Lecture 7 Budgets For Control

Question 1

What is the first step in the budgetary control process?

Answer 1

Prepare budgets using standard costs

Question 2

What is measured after preparing the budgets in the budgetary control process?

Answer 2

Actual performance

Question 3

What is the purpose of comparing actual performance to budgeted performance?

Answer 3

Identify variances

Question 4

What should be done in response to identified variances?

Answer 4

Investigate and take corrective action

Question 5

Define Standard Costs

Answer 5

Budgeted costs per unit under efficient conditions

Question 6

List sources for determining standard costs.

Answer 6

• Past performance
• Market testing

Question 7

What is the purpose of Variance Analysis?

Answer 7

• Identify what caused deviations
• Evaluate performance
• Inform decisions and updates to budgets

Question 8

What indicates a Favourable Variance?

Answer 8

Profit higher than expected

Question 9

What indicates an Adverse Variance?

Answer 9

Profit lower than expected

Question 10

What is the formula for calculating Actual profit?

Answer 10

Actual profit = Budgeted profit + favourable variances - adverse variances

Question 11

What are Flexed Budgets?

Answer 11

Budgets amended to reflect the expected results for the actual production volume

Question 12

What is the benefit of Flexed Budgets?

Answer 12

Allows fairer variance analysis by isolating effects of volume vs efficiency

Question 13

What is the formula for the Original budget?

Answer 13

Original budget = budgeted price per unit x budgeted sale volume

Question 14

What is the formula for the Flexed budget?

Answer 14

Flexed budget = budgeted price per unit x actual sale volume

Question 15

What is the formula for Actual?

Answer 15

Actual = actual price per unit x actual sale volume

Question 16

What is the formula for Variance?

Answer 16

Variance = [Actual - Flexed]

Question 17

What is the formula for Sales volume variance?

Answer 17

Sales volume variance = (standard sales units - actual sales units) x Standard contribution per unit

Question 18

What are some causes of Sales volume variance?

Answer 18

• Market demand
• Sale marketing effectiveness
• Distribution issues

Question 19

What is the formula for Sales price variance?

Answer 19

Sales price variance = (standard sales price - actual sales price) x actual sales units

Question 20

What are some causes of Sales price variance?

Answer 20

• Cost estimation errors
• Inadequate market research
• Competitor actions

Question 21

What is the formula for Material Usage Variance?

Answer 21

Material Usage Variance = (Standard quantity of materials - actual quantity of materials) x Standard price per unit of material

Question 22

What are some causes of Material Usage Variance?

Answer 22

• Waste
• Material quality
• Process efficiency

Question 23

When is Material Usage Variance considered favourable?

Answer 23

When actual material used is less than expected

Question 24

What is the formula for Material Price Variance?

Answer 24

Material Price Variance = (Standard price per unit of materials - actual price) x actual quantity of material

Question 25

What are some causes of Material Price Variance?

Answer 25

* Supplier pricing * Negotiation * Market prices

Question 26

When is Material Price Variance considered favourable?

Answer 26

When actual material price is less than expected

Question 27

What is the formula for Labour Efficiency Variance?

Answer 27

Labour Efficiency Variance = (Standard hours of Labour - actual hours of Labour) x Standard price per hour of labour

Question 28

What are some causes of Labour Efficiency Variance?

Answer 28

* Skill level * Working conditions * Training * Process efficiency

Question 29

When is Labour Efficiency Variance considered favourable?

Answer 29

When the actual labour hours used are less than expected

Question 30

What is the formula for Labour Rate Variance?

Answer 30

Labour Rate Variance = (Standard price per labour hour - actual price per Labour hour) x actual quantity of labour hours

Question 31

What are some causes of Labour Rate Variance?

Answer 31

* Wage rates * Hiring decisions * Market wage trends

Question 32

When is Labour Rate Variance considered favourable?

Answer 32

When the actual labour force price is less than expected

Question 33

What is the formula for Fixed overhead expenditure variance?

Answer 33

Fixed overhead expenditure variance = budgeted fixed overhead - actual fixed overhead

Question 34

What are some causes of Fixed overhead expenditure variance?

Answer 34

* Unexpected costs * Service usage changes * Inflation

Question 35

When is Fixed overhead expenditure variance considered favourable?

Answer 35

When actual fixed overhead expenditures are less than expected

Question 36

What are some reasons for variance?

Answer 36

* Inefficiency in operation * Incorrect original plans and standards * Poor communication * Random fluctuations * Poor coordination