AMA Q22 - Chapter 7

Question 1

Flexible budget definition

Answer 1

A budget that is designed to change in line with changes in productivity by recognising different cost behaviours

Used continually

Question 2

Flexed budget

Answer 2

A budget that is written after actual results have been confirmed to compare to what the standard costs should have been at that activity level

Question 3

Can a flexible budget be used to create a flexed budget?

Answer 3

Yes

Question 4

What is the most important thing to remember when preparing a flexible or flexed budget?

Answer 4

Need to separate variable and fixed elements. Need to consider that fixed costs can behave in stepped manner

Question 5

Limits of budget flexing

Answer 5

• Original budget is based on assumptions that can change (demand for service, inflation, future uncertainty, etc)
• Splitting mixed costs isn’t always straight forward
• the seemingly always changing objectives and targets can be confusing to some

Question 6

Summarise feedback control

Answer 6

Comparing predicted and actual data and taking control action to encourage favourable variances and discourage adverse ones

Question 7

Positive feedback

Answer 7

encouraging favourable variances to happen again

Question 8

What is FeedForward Control

Answer 8

comparing original forecast with the current trajectory forecast that considers current and recent performance

Question 9

Give an example of a feedforward control

Answer 9

Cash budget

Question 10

limitation of feedback control

Answer 10

not good for longer term projects

Question 11

Benefit of feedforward control

Answer 11

Great for evaluating performance in longer term projects and implementing changes

Question 12

Total direct materials variance formula

Answer 12

(actual materials quantity x std material price x standard material per unit) - std cost

Question 13

Materials price variance

Answer 13

(std price per kg x actual amount) - actual cost

Question 14

Materials usage variance

Answer 14

(actual units x std price per unit) - actual production did use cost

Question 15

Shortcut to calculating variable cost variances?

Answer 15

calculate how much it should have cost and then how much it did cost

Question 16

Total labour cost variance

Answer 16

(actual units x std hrs per unit x std £ per hour) - actual total labour cost

Question 17

Labour rate variance

Answer 17

(actual hours x std £ per hour) -

(actual hours x actual £ per hour)

Question 18

Labour efficiency variance

Answer 18

(actual units x std hrs per unit)

(actual units x actual hrs per unit)

grossed up to standard £ per hr if neccessary

Question 19

Idle time variance

Answer 19

hours worked - hours paid

Question 20

Total variable overhead variance

Answer 20

std overhead - actual overheads

Question 21

Variable overhead price variance

Answer 21

(act hrs worked x std £ per hour)

-

act hrs worked did cost

Question 22

two reasons for over-under absorption of overheads?

Answer 22

1. budgeted amount is less or more than actuals
2. units produced was less or more than budgeted

Question 23

Fixed Overhead Volume Variance

Answer 23

Budgeted production units

-

Actual units

(valued at standard cost)

Question 24

Thing to remember when doing calculations on overheads?

Answer 24

Check whether it is variable or fixed overhead

Question 25

Fixed Overhead Total Cost Variance

Answer 25

looks at the budgeted cost but per the actual unit production level.

Only considers cost (doesn’t factor unit level differences)

Question 26

Fixed Overhead Expenditure Variance

Answer 26

looks at overall cost totals. Both considers volume and price

Question 27

In Marginal costing, what element of an overhead is ignored when calculating variances?

Answer 27

the variable element. Only the fixed element is analysed

Question 28

Total Sales Variance

Answer 28

(budgeted units sold x std price per unit)

-

actual units sold x price

compares the effect of changes in price and changes in volume

Question 29

Sales Price Variance

Answer 29

Compares the change in price between the two, volume is adjusted to actuals

Question 30

Sales Volume Variance

Question 30

Sales Volume Variance

Answer 30

compares difference in volume of units and then the profit £ at std level

Remember: profit per unit not sales price