Cost Accounting, 15e Global Edition (Horngren/Datar/Rajan)
Chapter 7 Flexible Budgets, Direct-Cost Variances, and Management Control
Objective 7.1
1) A master budget is ________.
A) a budget which starts from a zero base
B) developed for a period for a planned output
C) developed at the end of a period
D) a type of flexible budget
2) Management by exception is a practice whereby managers focus more closely on ________.
A) a static budget
B) areas that are not operating as anticipated
C) activity-based costing
D) exceptional decision-making models
3) A variance is ________.
A) the difference between actual fixed cost per unit and standard variable cost per unit
B) the standard units of inputs for one output
C) the difference between an actual result and a budgeted performance
D) the difference between actual variable cost per unit and standard fixed cost per unit
4) An unfavorable variance indicates that ________.
A) the actual costs are less than the budgeted costs
B) the actual revenues exceed the budgeted revenues
C) the actual units sold are less than the budgeted units
D) the budgeted contribution margin is more than the actual amount
5) A favorable variance indicates that ________.
A) budgeted costs are less than actual costs
B) actual revenues exceed budgeted revenues
C) actual operating income is less than the budgeted amount
D) budgeted contribution margin is more than the actual amount
Answer the following questions using the information below:
Lander Corporation used the following data to evaluate their current operating system. The company
sells items for $18 each and used a budgeted selling price of $18 per unit.
Actual Budgeted
Units sold 41,000 units 40,000 units
Variable costs $164,000 $156,000
Fixed costs $46,000 $48,000
6) What is the static-budget variance of revenues?
A) $18,000 favorable
B) $18,000 unfavorable
C) $6,000 favorable
D) $4,000 unfavorable
7) What is the static-budget variance of variable costs?
A) $2,000 favorable
B) $8,000 unfavorable
C) $4,000 favorable
D) $6,000 unfavorable
8) What is the static-budget variance of operating income?
A) $10,000 favorable
B) $10,000 unfavorable
C) $12,000 favorable
D) $12,000 unfavorable
Answer the following questions using the information below:
Contrafic Corporation used the following data to evaluate its current operating system. The company
sells items for $21 each and used a budgeted selling price of $21 per unit.
Actual Budgeted
Units sold 180,000 units 185,000 units
Variable costs $1,080,000 $1,295,000
Fixed costs $ 800,000 $ 775,000
9) What is the static-budget variance of revenues?
A) $105,000 favorable
B) $105,000 unfavorable
C) $8,000 favorable
D) $8,000 unfavorable
10) What is the static-budget variance of variable costs?
A) $25,000 favorable
B) $25,000 unfavorable
C) $215,000 favorable
D) $215,000 unfavorable
11) What is the static-budget variance of operating income?
A) $85,000 favorable
B) $90,000 unfavorable
C) $110,000 favorable
D) $105,000 unfavorable
Answer the following questions using the information below:
Coroid Corporation used the following data to evaluate their current operating system. The company
sells items for $11 each and had used a budgeted selling price of $12 per unit.
Actual Budgeted
Units sold 280,000 units 275,000 units
Variable costs $900,000 $885,000
Fixed costs $ 55,000 $ 52,000
12) What is the static-budget variance of revenues?
A) $55,000 favorable
B) $220,000 favorable
C) $220,000 unfavorable
D) $55,000 unfavorable
13) What is the static-budget variance of variable costs?
A) $12,000 favorable
B) $12,000 unfavorable
C) $15,000 favorable
D) $15,000 unfavorable
14) What is the static-budget variance of operating income?
A) $238,000 favorable
B) $238,000 unfavorable
C) $235,000 favorable
D) $235,000 unfavorable
15) Regier Company had planned for operating income of $10 million in the master budget but actually
achieved operating income of only $7 million.
A) The static-budget variance for operating income is $3 million favorable.
B) The static-budget variance for operating income is $3 million unfavorable.
C) The flexible-budget variance for operating income is $3 million favorable.
D) The flexible-budget variance for operating income is $3 million unfavorable.
16) A master budget is called a static budget because it is developed around a single planned output
level.
17) When considered in isolation, a favorable variance decreases operating income relative to the
budgeted amount.
18) A variance is the difference between the actual cost for the current and expected (or budgeted)
performance.
19) A favorable variance results when actual costs exceed budgeted costs.
20) Management by exception is the practice of concentrating on areas not operating as anticipated (such
as a cost overrun) and placing less attention on areas operating as anticipated.
21) A favorable variance indicates that budgeted costs are less than actual costs.
22) A favorable variance should be ignored by management.
23) Variances are used for evaluating performance and for motivating managers.
24) Static-budget variance for operating income is calculated by taking a difference between static-budget
operating income and actual operating income.
25) Explain the difference between a static budget and a flexible budget. Explain what is meant by a static
budget variance and a flexible budget variance.
Objective 7.2
1) The flexible budget contains ________.
A) budgeted amounts for actual output
B) budgeted amounts for planned output
C) actual costs for actual output
D) actual costs for planned output
2) Which of the following items will be same for a flexible budget and a master budget?
A) total variable cost
B) total fixed costs
C) total contribution margin
D) total revenues
3) A flexible budget ________.
A) is another name for management by exception
B) is developed at the end of the period
C) is based on the budgeted level of output
D) provides favorable operating results
4) Which of the following elements are used in calculating revenue in a flexible budget?
A) budgeted selling price and actual quantity of output
B) actual selling price and budgeted quantity of output
C) budgeted selling price and budgeted quantity of output
D) actual selling price and actual quantity of output
5) An unfavorable flexible-budget variance for variable costs may be the result of ________.
A) using more input quantities than were budgeted
B) paying lower prices for inputs than were budgeted
C) selling output at a higher selling price than budgeted
D) selling less quantity compared to the budgeted
6) In a flexible budget ________.
A) variable costs are calculated proportionately for the budgeted level of sales
B) fixed costs are calculated proportionately for the actual level of sales
C) fixed costs are kept at the same level of static budget
D) variable costs are kept at the same level of static budget
7) Which of the following information is needed to prepare a flexible budget?
A) actual units sold
B) actual variable cost
C) actual selling price per unit
D) actual fixed cost
8) Which of the following is true of flexible budget?
A) It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.
B) It calculates total fixed cost by multiplying actual units by budgeted fixed cost per unit.
C) It calculates revenues by multiplying budgeted units by actual selling price per unit.
D) It calculates contribution margin by multiplying budgeted units by actual contribution margin per
unit.
9) A flexible-budget variance is $600 favorable for unit-related costs. This indicates that costs were
________.
A) $600 more than the master budget
B) $600 less than for the planned level of activity
C) $600 more than standard for the achieved level of activity
D) $600 less than standard for the achieved level of activity
10) The flexible-budget amount for materials is ________.
A) $165,000
B) $135,000
C) $161,700
D) $132,300
11) The flexible-budget variance for materials is ________.
A) $2,700 favorable
B) $2,700 unfavorable
C) $3,300 unfavorable
D) $3,300 favorable
12) The sales-volume variance for materials is ________.
A) $2,700 favorable
B) $29,400 unfavorable
C) $30,000 unfavorable
D) $2,700 unfavorable
13) Dynozz Corporation currently produces cardboard boxes in an automated process. Expected
production per month is 15,000 units, direct material costs are $0.50 per unit, and manufacturing
overhead costs are $15,000 per month. Manufacturing overhead is all fixed costs. What are the flexible
budget for 10,000 and 15,000 units, respectively?
A) $15,000; $22,500
B) $15,000; $17,500
C) $20,000; $22,500
Answer the following questions using the information below:
Dynondo Incorporated planned to use materials of $12 per unit but actually used materials of $13 per
unit, and planned to make 1,500 units but actually made 1,800 units.
14) The flexible-budget amount for materials is ________.
A) $18,000
B) $19,500
C) $21,600
D) $23,400
15) The flexible-budget variance for materials is ________.
A) $1,500 favorable
B) $1,800 unfavorable
C) $1,500 unfavorable
D) $1,800 favorable
16) The sales-volume variance for materials is ________.
A) $3,600 favorable
B) $3,900 unfavorable
C) $3,600 unfavorable
D) $3,900 favorable
Answer the following questions using the information below:
Aurous Incorporated planned to use $35 of material per unit but actually used $34 of material per unit,
and planned to make 1,500 units but actually made 1,300 units.
17) The flexible-budget amount for materials is ________.
A) $45,500
B) $52,500
C) $51,000
D) $44,200
18) The flexible-budget variance for materials is ________.
A) $1,500 favorable
B) $1,500 unfavorable
C) $1,300 unfavorable
D) $1,300 favorable
19) The sales-volume variance for materials is ________.
A) $7,000 favorable
B) $7,000 unfavorable
C) $6,800 unfavorable
D) $6,800 favorable
20) Lunicious Corporation currently produces baseball caps in an automated process. Expected
production per month is 15,000 units, direct material costs are $3.50 per unit, and manufacturing
overhead costs are $40,000 per month. Manufacturing overhead is entirely fixed costs. What is the flexible
budget for 12,000 and 15,000 units, respectively?
A) $74,000; $92,500
B) $74,000; $84,500
C) $82,000; $92,500
D) $82,000; $84,500
Answer the following questions using the information below:
The actual information pertains to the month of September. As a part of the budgeting process, Twilith
Fencing Company developed the following static budget for September. Twilith is in the process of
preparing the flexible budget and understanding the results.
Actual Flexible Static
Results Budget Budget
Sales volume (in units) 12,000 15,000
Sales revenues $600,000 $ $750,000
Variable costs 307,200 $ ________ 360,000
Contribution margin 292,800 $ 390,000
Fixed costs 274,800 $ ________ 270,000
Operating profit $ 18,000 $ $ 120,000
21) The flexible budget will report ________ for variable costs.
A) $245,760
B) $360,000
C) $288,000
D) $384,000
22) The flexible budget will report ________ for the fixed costs.
A) $343,500
B) $270,000
C) $274,800
D) $216,000
23) The flexible-budget variance for variable costs is ________.
A) $19,200 unfavorable
B) $61,440 unfavorable
C) $52,800 favorable
D) $76,800 favorable
24) The only difference between the static budget and flexible budget is that the static budget is prepared
using planned output.
25) A flexible-budget variance can be subdivided into the static-budget variance and the sales-volume
variance.
26) A flexible budget is calculated at the end of the budget period.
27) A sales-volume variance may be the result of quality problems leading to customer dissatisfaction.
28) Failure of a firm’s managers to execute the sales plans may create a favorable sales-volume variance.
29) An unfavorable variance is conclusive evidence of poor performance.
30) When actual revenues exceed budgeted revenues, a favorable variance arises.
31) A favorable flexible-budget variance for variable costs may be the result of using more input
quantities than were budgeted.
32) The president of the company, Gregory Peters, has come to you for help. Use the following data to
prepare a flexible budget for possible sales/production levels of 10,000, 11,000, and 12,000 units. Show the
contribution margin at each activity level.
Sales price $24 per unit
Variable costs:
Manufacturing $12 per unit
Administrative $ 3 per unit
Selling $ 1 per unit
Fixed costs:
Manufacturing $60,000
Administrative $20,000
33) Nicholas Company manufacturers TVs. Some of the company’s data was misplaced. Use the
following information to replace the lost data:
Analysis
Actual
Results
Flexible
Variances
Flexible
Budget
Units Sold
112,500
112,500
Revenues
$42,080
$1,000 F
(A)
Variable Costs
(C)
$200 U
$15,860
Fixed Costs
$8,280
$860 F
$9,140
Operating Income
$17,740
(D)
$16,080
Required:
a. What are the respective flexible-budget revenues (A)?
b. What are the static-budget revenues (B)?
c. What are the actual variable costs (C)?
d. What is the total flexible-budget variance (D)?
e. What is the total sales-volume variance (E)?
f. What is the total static-budget variance?
Objective 7.3
1) The actual information pertains to the month of September. As part of the budgeting process, Kriger
Fencing Company developed the following static budget for September. Kriger is in the process of
preparing the flexible budget and understanding the results.
Actual Flexible Static
Results Budget Budget
Sales volume (in units) 10,000 12,500
Sales revenues $500,000 $ $625,000
Variable costs 256,000 $ ________ 300,000
Contribution margin 244,000 $ 325,000
Fixed costs 229,000 $ ________ 225,000
Operating profit $ 15,000 $ $ 100,000
The primary reason for low operating profits was ________.
A) the variable-cost variance
B) increased fixed costs
C) a poor management accounting system
D) lower sales volume than planned
Answer the following questions using the information below:
The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy
Department of Paralith Incorporated had developed the following static budget for the third quarter.
Duck Decoy is in the process of preparing the flexible budget and understanding the results.
Actual Flexible Static
Results Budget Budget
Sales volume (in units) 11,000 10,000
Sales revenues $238,000 $ $230,000
Variable costs 150,000 $ ________ 180,000
Contribution margin 88,000 $ 50,000
Fixed costs 36,000 $ ________ 35,000
Operating profit $ 52,000 $ $ 15,000
2) The flexible budget will report ________ for variable costs.
A) $136,364
B) $198,000
C) $30,000
D) $13,583
3) The flexible budget will report ________ for the fixed costs.
A) $536,000
B) $35,000 Favorable
C) $35,000
D) $1,000 Unfavorable
4) The flexible-budget variance for variable costs is ________.
A) $30,000 favorable
B) $31,000 unfavorable
C) $30,000 unfavorable
D) $48,000 favorable
5) The sales-volume variance is sometimes due to ________.
A) the difference between selling price and budgeted selling price
B) quality problems leading to customer dissatisfaction
C) unexpected increase in manufacturing labor time
D) unexpected increase in the use of quantities of inputs of raw material
6) An unfavorable sales-volume variance could result from ________.
A) an inappropriate assignment of labor or machines to specific jobs
B) competitors taking market share
C) an inefficiency of a purchasing manager in bargaining with suppliers
D) a decrease in actual selling price compared to anticipated selling price
7) If a sales-volume variance was caused by poor-quality products, then the ________ would be in the
best position to explain the variance.
A) production manager
B) sales supervisor
C) financial supervisor
D) logistic manager