A plan that is created using budgeted revenue and costs but is based on the actual units of output is known as a
Answer (B) is correct. A flexible budget is a series of several budgets prepared for many levels of sales and production. A flexible budget is designed to allow adjustment of the budget to the actual level of activity before comparing the budgeted activity with actual results.
A method of budgeting in which the cost of each program must be justified, starting with the one most vital to the company, is
Answer (B) is correct. Zero-based budgeting is an effective means of bringing objective thinking to the budgeting process. The principal advantage of this approach is that managers are forced to review each program in its entirety at the beginning of every budget period, rather than merely extrapolate historical figures.
Comparing actual results with a budget based on achieved volume is possible with the use of a
Answer (D) is correct. A flexible budget is essentially a series of several budgets prepared for various levels of sales and production. At the end of the period, management can compare actual costs or performance with the appropriate budgeted level in the flexible budget. A flexible budget is designed to allow adjustment of the budget to the actual level of activity before comparing the budgeted activity with actual results.
The use of standard costs in the budgeting process signifies that an organization has most likely implemented a
Answer (A) is correct. A flexible budget is a series of budgets prepared for various levels of sales and production. Another view is that it is based on cost formulas, or standard costs. Thus, the cost formulas are fed into the computerized budget program along with the actual level of sales or production. The result is a budget created for the actual level of activity.
A manufacturing firm has certain peak seasons; namely the Christmas season, the summer season, and the last 2 weeks of February. During these periods of increased output, the firm leases additional production equipment and hires additional temporary employees. Which of the following budget techniques would best fit this firm’s needs?
Answer (A) is correct. A flexible budget is a series of several budgets prepared for various levels of sales and production. It is designed to allow adjustment of the budget to the actual level of activity before comparing the budgeted activity with actual results. A firm with peak seasons may prefer flexible budgeting because of its difficulties in predicting the activity level.
Country Ovens is a family restaurant chain. Due to an unexpected road construction
project, traffic passing by the Country Ovens restaurant in New town has significantly increased. As a
result, restaurant volume has similarly increased well beyond the level expected. Which type of
budget would be most appropriate in helping the restaurant manager plan for restaurant labor costs?
Answer (D) is correct. A flexible budget is adaptable to unanticipated levels of production. Flexible budgeting enables an organization to compute the levels of cost that “should” have been incurred given the level of output actually achieved.
An organization’s revenues and variable costs vary significantly with seasonal weather conditions. This variability has frustrated management’s attempts to evaluate the organization’s actual results against budgeted performance because there are often large variances in revenues. Which one of the following budgeting methods is most likely to assist management in planning and assessment of results?
Answer (C) is correct. A flexible budget adjusts for changes in the volume of activity. It can be adapted to any level of production. To create a flexible budget, standard costs are determined for the underlying cost drivers. Standard costs may be used to isolate variances. This kind of budgeting will aid management in evaluating the large variances caused by the seasonal weather conditions.
Gooding bicycles has begun using budgeting to evaluate performance. Budgets were prepared for the current year based on anticipated sales of 40,000 units. Actual sales totaled 45,000. What type of budgeting methodology should Gooding use to evaluate performance this year?
Answer (D) is correct. A flexible budget is a series of budgets prepared for various levels of sales and production, which is suited for evaluating performance when actual sales do not equal anticipated sales.
Under a standard cost system, the materials efficiency variances are the responsibility of
Answer (A) is correct. The materials efficiency variance is the difference between actual and standard quantities used in production, times the standard price. An unfavorable materials efficiency variance is usually caused by wastage, shrinkage, or theft. Thus, it may be the responsibility of the production department because excess usage would occur while the materials are in that department. In addition, industrial engineering may play a role because it is responsible for design of the production process.
Blaster, Inc., a manufacturer of portable radios, purchases the components from subcontractors to use to assemble into a complete radio. Each radio requires three units each of Part XBEZ52, which has a standard cost of $1.45 per unit. During May, Blaster experienced the following with respect to Part XBEZ52: Purchases ($18,000) ...12,000 Units Consumed in manufacturing ...10,000 Units Radios manufactured... 3,000 UnitsDuring May, Blaster incurred a purchase price variance of
Answer (D) is correct. Blaster’s purchase price variance is calculated as follows: Purchase price variance = AQ × (SP – AP) = 12,000 parts × ($1.45 – $1.50) = 12,000 × –$0.05 = $600 unfavorable