activity is $374. On the other hand, the $1,740 unfavorable revenue variance is large relative to the company's net operating income and should therefore be investigated. The other variances are relatively small, but should probably be investigated if they are likely to occur in following periods.

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What are some of the possible reasons that actual results may differ from what had been budgeted at the beginning of a period
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Actual results may differ from what had been budged at the beginning of a period, due to the following reasons:
• Activity Variance
• Revenue and spending variance
• Increase or decrease in revenues
• Increase or decrease in expenses

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Why is it difficult to interpret a difference between how much expense was budgeted and how much was actually spent
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What is a revenue variance and what does it mean
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Auto Lavage is a Canadian company that owns and operates a large automatic carwash facility near Quebec. The following table provides data concerning the company's costs: img For example, electricity costs are $1,400 per month plus $0.10 per car washed. The company expects to wash 8,000 cars in October and to collect an average of $5.90 per car washed. Required: Prepare the company's planning budget for October.
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What is a spending variance and what does it mean
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The Exterminator Inc. provides on-site residential pest extermination services. The company has several mobile teams who are dispatched from a central location in company - owned trucks. The company uses the number of jobs to measure activity. At the beginning of May, the company budgeted for 200 job , but the actual number of job, turned out to be 208. A report comparing the budgeted revenues and costs to the actual revenues and costs appears below: img Required: Is the above variance report useful for evaluating how well revenues and costs were controlled during May Why or why not
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Olympia Bivalve farms and sells oysters in the Pacific Northwest. The company harvested and sold 7,000 pounds of oysters in July. The company's flexible budget for July appears below: img The actual results for July appear below: img Required: Prepare a report showing the company's revenue and spending variances for July.
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What is a flexible budget and how does it differ from a static planning budget
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What is a static planning budget
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What does a flexible budget performance report do that a simple comparison of budgeted to actual results does not do
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What assumption is implicitly made about cost behavior when a budget is directly compared to actual results Why is this assumption questionable
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Air Meals is a company that prepares in-flight meals for airlines in its kitchen located next to the local airport. The company's planning budget for December appears below: img In December. 21,000meals were actually served. The company's flexible budget for this level of activity is as follows: img Required: 1. Prepare a report showing the company's activity variances for December, 2. Which of the activity variances should be of concern to management Explain.
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Gator Divers is a company that provides diving services such as underwater ship repairs to clients in the Tampa Bay area. The company's planning budget for March appears below: img Required: During March, the company's activity was actually 190 diving-hours. Prepare a flexible budget for that level of activity.
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Icicle Bay Tours operates day tours of coastal glaciers in Alaska on its tour boat the Emerald Glacier. Management has identified two cost drivers - the number of cruises and the number of passengers - that it uses in its budgeting and performance reports. The company publishes a schedule of day cruises that it may supplement with special sailings if there is sufficient demand. Up to 80 passengers can be accommodated on the tour boat.Data concerning the company's cost formulas appear below: img For example, vessel operating costs should be $ 6,800 per month plus $ 475.00 per cruise plus $3.50 per passenger.The company's sales should average $28.00 per passenger. The company's planning budget for August is based on 58 cruises and 3,200 passengers. Required: Prepare the company's planning budget for August.
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Refer to the data for The Exterminator Inc. in Exercise 9-6. A management intern has suggested that the budgeted revenues and costs should be adjusted for the actual level of activity in May before they are compared to the actual revenues and costs. Because the actual level of activity was 4% higher than budgeted, the intern suggested that all budgeted revenues and costs should be adjusted upward by4%.A report comparing the budgeted revenues and costs, with this adjustment, to the actual revenues and costs appears below: img Required: Is the above variance report useful for evaluating how well revenues and costs were controlled during May Why or why not
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Harold's , Roof Repair has provided the following data concerning its costs: img For example. wages and salaries should be $ 21,380 plus $ 15.80 per repair-hour. The company expected to work 2.500 repair-hours in June , but actually worked 2,400 repair-hours. The company expects its sales to be $43.50 per repair-hour. Required: Prepare a report showing the company's activity variances for June.
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What is an activity variance and what does it mean
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How does a flexible budget based on two cost drivers differ from a flexible budget based on a single cost driver
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