Cost Test bank Cost Test bank Cost Test bank Cost Test bank (University of Modern Sciences)

Cost Accounting, 14e (Horngren/Datar/Rajan) Chapter 7 Flexible Budgets, Direct-Cost Variances, and Management Control Objective 7.1 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 Answer: B Diff: 1 Terms: static budget Objective: 1 AACSB: Reflective thinking 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 Answer: B Diff: 1 Terms: flexible budget Objective: 1 AACSB: Reflective thinking 3) Management by exception is the practice of concentrating on: A) the master budget B) areas not operating as anticipated C) favorable variances D) unfavorable variances Answer: B Diff: 1 Terms: management by exception Objective: 1 AACSB: Reflective thinking 4) A variance is: A) the gap between an actual result and a benchmark amount B) the required number of inputs for one standard output C) the difference between an actual result and a budgeted amount D) the difference between a budgeted amount and a standard amount Answer: C Diff: 1 Terms: variance Objective: 1 AACSB: Reflective thinking Downloaded by Brian Muchoki () lOMoARcPSD| 2 Copyright © 2012 Pearson Education, Inc. 5) 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 these answers are correct. Answer: C Diff: 2 Terms: unfavorable variance Objective: 1 AACSB: Reflective thinking 6) A favorable variance indicates that: A) budgeted costs are less than actual costs B) actual revenues exceed budgeted revenues C) the actual amount decreased operating income relative to the budgeted amount D) All of these answers are correct. Answer: B Diff: 2 Terms: favorable variance Objective: 1 AACSB: Reflective thinking Answer the following questions using the information below: Bowden Corporation used the following data to evaluate their current operating system. The company sells items for $20 each and used a budgeted selling price of $20 per unit. Actual Budgeted Units sold 46,000 units 45,000 units Variable costs $225,400 $216,000 Fixed costs $47,500 $50,000 7) What is the static-budget variance of revenues? A) $20,000 favorable B) $20,000 unfavorable C) $2,000 favorable D) $2,000 unfavorable Answer: A Explanation: A) (46,000 units × $20) - (45,000 units × $20) = $20,000 F Diff: 2 Terms: static-budget variance Objective: 1 AACSB: Analytical skills Downloaded by Brian Muchoki () lOMoARcPSD| 3 Copyright © 2012 Pearson Education, Inc. 8) What is the static-budget variance of variable costs? A) $1,200 favorable B) $9,400 unfavorable C) $20,000 favorable D) $1,200 unfavorable Answer: B Explanation: B) $225,400- $216,000 = $9,400 U Diff: 2 Terms: static-budget variance Objective: 1 AACSB: Analytical skills 9) What is the static-budget variance of operating income? A) $10,600 favorable B) $10,600 unfavorable C) $13,100 favorable D) $13,100 unfavorable Answer: C Explanation: C) Actual Static Static-budget Results Budget Variance Units sold 46,000 45,000 Revenues $920,000 $900,000 $20,000 F Variable costs 225,400 216,000 9,400 U Contribution margin$694,600 $684,000 10,600 F Fixed costs 47,500 50,000 (2,500) F Operating income $647,100 $634,000 $13,100 F Diff: 2 Terms: static-budget variance Objective: 1 AACSB: Analytical skills