Exam 3

Question 1

What is a budget?

Answer 1

A formal written statement of management’s plans for a specified future time period, expressed in financial terms.

Question 2

What are two main purposes of budgeting?

Answer 2

Promotes efficiency and facilitates communication.

Question 3

How does historical accounting data help in budgeting?

Answer 3

Provides a basis for predicting future revenues, expenses, and costs.

Question 4

What is an operating budget used for?

Answer 4

Prepares the budgeted income statement. It outlines a company’s expected revenues and expenses during a specific period

Question 5

What is the focus of a financial budget?

Answer 5

Company’s cash resources.

Question 6

What is the first step in preparing a budgeted income statement?

Answer 6

Sales budget.

Question 6

What is the correct order for budget preparation?

Answer 6

Sales → Production → Purchases.

Question 7

Why does the sales budget come first?

Answer 7

It determines the level of production and purchases needed.

Question 8

What is the purpose of the budgeted income statement?

Answer 8

Indicates expected profitability and provides a basis for evaluating performance.

Question 9

What budgets is the budgeted income statement derived from?

Answer 9

Sales, COGS, Direct Materials, Direct Labor, MOH, Selling & Admin Expenses.

Question 10

What does the cash budget project?

Answer 10

Anticipated cash flows (inflows and outflows).

Question 11

What are the three sections of a cash budget?

Answer 11

Cash receipts, cash disbursements, and financing.

Question 12

What is the cash budget formula?

Answer 12

Required Financing = Cash Disbursements + End Cash - Cash Receipts - Beginning Cash

Question 13

True or False: If cash receipts exceed disbursements too long, financing may be required.

Answer 13

False, it typically means the business is generating more cash than it is spending—a positive cash flow situation.

Question 14

Required production units formula?

Answer 14

Expected Sales + Desired Ending FG - Beginning FG

Question 15

Direct materials required for production?

Answer 15

Units to be produced × DM units per unit produced

Question 16

Direct materials to be purchased?

Answer 16

DM required for production + Desired Ending DM - Beginning DM

Question 17

Cost of DM purchases?

Answer 17

DM units to be purchased × Cost per DM unit

Question 18

Total Direct Labor cost?

Answer 18

Units to be produced × DL hours/unit × DL cost/hour

Question 19

Required merchandise purchases?

Answer 19

Budgeted COGS + Desired Ending Inventory - Beginning Inventory

Question 20

What is a static budget?

Answer 20

A projection at a single level of activity.

Question 21

What is a flexible budget?

Answer 21

Projects data for various activity levels; a series of static budgets.

Question 22

Which budget is more adaptable to changing conditions?

Answer 22

Flexible budget.

Question 23

According to flexible budgets, what increases as volume decreases?

Answer 23

Fixed cost per unit.

Question 24

What is responsibility accounting?

Answer 24

Reporting costs and revenues based on manager control.

Question 25

What are controllable costs?

Answer 25

Costs a manager can influence (e.g., DM, DL, MOH).

Question 26

What are noncontrollable costs?

Answer 26

Costs incurred indirectly (e.g., benefits, IT services).

Question 27

Types of responsibility centers?

Answer 27

Cost center, Profit center, Investment center.

Question 28

Which center can NEVER include budgeted controllable margin?

Answer 28

Cost center.

Question 29

What is standard cost?

Answer 29

Budgeted cost per unit (DM + DL + MOH).

Question 30

What is the purpose of comparing actual to standard costs?

Answer 30

Performance evaluation.

Question 31

What is materiality?

Answer 31

The threshold of change considered meaningful.

Question 32

What is controllability in budgets?

Answer 32

Only including costs a manager can influence.

Question 33

AQ × AP − SQ × SP

Answer 33

Total Materials Variance formula

Question 34

AQ × (AP − SP)

Answer 34

Materials Price Variance

Question 35

SP × (AQ − SQ)

Answer 35

Materials Quantity Variance

Question 36

AH × AR − SH × SR

Answer 36

Total Labor Variance

Question 37

AH × (AR − SR)

Answer 37

Labor Rate Variance

Question 38

SR × (AH − SH)

Answer 38

Labor Efficiency Variance

Question 39

Actual OH − Applied OH

Answer 39

Total Overhead Variance

Question 40

Actual OH − Budgeted OH

Answer 40

Overhead Controllable Variance

Question 41

Fixed OH Rate × (Normal Capacity Hrs − Standard Hrs Allowed)

Answer 41

Overhead Volume Variance

Question 42

True/False: Inflation always causes unfavorable materials price variance?

Answer 42

True

Question 43

What results in a favorable overhead volume variance?

Answer 43

Budgeted Units < Actual Units

Question 44

What is the formula for required production units?

Answer 44

Expected sales units + Desired ending finished goods units – Beginning finished goods units

Question 45

How do you calculate DM (Direct Materials) units required for production?

Answer 45

Units to be produced × DM units per unit produced

Question 46

What is the formula for DM units to be purchased?

Answer 46

DM units required for production + Desired ending DM units – Beginning DM units

Question 47

How do you calculate the cost of DM purchases?

Answer 47

DM units to be purchased × Cost per DM unit

Question 48

How is total DL (Direct Labor) cost calculated?

Answer 48

Units to be produced × DL hours per unit × DL cost per hour

Question 49

What is the formula for required merchandise purchases?

Answer 49

Budgeted COGS + Desired ending merchandise inventory – Beginning merchandise inventory

Question 50

What is the formula to compute required financing in the cash budget?

Answer 50

Cash disbursements + End cash balance – Cash receipts – Beginning cash = Required Financing

Question 51

How do you calculate total standard cost per unit?

Answer 51

Direct Materials + Direct Labor + Manufacturing Overhead

Question 52

How do you calculate total materials variance?

Answer 52

(Actual Quantity × Actual Price) – (Standard Quantity × Standard Price)

Question 52

What is the formula for total variance?

Answer 52

Direct Materials Variance + Direct Labor Variance + Overhead Variance

Question 53

What is the formula for materials price variance?

Answer 53

(Actual Quantity × Actual Price) – (Actual Quantity × Standard Price)

Question 54

What is the formula for materials quantity variance?

Answer 54

(Actual Quantity × Standard Price) – (Standard Quantity × Standard Price)

Question 55

How is total labor variance calculated?

Answer 55

(Actual Hours × Actual Rate) – (Standard Hours × Standard Rate)

Question 56

What is the formula for labor price variance?

Answer 56

(Actual Hours × Actual Rate) – (Actual Hours × Standard Rate)

Question 57

What is the formula for labor quantity (efficiency) variance?

Answer 57

(Actual Hours × Standard Rate) – (Standard Hours × Standard Rate)

Question 58

What is the formula for overhead controllable variance?

Answer 58

Actual Overhead – Overhead Budgeted

Question 59

How do you calculate total overhead variance?

Answer 59

Actual Overhead – Overhead Applied

Question 60

What is the formula for overhead volume variance?

Answer 60

Fixed Overhead Rate × (Normal Capacity Hours – Standard Hours Allowed)