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Flexible Budget, Direct Cost Variances and Management Control
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TUTOR’S COPY

ACCT2112 Management Accounting

Tutorial Questions with Suggested Answers

Chapter 7: Flexible Budget, Direct Cost Variances and Management Control

Section A: Multiple Choice Questions

Instruction:

Select the

best

answers for the following questions.

1.

The master budget is:

a.

a flexible budget

b.

a static budget

c.

developed at the end of the period

d.

based on the actual level of output

e.

none of the above.

2.

A flexible budget:

a.

is another name for management by exception

b.

is developed at the end of the period

c.

is based on the budgeted level of output

d.

provides favorable operating results

e.

none of the above.

3.

An unfavorable variance indicates that:

a.

actual costs are less than budgeted costs

b.

actual revenues exceed budgeted revenues

c.

the actual amount decreased operating income relative to the budgeted

amount

d.

all of the above.

e.

none of the above.

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4.

An unfavorable variance:

a.

may suggest investigation is needed

b.

is conclusive evidence of poor performance

c.

demands that standards be recomputed

d.

indicates continuous improvement is needed

e.

none of the above.

5.

The sales-volume variance is due to:

a.

using a different selling price from that budgeted

b.

inaccurate forecasting of units sold

c.

poor production performance

d.

Both a and b are correct.

e.

none of the above.

6.

The variances that should be investigated by management include:

a.

only unfavorable variances

b.

only favorable variances

c.

all variances, both favorable and unfavorable

d.

both favorable and unfavorable variances considered significant in amount

for the company

e.

none of the above.

7.

Unfavorable direct material price variances are:

a.

always credits

b.

always debits

c.

credited to the Materials Control account

d.

credited to the Accounts Payable Control account

e.

none of the above.

8.

Favorable direct manufacturing labor efficiency variances are:

a.

always credits

b.

always debits

c.

debited to the Work-in-Process Control account

d.

debited to the Wages Payable Control account

e.

none of the above.

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9.

If manufacturing machines are breaking down more than expected, this will contribute to

a(n):

a.

favorable direct manufacturing labor price variance

b.

unfavorable direct manufacturing labor price variance

c.

favorable direct manufacturing labor efficiency variance

d.

unfavorable direct manufacturing labor efficiency variance

e.

none of the above.

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 10 THROUGH 12:

Abernathy Corporation used the following data to evaluate their current operating system.

The company sells items for $10 each and used a budgeted selling price of $10 per unit.

Actual

Budgeted

Units sold

92,000 units

90,000 units

Variable costs

$450,800

$432,000

Fixed costs

$ 95,000

$100,000

10.

What is the static-budget variance of revenues?

a.

$20,000 favorable

b.

$20,000 unfavorable

c.

$2,000 favorable

d.

$2,000 unfavorable

e.

none of the above.

Answer

:

a

(92,000 units x $10) – (90,000 units x $10) = $20,000 F

11.

What is the static-budget variance of variable costs?

a.

$1,200 favorable

b.

$18,800 unfavorable

c.

$20,000 favorable

d.

$1,200 unfavorable

e.

none of the above.

Answer

:

b

$450,800 – $432,000 = $18,800 U

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