chapter 15

Question 1

static budget

Answer 1

a budget that is based on one level of output. it is not adjusted after it is set, regardless of ensuing changes in actual output. it is developed at the start of the budget period based on the planned output level for the period.

Question 2

flexible budget

Answer 2

adjusted in accordance with ensuing changes in actual output (or actual revenue and cost drivers). it is calculated at the end of the period when the actual output is known.

Question 3

benchmark

Answer 3

the point of reference from which comparisons are made.

Question 4

favourable (F) variance

Answer 4

a variance that increases operating income relative to the budgeted amount.

Question 5

unfavourable (U) variance

Answer 5

a variance that decreases operating income relative to the budgeted amount.

Question 6

level

Answer 6

level followed by a number denotes the amount of detail indicated by the variance(s) isolated.

Question 7

five-step approach to a flexible budget

Answer 7

1. determine the budgeted selling price per unit, budgeted variable costs per unit, and budgeted fixed costs
2. determine the actual quantity of the revenue driver
3. determine the flexible budget for revenue based on the budgeted unit revenue and the actual quantity of the revenue driver
4. determine the actual quantity of the cost driver(s)
5. determine the flexible budget for costs based on the budgeted unit variable costs and fixed costs and the actual quantity of cost driver(s)

Question 8

flexible-budget variance

Answer 8

the difference between actual results and the flexible-budget amount for the actual levels of the revenue and cost drivers. it arises from individual differences between actual and budgeted prices or quantities for inputs.

Question 9

sales-volume variance

Answer 9

the difference between the flexible-budget amount and the static-budget amount. unit selling prices, unit variable costs, and fixed costs are held constant.

Question 10

selling-price variance

Answer 10

the flexible-budget variance pertaining to revenues. it arises solely from differences between actual and budgeted selling price.

Question 11

price variance/in-put price variance/rate variance

Answer 11

the difference between the actual price and the budgeted price multiplied by the actual quantity of input in question.

Question 12

efficiency variance/input-efficiency variances/usage variances

Answer 12

the difference between the actual quantity of input used and the budgeted quantity of input that should have been used, multiplied by the budgeted price.

Question 13

standard input

Answer 13

a carefully predetermined quantity of input required for one unit of output.

Question 14

standard cost

Answer 14

a carefully predetermined cost. can relate to units of inputs or units of outputs.

Question 15

effectiveness

Answer 15

the degree to which a predetermined objective or target is met.

Question 16

efficiency

Answer 16

the relative amount of inputs used to achieve a given level of output.

Question 17

continuous improvement budgeted cost

Answer 17

a budgeted cost that is successively reduced over succeeding time periods. it signals the importance of constantly seeking ways to reduce total costs.

Question 18

materials-handling labour costs

Answer 18

are direct and variable batch-level costs.

Question 19

benchmarking

Answer 19

often used to refer to the continuous process of measuring products, services, and activities against the best levels of performance. it may be found in the organisation using internal benchmarking or by using external benchmarks from competing organisations or from organisation that have similar processes.