Which of the following statements is correct?

Unfavorable cost variances always indicate bad performance.

A)

Favorable cost variances always indicate good performance.

B)

Both of the above statements are correct.

C)

Neither of the above statements are correct.

D)

2
Lizzie's Riverside Grill compares monthly operating results with a static budget
prepared at the beginning of the year. When actual sales are less than budget, the
restaurant would usually report favorable variances on:

fixed supervisory salaries and variable food costs.

A)

variable food costs but not fixed supervisory salaries.

B)

fixed supervisory salaries but not variable food costs

C)

neither fixed supervisory salaries or variable food costs

D)

3
A company's static budget estimate of total overhead costs was $400,000 based on
the assumption that 20,000 units would be produced and sold. The company
estimates that 30% of its overhead is variable and the remainder is fixed. What
would be the total overhead cost according to the flexible budget if 24,000 units
were produced and sold?
$384,000

A)
 $400,000
B)

$424,000
C)

$464,000
D)

4
A major weakness of static budgets is that:

they are geared only to a single level of activity.

A)

they cannot be used to assess whether variable costs are under control.
B)

they force the manager to compare actual costs at one level of activity
C)to budgeted costs at a different level of activity.

all of the above.

D)

5
An activity variance is the difference between:

a revenue or cost item in the static planning budget and the same item
A)in the flexible budget.

how much the revenue should have been, given the actual level of activity, and
B)the actual revenue for the period.

how much a cost should have been, given the actual level of activity, and the
C)actual amount of the cost.

none of the above.

 D)

6
If the average selling price is greater than expected, the revenue variance is:

labeled as favorable.
A)

labeled as unfavorable.
B)

cannot be labeled as favorable or unfavorable without obtaining an explanation.

C)

an activity variance.
D)

7
If the actual cost incurred is greater than what the cost should have been as set
forth in the flexible budget, the variance is:

labeled as favorable.
A)

labeled as unfavorable.
B)

cannot be labeled as favorable or unfavorable without obtaining an explanation.

C)

an activity variance.
D)

8
Which of the following statements is not correct?
To generate a favorable variance for net operating income in a business that
serves customers managers must take actions to increase client-visits.
A)
 To generate a favorable overall revenue and spending variance,
B)managers must take actions to protest selling prices.

Flexible budget performance reports provide useful more useful information to

C)managers than a simple comparison of budgeted to actual results.

A flexible budget performance report separates the effects of how well prices
D)were controlled and operations were managed.

9
Let q1 represents client visits and q2 represents hours of operations. The electricity
cost for Blissful Spa depends on both client-visits and the hours of operations and its
cost formula is $400 + $0.10q1 + 2.00 q2. If the actual number of client visits is 800
and the salon was open for 200 hours during the month, the flexible budget amount
for electricity is:

$840
A)

$880
B)

$2,080
C)

$2,020
D)

10
Which of the following statements is not correct?

A flexible budget allows managers to isolate activity variances and revenue and
A)spending variances.

One of the common errors in preparing performance reports is to implicitly

B)assume that all costs are fixed.

One of the common errors in preparing performance reports is to implicitly

assume that all costs are variable.
 C)

Comparing static planning budget costs to actual costs only makes

D)sense if the cost is variable.

1. LHU Corporation makes and sells a product called Product WZ. Each unit of
Product WZ requires 3.4 hours of direct labor at the rate of $30.00 per direct
labor-hour. Management would like you to prepare a Direct Labor Budget for
June.

The budgeted direct labor cost per unit of Product WZ would be:
$102.00
Budgeted direct labor cost = 3.4 direct labor-hours per unit $30.00 per
direct labor-hour = $102.00 per unit

2. The manufacturing overhead budget at Mahapatra Corporation is based on budgeted

direct labor-hours. The direct labor budget indicates that 9,700 direct labor-hours will be
required in May. The variable overhead rate is $8.30 per direct labor-hour. The
company's budgeted fixed manufacturing overhead is $137,740 per month, which
includes depreciation of $18,140. All other fixed manufacturing overhead costs represent
current cash flows.

The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for May should be

$22.50
May
Budgeted direct labor-hours 9,700
Variable manufacturing overhead rate
$8.30
Variable manufacturing overhead $80,510
Fixed manufacturing overhead
137,740
Total manufacturing overhead (a) $218,250
Budgeted direct labor-hours (b) 9,700
Predetermined overhead rate for the month (a) (b)
$22.50

3. Cadavieco Detailing's cost formula for its materials and supplies is $1,980 per month
plus $10 per vehicle. For the month of November, the company planned for activity of 93
vehicles, but the actual level of activity was 53 vehicles. The actual materials and
supplies for the month was $2,820.

The materials and supplies in the flexible budget for November would be closest to:
 $2,510
Cost = Fixed cost per unit + Variable cost per unit q
= $1,980 + $10 53 = $2,510

4. Gourley Clinic uses client-visits as its measure of activity. During August, the clinic
budgeted for 4,150 client-visits, but its actual level of activity was 4,080 client-visits. The
clinic has provided the following data concerning the formulas to be used in its
budgeting:
Fixed element per month Variable element per client-visit
Revenue $40.90

Personnel expenses $36,900 $12.10

Medical supplies 2,900 8.90
Occupancy expenses 9,900 2.90
Administrative expenses 6,900 0.2
Total expenses
$56,600
$24.10

The activity variance for administrative expenses in August would be closest to:
$14 F
Planning budget ($6,900 + $.20 4,150) $ 7,730
Flexible budget ($6,900 + $.20 4,080) 7,716
Activity variance
$ 14

Because the flexible budget is less than the planning budget, the variance is
favorable (F)

5. Roye Kennel uses tenant-days as its measure of activity; an animal housed in the kennel
for one day is counted as one tenant-day. During September, Kennel budgeted for 5,400
tenant-days, but its actual level of activity was 5,450 tenant-days. Kennel has provided
the following data concerning the formulas used in its budgeting and its actual results for
September:

Data used in budgeting: $23,330 U

6. Karmazyn Hospital bases its budgets on patient-visits. The hospital's static
budget for October appears below:

Budgeted number of patient-visits 9,900

Budgeted variable costs:
Supplies (@ $9.50 per patient-visit) $ 94,050
Laundry (@ $9.20 per patient-visit)
91,080
Total variable cost
 185,130
Budgeted fixed costs:
Wages and salaries 99,790
Occupancy costs
107,790
Total fixed cost
207,580
Total cost
$392,710

The total variable cost at the activity level of 10,000 patient-visits per month
should be:
7.
$187,000
Budgeted number of patient-visits 10,000
Budgeted variable costs:
Supplies (@ $9.50 per patient-visit) $ 95,000
Laundry (@ $9.20 per patient-visit)
92,000
Total variable cost
$187,000