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| 1 | |
A major weakness of static budgets is that: |
| | A) | they are geared only to a single level of activity. |
| | B) | they cannot be used to assess whether variable costs are under control. |
| | C) | they force the manager to compare actual costs at one level of activity to budgeted costs at a different level of activity. |
| | D) | all of the above. |
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| 2 | |
Kevin's Bar & Grill compares monthly operating results with a static budget prepared at the beginning of the year. When actual sales are less than budget, the restaurant would usually report favorable variances on: |
| | A) | fixed supervisory salaries and variable food costs. |
| | B) | variable food costs but not fixed supervisory salaries. |
| | C) | fixed supervisory salaries but not variable food costs |
| | D) | neither fixed supervisory salaries or variable food costs |
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| 3 | |
Which of the following statements is correct? |
| | A) | Unfavorable cost variances always indicate bad performance. |
| | B) | Favorable cost variances always indicate good performance. |
| | C) | Both of the above statements are correct. |
| | D) | Neither of the above statements are correct. |
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| 4 | |
An activity variance is the difference between: |
| | A) | a revenue or cost item in the static planning budget and the same item in the flexible budget. |
| | B) | how much the revenue should have been, given the actual level of activity, and the actual revenue for the period. |
| | C) | how much a cost should have been, given the actual level of activity, and the actual amount of the cost. |
| | D) | none of the above. |
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| 5 | |
A company's static budget estimate of total overhead costs was $400,000 based on the assumption that 20,000 units would be produced and sold. The company estimates that 30% of its overhead is variable and the remainder is fixed. What would be the total overhead cost according to the flexible budget if 24,000 units were produced and sold? |
| | A) | $384,000 |
| | B) | $400,000 |
| | C) | $424,000 |
| | D) | $464,000 |
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| 6 | |
If the actual cost incurred is greater than what the cost should have been as set forth in the flexible budget, the variance is: |
| | A) | labeled as favorable. |
| | B) | labeled as unfavorable. |
| | C) | cannot be labeled as favorable or unfavorable without obtaining an explanation. |
| | D) | an activity variance. |
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| 7 | |
If the average selling price is greater than expected, the revenue variance is: |
| | A) | labeled as favorable. |
| | B) | labeled as unfavorable. |
| | C) | cannot be labeled as favorable or unfavorable without obtaining an explanation. |
| | D) | an activity variance. |
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| 8 | |
Which of the following statements is not correct? |
| | A) | To generate a favorable variance for net operating income in a business that serves customers managers must take actions to increase client-visits. |
| | B) | To generate a favorable overall revenue and spending variance, managers must take actions to protest selling prices. |
| | C) | Flexible budget performance reports provide useful more useful information to managers than a simple comparison of budgeted to actual results. |
| | D) | A flexible budget performance report separates the effects of how well prices were controlled and operations were managed. |
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| 9 | |
Let q1 represents client visits and q2 represents hours of operations. The electricity cost for Jamie's Hair Salon depends on both client-visits and the hours of operations and its cost formula is $400 + $0.10q1 + 2.00 q2. If the actual number of client visits is 800 and the salon was open for 200 hours during the month, the flexible budget amount for electricity is: |
| | A) | $840 |
| | B) | $880 |
| | C) | $2,080 |
| | D) | $2,020 |
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| 10 | |
Which of the following statements is not correct? |
| | A) | A flexible budget allows managers to isolate activity variances and revenue and spending variances. |
| | B) | One of the common errors in preparing performance reports is to implicitly assume that all costs are fixed. |
| | C) | One of the common errors in preparing performance reports is to implicitly assume that all costs are variable. |
| | D) | Comparing static planning budget costs to actual costs only makes sense if the cost is variable. |
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