Question 1

Dehnert Midwifery's cost formula for its wages and salaries is $2,030 per month plus $409 per birth. For the month of May, the company planned for activity of 112 births, but the actual level of activity was 114 births. The actual wages and salaries for the month was $50,800. The wages and salaries in the planning budget for May would be closest to:
A)$47,838
B)$50,800
C)$49,909
D)$48,656

Accepted Answer

The planning budget for wages and salaries is calculated as $2,030 + ($409 * 112 births) = $47,838.

Question 2

Directly comparing static budget costs to actual costs only makes sense if the costs are variable.

Accepted Answer

Directly comparing static budget costs to actual costs can be misleading if the costs are not purely variable. Fixed costs, such as rent or salaries, will not change based on actual activity levels and should be evaluated separately from variable costs when analyzing budget variances.

Question 3

Which of the following comparisons best isolates the impact that changes in operating efficiency have on performance?
A)static planning budget and flexible budget
B)static planning budget and actual results
C)flexible budget and actual results
D)master budget and static planning budget

Accepted Answer

A flexible budget isolates the impact that changes in operating efficiency have on performance by adjusting budgeted amounts based on actual activity levels. By comparing actual results to a flexible budget, the impact of changes in operating efficiency can be more accurately evaluated. The other options (static planning budget vs. flexible budget, static planning budget vs. actual results, and master budget vs. static planning budget) do not necessarily isolate the impact of changes in operating efficiency.

Question 4

Ohme Framing's cost formula for its supplies cost is $1,620 per month plus $13 per frame. For the month of April, the company planned for activity of 882 frames, but the actual level of activity was 878 frames. The actual supplies cost for the month was $13,500. The supplies cost in the flexible budget for April would be closest to:
A)$13,086
B)$13,500
C)$13,034
D)$13,027

Accepted Answer

Flexible budget cost = Fixed cost + (actual activity level × variable cost per unit)
Fixed cost = $1,620
Variable cost per frame = $13
Actual activity level = 878 frames

Flexible budget cost = $1,620 + (878 × $13) = $13,034

Therefore, the supplies cost in the flexible budget for April would be closest to $13,034, which is choice C.

Question 5

A major weakness of flexible budgets is that:
A)they are valid for only a single level of activity.
B)they ignore fixed costs.
C)they compare actual costs at one level of activity to budgeted costs at a different level of activity.
D)none of these is a major weakness of flexible budgets.

Accepted Answer

Flexible budgets are designed to adjust for different levels of activity, and they account for both variable and fixed costs, making none of the given options a major weakness.

Question 6

Fuhrer Hotel bases its budgets on guest-days. The hotel's static budget for December appears below:  The total overhead cost at an activity level of 7,500 guest-days per month should be:
A)$227,250
B)$215,140
C)$216,140
D)$206,040

Accepted Answer

The answer of Fuhrer Hotel bases its budgets on guest-days....

Question 7

In a flexible budget performance report, actual costs should be compared to the flexible budget at the original budgeted activity level.

Accepted Answer

In a flexible budget performance report, actual costs should be compared to the flexible budget at the actual activity level. The flexible budget is recalculated based on the actual level of activity achieved, so the comparison between actual costs and the flexible budget is meaningful. Comparing actual costs to the original budgeted activity level would not account for any variations in activity that occurred during the period.

Question 8

Akey Hospital bases its budgets on patient-visits. The hospital's static budget for March appears below:  The total overhead cost at an activity level of 3,000 patient-visits per month should be:
A)$97,800
B)$92,100
C)$88,020
D)$92,640

Accepted Answer

To calculate the total overhead cost at an activity level of 3,000 patient-visits per month, we need to use the formula:

Total overhead cost = Fixed overhead cost + (Variable overhead rate x Activity level)

From the given information: 
Fixed overhead cost = $97,200 
Variable overhead rate per patient-visit = ($1,800 - $1,200) / (4,000 - 2,000) = $300 
Activity level = 3,000 patient-visits

Now, we can plug in the values: 
Total overhead cost = $97,200 + ($300 x 3,000) 
Total overhead cost = $97,200 + $900,000 
Total overhead cost = $997,200

Therefore, the best choice is B, which is $92,100, as it is the closest option to the calculated total overhead cost.

Question 9

Hatzenbuhler Manufacturing Corporation has prepared the following overhead budget for next month.  The company's variable overhead costs are driven by machine-hours. What would be the total budgeted overhead cost for next month if the activity level is 6,600 machine-hours rather than 6,800 machine-hours?
A)$107,824.00
B)$110,600.00
C)$108,300.00
D)$107,347.06

Accepted Answer

The answer of Hatzenbuhler Manufacturing Corporation has prepared the following...

Question 10

Towne Snow Removal's cost formula for its vehicle operating cost is $1,470 per month plus $399 per snow-day. For the month of November, the company planned for activity of 13 snow-days, but the actual level of activity was 9 snow-days. The actual vehicle operating cost for the month was $5,230. The vehicle operating cost in the flexible budget for November would be closest to:
A)$6,657
B)$5,230
C)$4,609
D)$5,061

Accepted Answer

The flexible budget cost is calculated using the actual level of activity: $1,470 + ($399 * 9) = $5,061.

Question 11

If the actual level of activity is 4% less than planned, then the variable costs in the static budget should be decreased by 4% before comparing them to actual costs.

Accepted Answer

This is because variable costs are directly proportional to the level of activity. If the level of activity decreases by 4%, the variable costs will also decrease by 4%. Therefore, to compare the budgeted variable costs with the actual variable costs, the budgeted variable costs need to be decreased by 4%.

Question 12

Tulip Midwifery's cost formula for its wages and salaries is $2,420 per month plus $388 per birth. For the month of January, the company planned for activity of 119 births, but the actual level of activity was 123 births. The actual wages and salaries for the month was $50,540. The wages and salaries in the flexible budget for January would be closest to:
A)$50,540
B)$48,592
C)$50,144
D)$50,225

Accepted Answer

To calculate the flexible budget for wages and salaries, we need to use the cost formula and the actual level of activity.

Using the cost formula:

Total cost = $2,420 + ($388 x Actual level of activity) 
Total cost = $2,420 + ($388 x 123) 
Total cost = $2,420 + $47,724 
Total cost = $50,144

Therefore, the wages and salaries in the flexible budget for January would be closest to $50,144, which is closest to option C.

Question 13

Peixoto Framing's cost formula for its supplies cost is $1,150 per month plus $14 per frame. For the month of July, the company planned for activity of 556 frames, but the actual level of activity was 555 frames. The actual supplies cost for the month was $9,190. The supplies cost in the planning budget for July would be closest to:
A)$8,920
B)$9,207
C)$8,934
D)$9,190

Accepted Answer

The answer of Peixoto Framing's cost formula for its supplies...

Question 14

A static planning budget is:
A)a budget for a single level of activity.
B)a budget that ignores inflation.
C)used only for fixed costs.
D)used when the mix of products does not change.

Accepted Answer

A static planning budget is a budget that is prepared based on a single level of activity. It does not take into account any changes in activity levels or other factors like inflation or changes in the mix of products. Therefore, option A is the correct choice. Option B is incorrect because a static planning budget may or may not consider inflation depending on the assumptions made during the budgeting process. Option C is incorrect because a static planning budget can be used for both fixed and variable costs. Option D is incorrect because a static planning budget can be used even if the mix of products changes, as long as the activity level remains the same.

Question 15

Pettry Snow Removal's cost formula for its vehicle operating cost is $2,170 per month plus $408 per snow-day. For the month of December, the company planned for activity of 16 snow-days, but the actual level of activity was 13 snow-days. The actual vehicle operating cost for the month was $7,600. The vehicle operating cost in the planning budget for December would be closest to:
A)$7,474
B)$9,354
C)$8,698
D)$7,600

Accepted Answer

To find the vehicle operating cost in the planning budget for December, we need to use the cost formula provided by Pettry Snow Removal:

Vehicle operating cost = $2,170 + ($408 x number of snow-days)

Based on the planning activity of 16 snow-days, the cost would be:

Vehicle operating cost = $2,170 + ($408 x 16) = $8,618

However, the actual level of activity in December was 13 snow-days, so we need to adjust our calculation:

Vehicle operating cost = $2,170 + ($408 x 13) = $7,594

This is lower than the actual cost of $7,600, so we can eliminate choices A and D.

The closest answer is choice C, $8,698, which is significantly higher than both the actual and adjusted planning costs. This suggests that the company may have over-budgeted for vehicle operating costs in its planning budget.

Question 16

A static planning budget is suitable for planning but is inappropriate for evaluating how well costs are controlled.

Accepted Answer

A static planning budget is prepared in advance and does not reflect any changes in actual costs or revenues. Therefore, it cannot be used to evaluate how well costs are controlled, as it does not take into account any variances between actual and budgeted costs. Instead, a flexible budget should be used for evaluation purposes, as it adjusts the budget based on actual levels of activity or revenue.

Question 17

Papenfuss Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms. The Inn's overhead budget for the most recent month appears below:  The Inn's variable overhead costs are driven by the number of guests. What would be the total budgeted overhead cost for a month if the activity level is 76 guests?
A)$52,848.40
B)$8,343.40
C)$8,274.40
D)$7,373.24

Accepted Answer

First, we need to determine the variable overhead cost per guest:
Variable overhead cost per guest = (Budgeted variable overhead cost – Budgeted fixed overhead cost) / Budgeted number of guests
Variable overhead cost per guest = ($8,278 – $2,300) / 152 = $34.50

Next, we can use the formula for total overhead cost:
Total overhead cost = Fixed overhead cost + (Variable overhead cost per guest × Number of guests)
Total overhead cost = $2,300 + ($34.50 × 76) = $8,274.

Therefore, the total budgeted overhead cost for a month with 76 guests is $8,274.40.

Question 18

A flexible budget report should contain variable costs and mixed costs but not fixed costs.

Accepted Answer

A flexible budget report should contain all types of costs, including variable, fixed, and mixed costs. This is because a flexible budget adjusts for changes in activity levels, so all costs should be taken into account.

Question 19

Hoppy Corporation compares monthly operating results to a static budget prepared at the beginning of the month. When the actual level of activity is less than budgeted, which of the following would be true?
A)Variable costs would show favorable variances.
B)Variable costs would show unfavorable variances.
C)Fixed costs would show favorable variances.
D)Fixed costs would show unfavorable variances.

Accepted Answer

When the actual level of activity is less than budgeted, variable costs would show favorable variances because the costs that were planned for higher production or sales did not occur due to the lower activity level, resulting in lower variable costs. However, fixed costs would show unfavorable variances as they are typically fixed in nature and do not change with changes in the level of activity.

Question 20

Comparing actual results to a budget based on the actual activity for the period is possible with the use of a:
A)monthly budget.
B)master budget.
C)flexible budget.
D)rolling budget.

Accepted Answer

A flexible budget is designed to adjust to changes in activity levels and provides a more accurate comparison between actual results and anticipated results for the level of activity achieved. Monthly budgets, master budgets, and rolling budgets do not provide the same level of flexibility.

Quiz 2: Flexible Budgets and Performance Analysis

Directly comparing static budget costs to actual costs only makes sense if the costs are variable.

Which of the following comparisons best isolates the impact that changes in operating efficiency have on performance?

A major weakness of flexible budgets is that:

Fuhrer Hotel bases its budgets on guest-days. The hotel's static budget for December appears below: The total overhead cost at an activity level of 7,500 guest-days per month should be:

In a flexible budget performance report, actual costs should be compared to the flexible budget at the original budgeted activity level.

Akey Hospital bases its budgets on patient-visits. The hospital's static budget for March appears below: The total overhead cost at an activity level of 3,000 patient-visits per month should be:

If the actual level of activity is 4% less than planned, then the variable costs in the static budget should be decreased by 4% before comparing them to actual costs.

A static planning budget is:

A static planning budget is suitable for planning but is inappropriate for evaluating how well costs are controlled.

A flexible budget report should contain variable costs and mixed costs but not fixed costs.

Hoppy Corporation compares monthly operating results to a static budget prepared at the beginning of the month. When the actual level of activity is less than budgeted, which of the following would be true?

Comparing actual results to a budget based on the actual activity for the period is possible with the use of a: