Question 1

If actual sales are $96,000 and budgeted sales are $87,000 and actual advertising paid is $6,100 and budgeted advertising is $7,300, the variances are respectively are: Note: F - Favourable, U - Unfavourable (adverse).

Accepted Answer

Sales variance = Actual sales - Budgeted sales = $96,000 - $87,000 = $9,000 Favourable because actual sales are higher than budgeted. Advertising variance = Budgeted advertising - Actual advertising = $7,300 - $6,100 = $1,200 Favourable because actual spending on advertising is less than budgeted.

Question 2

Use the information below to answer the following questions. $$\begin{array} { l c c } 
& \text { Budget for April } & \text { Actual for April } \
\text { Output } & 40,000 \text { units } & 40,000 \text { units } \
\text { Sales } & \$ 400,000 & \$ 400,000 \
\text { Raw materials } & \$ 80,000 & \$ 88,000 \
\text { Labour } & \$ 200,000 & \$ 180,000 \
\text { Overheads } & 225,000 & 305,000
\end{array}$$
-Refer to the table above. The raw materials variance can best be described as:

Accepted Answer

The raw materials variance is adverse because the actual cost ($88,000) is higher than the budgeted cost ($80,000). This could be due to either an increase in the price of raw materials or excessive use of raw materials, or both.

Question 3

Where there is an insignificant adverse variance, management is best advised to:

Accepted Answer

Keeping the variance under review allows management to monitor the situation and take action if the variance begins to trend in a negative direction. Ignoring the variance completely may lead to more significant adverse variances in the future. Investigating the variance in full detail may not be cost-effective or necessary for an insignificant variance. Ignoring the possibility of a compensating favourable variance is not a sound decision-making approach.

Question 4

If budgeted profit is $11,000, favourable variances are $3,100 and unfavourable variances are $7,450, actual profit (loss)is:

Accepted Answer

The answer of If budgeted profit is $11,000, favourable variances...

Question 5

Prepare a flexible cost budget for 8,000, 9,000 and 10,000 units of output, given the following data: Variable costs:
$\begin{array}{lr}
\text { Direct materials } & \$ 5 \
\text { Direct labour } & 4 \
\text { Variable manufacturing overhead } & 8
\end{array}$
Budgeted fixed manufacturing overhead $\$ 90,000$.

Accepted Answer

The answer of Prepare a flexible cost budget for 8,000,...

Question 6

An adverse (unfavourable)labour efficiency variance could be caused by:

Accepted Answer

Machine breakdowns can lead to an adverse labour efficiency variance because they can cause delays and disruptions in the production process, leading to workers taking longer to complete tasks than planned.

Question 7

What variance does the difference between the actual cost of the direct labour hours worked and the planned cost of the direct labour hours measure?

Accepted Answer

The answer of What variance does the difference between the...

Question 8

Where budget targets have proven to be unrealistically optimistic, management is best advised to:

Accepted Answer

It is unrealistic to insist on adhering to budgets that are not achievable. Therefore, the best option is to revise the budget realistically so that it can serve as an achievable target. While simply ignoring the budget may seem like a viable option, it is essential to have a financial plan in place to guide resource allocation and financial decision-making. Moreover, insisting that junior management adheres to unrealistic budgets may lead to employee burnout or demotivation. Therefore, the best option is to revise the budget into the realm of achievability.

Question 9

Which budget criticism can be dealt with by adapting and improving budgeting practices?

Accepted Answer

Adapting and improving budgeting practices can address all of these criticisms. By involving all levels of the organization in the budgeting process and communicating the importance of the budget to employees, people will feel more valued. Additionally, developing a more collaborative and strategic approach to budgeting can alleviate perceptions that the process is solely focused on cutting costs. Finally, by implementing better monitoring and control mechanisms, budget padding can be minimized.

Question 10

Where there is a significant favourable variance management is best advised to:

Accepted Answer

It is important for management to investigate a significant favourable variance to determine whether targets are simply set too low or if there are other underlying reasons why performance is exceeding expectations. Ignoring the variance may lead to missed opportunities for improvement, while investigating can lead to insights that can be leveraged to drive future success. Therefore, both options B and C are the best course of action for management.

Question 11

Budget targets should be:

Accepted Answer

Budget targets should be realistic and achievable based on past experience and current resources. Setting unachievable targets can demotivate employees and create a culture of failure, while setting the highest possible standard of performance may not be feasible or cost-effective. Goals should be challenging yet attainable to motivate employees and ensure success. Setting easy targets does not promote growth or innovation.

Question 12

Use the information below to answer the following questions. $$\begin{array} { l c c } 
& \text { Budget for April } & \text { Actual for April } \
\text { Output } & 40,000 \text { units } & 40,000 \text { units } \
\text { Sales } & \$ 400,000 & \$ 400,000 \
\text { Raw materials } & \$ 80,000 & \$ 88,000 \
\text { Labour } & \$ 200,000 & \$ 180,000 \
\text { Overheads } & 225,000 & 305,000
\end{array}$$
-Refer to the table above. The labour variance can best be described as:

Accepted Answer

The labour variance is favourable because the actual labour cost ($180,000) is lower than the budgeted labour cost ($200,000), indicating efficient use of labour or a reduction in the hourly pay rate.

Question 13

The original budget was set at 15,000 units and estimated variable overheads at $345,000 ($23 per unit). If actual output is 16,000 units, calculate the variable overhead total and unit cost that would be shown in a budget flexed to actual output.

Accepted Answer

The flexed budget for variable overheads would be calculated based on the actual output. Since the original budget was based on $23 per unit for 15,000 units, for 16,000 units, it would be 16,000 units * $23 = $368,000. The unit cost remains the same at $23 because variable costs per unit do not change with the level of output.

Question 14

The variances which management should investigate each month are:

Accepted Answer

Management should investigate all variances that they deem significant, regardless of whether they are favorable or unfavorable. This allows management to identify areas where they can improve operations and make necessary adjustments to stay on track towards achieving the company's goals. Ignoring variances, especially unfavorable ones, can lead to missed opportunities for improvement and potential problems down the line. Therefore, it is essential to investigate all variances, and only focusing on favorable or unfavorable ones can be counterproductive.

Question 15

Which of these is not a limitation of the traditional approach to control through budgets?

Accepted Answer

Option C is not a limitation of the traditional approach to control through budgets. The cost of preparing a budget may vary depending on the size of the business and the complexity of the budgeting process. However, this is not considered a limitation of the traditional approach to control through budgets. A, B and D are limitations of the traditional approach to control through budgets.

Question 16

Budget targets should be:

Accepted Answer

Budget targets should be challenging enough to motivate the team but also achievable to avoid setting unrealistic expectations. This balance can help the team strive to achieve the targets while not feeling discouraged by failure.

Quiz 11: Budgeting

If actual sales are $96,000 and budgeted sales are $87,000 and actual advertising paid is $6,100 and budgeted advertising is $7,300, the variances are respectively are: Note: F - Favourable, U - Unfavourable (adverse) .

Where there is an insignificant adverse variance, management is best advised to:

If budgeted profit is $11,000, favourable variances are $3,100 and unfavourable variances are $7,450, actual profit (loss) is:

An adverse (unfavourable) labour efficiency variance could be caused by:

What variance does the difference between the actual cost of the direct labour hours worked and the planned cost of the direct labour hours measure?

Where budget targets have proven to be unrealistically optimistic, management is best advised to:

Which budget criticism can be dealt with by adapting and improving budgeting practices?

Where there is a significant favourable variance management is best advised to:

Budget targets should be:

The original budget was set at 15,000 units and estimated variable overheads at $345,000 ($23 per unit) . If actual output is 16,000 units, calculate the variable overhead total and unit cost that would be shown in a budget flexed to actual output.

The variances which management should investigate each month are:

Which of these is not a limitation of the traditional approach to control through budgets?

Budget targets should be: