ACCT Summary Chap 9-10

What is a flexible budget?

A revised budgeted income statement that is based on the actual sales volume activity

Which of the following is true about flexible budget fixed costs

Flexible budget fixed costs are always equal to the planning budget fixed cost levels

Eddie Manager just compared ABC Company’s Planning (Master) Budget to the actual income statement results in an attempt to assess how well he controlled ABC’s costs. Eddie noted that actual profits are higher than the planning budget profits, and interpreted this as evidence that he has done a good job of controlling costs during the period. Which of the following reasons explains why this comparison may not communicate the effectiveness of Eddie’s cost control activities?

Differences between planned volume and actual volume can cause differences in profits between the planning budget and the actual results
AND Differences between planned selling price and the actual selling price can cause differences in profits between the planning budget and the actual result

Which of the following best describes a planning budget?

The planning budget income statement is the same as the master budget income statement

The Master budget expects that Salaries and Wages expense will behave as a mixed cost, with an annual fixed
cost budgeted to be $500,000 and a budgeted variable cost per unit sold of $20. If the company’s sales budget
forecasted unit sales of 300,000 units, the company actually sold 280,000 units, and the actual Salaries and Wages
Expense amount was $7,050,000, then which amount should the flexible budget include for Salaries and Wages Expense?

$6,100,000

The planning budget income statement is the same as the master budget income statement

The impact to operating income that results from the company beating or falling short of the projected sales volume level

How should we compute revenue and spending variances?

The difference between an income statement item’s value on the flexible budget and it’s value on the actual income statement

Which of the following best explains the meaning of an unfavorable spending variance in Office Supplies Expense?

The company spent more in office supplies than they should have for the level of sales volume that occurred

The purchasing agent of the Clampetts Company was forced to order inferior materials because the production manager made a mistake in scheduling employees to finish a production order so it could be shipped to the customer on the
promised date. The production manager did not check to make sure enough materials were available. The lower quality material resulted in excess waste so the cost of the materials used in the order was significantly higher than the standard
costs. Who should be held responsible for the unfavorable materials price and quantity variances?

Materials Price Variance (Production Manager) ad Material Quantity Variance (Production Manager)

Todco planned to produce 3,000 units of its single product, Teregram, during November. The standard specifications for one unit of Teragram include six pounds of material at $0.30 per pound. Actual production in November was 3,100 units of Teragram. The accountant computed a favorable materials purchase price variance of $380 and an unfavorable materials quantity variance of $120. Based on these variances, one could include that:

The actual cost of materials was less than the standard cost

Which department should usually be held responsible for an unfavorable materials price variance?

Purchasing

Tower Company planned to produce 3,000 units of its single product, Titactium, during November. The standards for one unit of Titactium specify six pounds of materials at $0.30 per pound. Actual production in November was 3,100 units of Titactium. There was an unfavorable materials price variance of $380 and a favorable materials quantity variance of $120, Based on these variances, one could conclude that:

The actual usage of materials was less than the standard allowed