Question 1

Cost-volume-profit analysis is a simplified version of a flexible budget.

Accepted Answer

Cost-volume-profit analysis is a technique that analyzes the relationship between sales volume, costs, and profits. It is a simplified budgeting tool that focuses on identifying the breakeven point and determining the levels of sales needed to achieve a certain level of profit. A flexible budget, on the other hand, takes into account the various levels of sales and production and adjusts the budget accordingly. Therefore, CVP analysis is a simplified version of a flexible budget.

Question 2

When an organization's actual revenues are greater than its budgeted revenues, the difference is referred to as a favourable variance.

Accepted Answer

This statement is true. A favourable variance occurs when actual revenues are higher than budgeted revenues.

Question 3

Differences between budgeted amounts and actual amounts are called budget variances.

Accepted Answer

This statement is true. Budget variances refer to the differences between the budgeted (planned) amounts and the actual amounts spent or received.

Question 4

The master budget includes two components: an operating budget and a time budget.

Accepted Answer

The master budget includes multiple components, including the operating budget, financial budget, and capital budget. There is no component called the "time budget."

Question 5

A flexible budget reflects a range of operations.

Accepted Answer

A flexible budget is designed to account for a range of operations or levels of activity. This type of budget adjusts for changes in activity levels and provides more accurate projections for revenue, expenses, and profits than a static budget that remains fixed regardless of actual activity.

Question 6

A formalized financial plan for organizational operations is called a long-term strategy.

Accepted Answer

A formalized financial plan for organizational operations is called a budget, not a long-term strategy. A long-term strategy involves setting long-term goals and determining actions to achieve those goals, which may include financial planning but encompasses much more.

Question 7

In a production budget, beginning inventory plus budgeted production equals sales plus targeted ending inventory.

Accepted Answer

This equation is known as the production budget equation and is a fundamental principle of production planning and inventory management. Beginning inventory is added to the budgeted production to get the total available for sale. This total should equal sales plus the targeted ending inventory to ensure that inventory levels are properly managed.

Question 8

Managers need information from current beginning inventories and required ending inventories to prepare the production budget.

Accepted Answer

The production budget is largely determined by the desired level of ending inventory, which in turn is based on the beginning inventory and the projected sales volume. Therefore, managers do need information on beginning and ending inventories to prepare the production budget.

Question 9

To prepare a budgeted income statement, managers draw data from the revenue budget, the cost of goods sold budget, and the cash budget.

Accepted Answer

The answer of To prepare a budgeted income statement, managers...

Question 10

The ending inventories budget is typically expressed in terms of costs, while the production budget is typically expressed in units.

Accepted Answer

The ending inventories budget is typically expressed in terms of costs because it estimates the value of inventory at the end of the period, while the production budget is typically expressed in units because it is focused on the physical output of production.

Question 11

Production and inventory budgets form the basis for developing the revenue budget.

Accepted Answer

The revenue budget is typically developed first as it estimates the total sales and revenue expected. This forecast then informs the production and inventory budgets, as they need to align with the sales expectations to meet demand efficiently.

Question 12

Budget variances cannot be calculated from a static budget.

Accepted Answer

Budget variances can be calculated from a static budget by comparing the actual results to the budgeted figures, which allows for the analysis of any deviations.

Question 13

If actual activities do not follow plans, a variance is likely to result.

Accepted Answer

Variance is the difference between planned and actual performance. If activities do not follow plans, then there will be a difference between planned and actual performance. Therefore, a variance is likely to result.

Question 14

An operating budget is the component of a master budget that contains management's plans for revenues, production, and operating costs.

Accepted Answer

This is a correct definition of an operating budget.

Question 15

The cash budget is included in an organization's operating budget.

Accepted Answer

The answer of The cash budget is included in an...

Question 16

Master budgets are often summarized in a company's short-term operating plans.

Accepted Answer

The answer of Master budgets are often summarized in a...

Question 17

A master budget is a comprehensive plan for an upcoming financial period.

Accepted Answer

A master budget is a comprehensive plan that outlines an organization's goals and objectives for a future period that includes both financial and operational information. It typically includes a budgeted income statement, balance sheet, cash flow statement, as well as supporting schedules for each of these statements.

Question 18

Budgeting provides a means for defining managers' decision rights.

Accepted Answer

Budgeting involves setting financial goals, allocating resources, and monitoring performance against those goals. This process helps to define decision rights, as it lays out the responsibilities and expectations for each manager within an organization in terms of spending and resource utilization. By establishing a budget, managers are empowered to make informed decisions about their department's expenditures and to adjust their activities as necessary to achieve their financial targets.

Question 19

Favourable variances are positive amounts; unfavourable variances are negative amounts.

Accepted Answer

Favourable variances indicate better-than-expected performance (e.g., lower costs or higher revenues than planned), while unfavourable variances indicate worse-than-expected performance. However, whether these variances are represented as positive or negative amounts depends on the context and accounting practices, not on their nature as favourable or unfavourable.

Question 20

A financial budget is the master budget component that leads to all budgeted financial statements.

Accepted Answer

The answer of A financial budget is the master budget...

Quiz 10: Static and Flexible Budgets