Budgets

Question 1

Static budgets

Answer 1

Preparing for a single plans level of activity

Question 2

Performance evaluation

Answer 2

Difficult when actual activity differs from the planned level of activity

Question 3

Unfavourable variance

Answer 3

Was unable to achieve the budget level of activity

Question 4

Favourable variance

Answer 4

Actual costs are less than budgeted costs

Question 5

Flexible budgets

Answer 5

• Shows revenue and expenses that should have occurred at the actual level of activity
• May be prepared for any activity level in the relevant range
• improve performance evaluation
• reveal variances due to good cost control/lack of host control

Question 6

Preparing a flexible budget

Answer 6

• total variable costs change in direct proportion to change in activity
• total fixed costs remain unchanged within the relevant range

Question 7

Volume variance

Answer 7

Results when standard hrs allowed for actual output differs from the denominar activity
•unfavourable ~ when st hrs < denominator hrs
•favourable ~ when st hrs > denominar hrs

Question 8

Budget variance

Answer 8

(Fixed overheads variances)

Results from paying more/less than expected for overhead items

Question 9

Volume variances

Answer 9

(Fixed overhead variance)

Results from operating at an activity level difference from the denominator activity

Question 10

In the standard cost system

Answer 10

•Unfavourable when variances are equivalent to under applied overheads
•Favourable when variances are equivalent to overapplied overheads
=The sum of overhead variances equals the under or over applied overhead cost for a period

Question 11

Spending variances

Answer 11

(Variable overhead variance)

Results from paying more/less than expected for overhead items and from excessive usage of overheads items

Question 12

Efficiency variance

Answer 12

(variable overhead variance)

Controlled by managing the overhead cost driver