Accounting, 9e (Horngren)
Chapter 23 Flexible Budgets and Standard Costs
Learning Objective 23-1
1) A static budget is prepared for one level of sales volume.
2) A favorable variance reflects an increase in operating income.
3) A variance is the difference between an actual amount and a budgeted amount.
4) Flexible budgets are budgets that summarize cost and revenue information at various volume levels within a
relevant range.
5) The sales volume variance arises because the number of units actually sold differs from the number of units
expected to be sold according to the static budget.
6) The sales volume variance results from the fact that the actual selling price is different than the budgeted selling
price.
7) The flexible budget variance arises because the number of units actually sold differs from the static budget units.
8) The flexible budget is based on the actual number of outputs.
9) A static budget presents financial data at several different volume levels
10) Portobello Company prepared the following static budget for the coming month:
Static Budget
Units/volume 5,000
Per Unit
Sales revenue $3.00 $15,000
Variable expenses $1.80 9,000
Contribution margin 6,000
Fixed expenses 5,000
Operating income/(loss) $1,000
If a flexible budget was prepared at a volume of 4,000, how much would the operating income be?
A) ($200)
B) $500
C) $2,200
D) $1,000
11) Portobello Company prepared the following static budget for the coming month:
Static Budget
Units/volume 5,000
Per Unit
Sales revenue $3.00 $15,000
Variable expenses $1.80 9,000
Contribution margin 6,000
Fixed expenses 5,000
Operating income/(loss) $1,000
If a flexible budget was prepared at a volume of 6,000, how much would the operating income be?
A) ($200)
B) $500
C) $2,200
D) $1,000
12) Ibis Company prepared the following static budget for the coming month:
Static Budget
Units/volume 12,000
Per Unit
Sales revenue $20.00 $240,000
Variable expenses $9.00 108,000
Contribution margin 132,000
Fixed expenses 130,000
Operating income/(loss) $2,000
If a flexible budget was prepared at a volume of 13,000 units, how much would the operating income be?
A) $22,000
B) $17,500
C) $24,000
D) $13,000
13) Ibis Company prepared the following static budget for the coming month:
Static Budget
Units/volume 12,000
Per Unit
Sales revenue $20.00 $240,000
Variable expenses $9.00 108,000
Contribution margin 132,000
Fixed expenses 130,000
Operating income/(loss) $2,000
If a flexible budget was prepared at a volume of 14,000 units, how much would the operating income be?
A) $22,000
B) $17,500
C) $24,000
D) $13,000
14) Which of the following BEST describes flexible budgets?
A) Flexible budgets have contingency funds to allow flexibility of spending.
B) Flexible budgets summarize financial results at several different volume levels.
C) Flexible budgets are an integral part of the master budget.
D) Flexible budgets can accommodate several different price structures.
15) In a flexible budget, which of the following amounts stays the same as the volume changes?
A) The total amount of contribution margin
B) The total amount of fixed costs
C) The total amount of variable expenses
D) The total amount of sales revenue
16) In a flexible budget, which of the following amounts does NOT stay the same as the volume changes?
A) The price per unit
B) The fixed costs
C) The variable expense per unit
D) The total contribution margin
17) Sweet Baby Diaper Company sells disposable diapers for $.20 each. Variable costs are $.05 per diaper, while
fixed costs are $75,000 per month. At a volume of 700,000 diapers per month, what operating income would be
shown in the flexible budget?
A) $7,500
B) $45,000
C) $30,000
D) $15,000
18) Sweet Baby Diaper Company sells disposable diapers for $.20 each. Variable costs are $.05 per diaper, while
fixed costs are $75,000 per month. At a volume of 600,000 diapers per month, what operating income would be
shown in the flexible budget?
A) $7,500
B) $45,000
C) $30,000
D) $15,000
19) ABBA Manufacturing makes staplers. The budgeted selling price is $10 per stapler, the variable rate is $5 per
stapler and budgeted fixed costs are $12,000. What is the budgeted operating income for 5,000 staplers?
A) $15,000
B) $13,000
C) $25,000
D) $50,000
20) A company’s flexible budget for 40,000 units of production showed sales of $110,000, variable costs of $60,000,
and fixed costs of $41,000. What net operating income would you expect the company to earn if it produces and
sells 43,000 units?
A) $17,250
B) $12,750
C) $9,000
D) $11,850
21) Portobello Company prepared the following static budget for the coming month:
Static Budget
Units/volume 5,000
Per Unit
Sales revenue $3.00 $15,000
Variable expenses $1.80 9,000
Contribution margin 6,000
Fixed expenses 5,000
Operating income/(loss) $1,000
Using the format below, please prepare a flexible budget including data at volumes of 4,000 and 6,000 units.
Flexible Budget
Units/volume 4,000 5,000 6,000
Per Unit
Sales revenue $3.00
Variable expenses $1.80
Contribution margin
Fixed expenses
Operating income/(loss)
22) Ibis Company prepared the following static budget for the coming month:
Static Budget
Units/volume 12,000
Per Unit
Sales revenue $20.00 $240,000
Variable expenses $9.00 108,000
Contribution margin 132,000
Fixed expenses 130,000
Operating income/(loss) $2,000
Using the format below, please prepare a flexible budget including data at volumes of 13,000 and 14,000 units.
Flexible Budget
Units/volume 12,000 13,000 14,000
Per Unit
Sales revenue $20.00
Variable expenses $9.00
Contribution margin
Fixed expenses
Operating income/(loss)
Learning Objective 23-2
1) The sales volume variance is the difference between the static budget and the flexible budget amounts, and is
caused by actual sales volume being different than budgeted sales volume.
2) Which of the following BEST describes sales volume variance?
A) Difference between actual amounts and the flexible budget due to differences in price and costs
B) Difference between the flexible budget and static budget due to differences in volumes
C) Difference between the static budget and actual amounts due to differences in price
D) Difference between the flexible budget and static budget due to differences in fixed expenses
3) Which of the following BEST describes flexible budget variance?
A) Difference between actual amounts and the flexible budget due to differences in price and costs
B) Difference between the flexible budget and static budget due to differences in volumes
C) Difference between the flexible budget and actual amounts due to differences in volumes
D) Difference between the flexible budget and static budget due to differences in fixed expenses
4) Onyx Company prepared a static budget at the beginning of the month. It’s the end of the month and the
company is analyzing actual results versus budget using flexible budget methodology. Data are as follows:
Static budget: Sales volume: 1,000 units Price: $70 per unit
Variable expense: $32 per unit Fixed expenses: $37,500 per month
Operating income: $500
Actual results: Sales volume: 990 units Price: $74 per unit
Variable expense: $35 per unit Fixed expenses: $33,000 per month
Operating income: $5,610
Based on the above data, how much was the flexible budget variance for sales revenue?
A) $5,490 U
B) $5,490 F
C) $3,960 U
D) $3,960 F
5) Onyx Company prepared a static budget at the beginning of the month. At the end of the month, the company is
analyzing actual results versus budget using flexible budget methodology. Data are as follows:
Static budget: Sales volume: 1,000 units Price: $70 per unit
Variable expense: $32 per unit Fixed expenses: $37,500 per month
Operating income: $500
Actual results: Sales volume: 990 units Price: $74 per unit
Variable expense: $35 per unit Fixed expenses: $33,000 per month
Operating income: $5,610
Based on the above data, how much was the flexible budget variance for variable expenses?
A) $5,490 U
B) $2,970 U
C) $2,970 F
D) $3,960 F
6) Onyx Company prepared a static budget at the beginning of the month. At the end of the month, the company is
analyzing actual results versus budget using flexible budget methodology. Data are as follows:
Static budget: Sales volume: 1,000 units Price: $70 per unit
Variable expense: $32 per unit Fixed expenses: $37,500 per month
Operating income: $500
Actual results: Sales volume: 990 units Price: $74 per unit
Variable expense: $35 per unit Fixed expenses: $33,000 per month
Operating income: $5,610
Based on the above data, how much was the flexible budget variance for fixed expenses?
A) $4,500 U
B) $4,500 F
C) $0
D) $5,490 F
7) Onyx Company prepared a static budget at the beginning of the month. At the end of the month, the company is
analyzing actual results versus budget using flexible budget methodology. Data are as follows:
Static budget: Sales volume: 1,000 units Price: $70 per unit
Variable expense: $32 per unit Fixed expenses: $37,500 per month
Operating income: $500
Actual results: Sales volume: 990 units Price: $74 per unit
Variable expense: $35 per unit Fixed expenses: $33,000 per month
Operating income: $5,610
Based on the above data, how much was the flexible budget variance for operating income?
A) $4,500 U
B) $4,500 F
C) $380 U
D) $5,490 F
8) Onyx Company prepared a static budget at the beginning of the month. At the end of the month, the company is
analyzing actual results versus budget using flexible budget methodology. Data are as follows:
Static budget: Sales volume: 1,000 units Price: $70 per unit
Variable expense: $32 per unit Fixed expenses: $37,500 per month
Operating income: $500
Actual results: Sales volume: 990 units Price: $74 per unit
Variable expense: $35 per unit Fixed expenses: $33,000 per month
Operating income: $5,610
Based on the above data, how much was the sales volume variance for revenues?
A) $4,500 U
B) $700 U
C) $380 U
D) $3,960 F
9) Onyx Company prepared a static budget at the beginning of the month. At the end of the month, the company is
analyzing actual results versus budget using flexible budget methodology. Data are as follows:
Static budget: Sales volume: 1,000 units Price: $70 per unit
Variable expense: $32 per unit Fixed expenses: $37,500 per month
Operating income: $500
Actual results: Sales volume: 990 units Price: $74 per unit
Variable expense: $35 per unit Fixed expenses: $33,000 per month
Operating income: $5,610
Based on the above data, how much was the sales volume variance for variable expenses?
A) $2,970 U
B) $320 F
C) $380 U
D) $3.960 F
10) Onyx Company prepared a static budget at the beginning of the month. At the end of the month, the company is
analyzing actual results versus budget using flexible budget methodology. Data are as follows:
Static budget: Sales volume: 1,000 units Price: $70 per unit
Variable expense: $32 per unit Fixed expenses: $37,500 per month
Operating income: $500
Actual results: Sales volume: 990 units Price: $74 per unit
Variable expense: $35 per unit Fixed expenses: $33,000 per month
Operating income: $5,610
Based on the above data, how much was the sales volume variance for fixed expenses?
A) $2,970 U
B) $4,500 F
C) $380 U
D) $0
11) Onyx Company prepared a static budget at the beginning of the month. At the end of the month, the company is
analyzing actual results versus budget using flexible budget methodology. Data are as follows:
Static budget: Sales volume: 1,000 units Price: $70 per unit
Variable expense: $32 per unit Fixed expenses: $37,500 per month
Operating income: $500
Actual results: Sales volume: 990 units Price: $74 per unit
Variable expense: $35 per unit Fixed expenses: $33,000 per month
Operating income: $5,610
Based on the above data, how much was the sales volume variance for operating income?
A) $2,970 U
B) $5,490 F
C) $380 U
D) $5,110 F