Chapter 8

Question 1

What is a flexible budget?

Answer 1

They show expected revenues and costs at a variety of volume levels

Question 2

How are flexible budgets prepared?

Answer 2

Same per-unit standard amounts and fixed costs
Difference expected number of units sold
Crucial for the planning and performance evaluation

Question 3

What are variances?

Answer 3

Difference between standard and actual amounts
Can be favourable or unfavourable

Question 4

When is a variance favourable?

Answer 4

When actual sales exceed expected ones
When actual costs are less than standard

Question 5

When is a variance unfavourable?

Answer 5

When actual sales are less than expected
When actual costs exceed standard

Question 6

What is the sales volume variance?

Answer 6

Difference between the static budget and a flexible budget based on actual volume

Question 7

How do you calculate the variable cost volume variances?

Answer 7

Difference between the static and flexible budget amounts

Question 8

How does a manager perform effective performance evaluation?

Answer 8

Compare the actual results achieved to the flexible budget based on the actual volume of activity
Difference is called the flexible budget variance

Question 9

How is HR connected to flexible budget variances?

Answer 9

Offers insight to the management efficiency
Favourable variance could mean purchasing agents are good negotiators, or paying low prices for inferior goods

Question 10

What is the fixed cost spending variance?

Answer 10

Difference between actual fixed cost and the budgeted fixed costs

Question 11

What is the accountability for fixed cost spending variances?

Answer 11

Fixed costs which are controllable must be analyzed
Uncontrollable fixed costs should be reported for oversight
If costs are not controllable in the short term - management should be aware since they can be controllable in the long term

Question 12

How do you calculate the allocation rate?

Answer 12

Budgeted fixed costs/planned volume of activity

Question 13

How do you calculate predetermined overhead rate?

Answer 13

Budgeted fixed costs from static budget/planned volume of activity

Question 14

How do you calculate the applied fixed cost?

Answer 14

Predetermined overhead rate x actual volume of production

Question 15

What is the fixed cost volume variance?

Answer 15

Difference between the applied fixed cost based on actual volume and budgeted fixed cost based on planned volume

Question 16

How do you calculate total material cost variance?

Answer 16

Actual units (actual cost - standard cost)

Question 17

How do you calculate price variance?

Answer 17

Actual quantity (actual price - standard price)

Question 18

How do you calculate usage variance?

Answer 18

Standard price ( actual quantity - standard quantity)

Question 19

How do you calculate fixed cost volume variance?

Answer 19

Budgeted overhead - applied overhead

Question 20

How do you calculate the predetermined rate?

Answer 20

Budgeted fixed costs from the static budget/planned volume of activity

Question 21

How do you calculate total cost?

Answer 21

predetermined rate x actual volume = applied fixed cost

Question 22

How can the difficulty of achieving standard performance be measured?

Answer 22

1. Ideal standards - flawless standards
2. Physical standards - reasonable effort
3. Lax standards - easily attainable goals

Question 23

How do managers decide which variances to investigate?

Answer 23

They consider the materiality, the frequency, the capacity to control the variance and the characteristics