Budgeting Paper 17

1

Zorhoff Ltd.’s budgeted income statement based upon sales of 100,000 units is shown below:
Sales €10,000,000
Cost of sales (all variable) 6,000,000
Selling and general expenses (55% fixed) 3,000,000
Interest expense 50,000
Income tax expense 285,000
Income € 665,000
If Zorhoff’s sales estimate increased to 120,000 units, the company’s projected operating income would be






2

Zorhoff Ltd.’s budgeted income statement based upon sales of 100,000 units is shown below:
Sales €10,000,000
Cost of sales (all variable) 6,000,000
Selling and general expenses (55% fixed) 3,000,000
Interest expense 50,000
Income tax expense 285,000
Income € 665,000
If Zorhoff’s sales estimate increased to 120,000 units, the company’s projected operating income would be






3

A static budget






4

When preparing a performance report for a cost center using flexible budgeting techniques, the planned cost column should be based on the






5

Which one of the following statements regarding the difference between a flexible budget and a static budget is true?






6

flexible budget is appropriate for






7

Selo Imports uses flexible budgeting for the control of costs. The company’s annual master budget includes $324,000 for fixed production supervisory salaries at a volume of 180,000 units. Supervisory salaries are expected to be incurred uniformly throughout the year. During the month of September, 15,750 units were produced, and production supervisory salaries incurred were $28,000. A performance report for September would reflect a budget variance of






8

Red Rock Company uses flexible budgeting for cost control. Red Rock produced 10,800 units of product during October, incurring indirect materials costs of $13,000. Its master budget for the year reflected indirect materials costs of $180,000 at a production volume of 144,000 units. A flexible budget for October production would reflect indirect materials costs of






9

Flexible budgets






10

When compared to static budgets, flexible budgets






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