Horngrens Cost Accounting A Managerial Emphasis 16th Edition By Srikant M. Datar – Test Bank

Horngrens Cost Accounting A Managerial Emphasis 16th Edition By Srikant M. Datar – Test Bank

Cost Accounting: A Managerial Emphasis, 16e (Horngren)
Chapter 7 Flexible Budgets, Direct-Cost Variances, and Management Control

7.1 Objective 7.1

1) A master budget is ________.
A) a budget which starts from a zero base
B) based on the level of expected output at the start of the budget period
C) developed at the end of a period
D) a type of flexible budget once actual results are known
Answer: B
Diff: 1
Objective: 1
AACSB: Analytical thinking

2) Management by exception is a practice whereby managers focus more closely on ________.
A) variances in the larger departments
B) areas not operating as anticipated and less closely on areas that are operating as anticipated
C) activity-based budgeting
D) unfavorable variances
Answer: B
Diff: 1
Objective: 1
AACSB: Analytical thinking

3) A variance is ________.
A) the difference between actual fixed cost per unit and standard variable cost per unit
B) the standard units of inputs for one output
C) the difference between an actual result and a budgeted performance
D) the difference between actual variable cost per unit and standard fixed cost per unit
Answer: C
Diff: 1
Objective: 1
AACSB: Analytical thinking

4) An unfavorable variance indicates that ________.
A) the actual costs are less than the budgeted costs
B) the actual revenues exceed the budgeted revenues
C) the actual units sold are less than the budgeted units
D) the budgeted contribution margin is more than the actual amount
Answer: C
Diff: 2
Objective: 1
AACSB: Analytical thinking

5) A favorable variance indicates that ________.
A) budgeted costs are less than actual costs
B) actual revenues exceed budgeted revenues
C) actual operating income is less than the budgeted amount
D) budgeted contribution margin is more than the actual amount
Answer: B
Diff: 2
Objective: 1
AACSB: Analytical thinking

6) Lincoln Corporation used the following data to evaluate their current operating system. The company sells items for $19 each and used a budgeted selling price of $19 per unit.

Actual Budgeted
Units sold 48,000 units 39,000 units
Variable costs $167,000 $152,000
Fixed costs $41,000 $50,000

What is the static-budget variance of revenues?
A) $171,000 favorable
B) $171,000 unfavorable
C) $6,000 favorable
D) $9,000 unfavorable
Answer: A
Explanation: Static-budget variance of revenues = (48,000 units × $19) – (39,000 units × $19) = $171,000 F
Diff: 2
Objective: 1
AACSB: Application of knowledge

7) Lincoln Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit.

Actual Budgeted
Units sold 45,000 units 31,000 units
Variable costs $161,000 $150,000
Fixed costs $44,000 $50,000

What is the static-budget variance of variable costs?
A) $6,000 favorable
B) $11,000 unfavorable
C) $14,000 favorable
D) $5,000 unfavorable
Answer: B
Explanation: Static-budget variance of variable costs = $161,000 − $150,000 = $11,000 U
Diff: 2
Objective: 1
AACSB: Application of knowledge

8) Lincoln Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit.

Actual Budgeted
Units sold 43,000 units 33,000 units
Variable costs $166,000 $150,000
Fixed costs $41,000 $58,000

What is the static-budget variance of operating income?
A) $164,000 favorable
B) $164,000 unfavorable
C) $181,000 favorable
D) $181,000 unfavorable
Answer: C
Explanation: Actual Static Static-budget
Results Budget Variance
Units sold 43,000 33,000

Revenues $774,000 $594,000 $180,000 F
Variable costs 166,000 150,000 16,000 U
Contribution margin $608,000 $444,000 164,000 F
Fixed costs 41,000 58,000 $17,000 F
Operating income $567,000 $386,000 $181,000 F
Diff: 3
Objective: 1
AACSB: Application of knowledge

9) Schooner Corporation used the following data to evaluate its current operating system. The company sells items for $23 each and used a budgeted selling price of $23 per unit.

Actual Budgeted
Units sold 171,000 units 187,000 units
Variable costs $1,081,000 $1,285,000
Fixed costs $800,000 $774,000

What is the static-budget variance of revenues?
A) $368,000 favorable
B) $368,000 unfavorable
C) $16,000 favorable
D) $16,000 unfavorable
Answer: B
Explanation: Static-budget variance of revenues = (171,000 units × $23) − (187,000 units × $23) = $368,000 U
Diff: 2
Objective: 1
AACSB: Application of knowledge

10) Schooner Corporation used the following data to evaluate its current operating system. The company sells items for $25 each and used a budgeted selling price of $25 per unit.

Actual Budgeted
Units sold 173,000 units 181,000 units
Variable costs $1,081,000 $1,285,000
Fixed costs $806,000 $770,000

What is the static-budget variance of variable costs?
A) $36,000 favorable
B) $36,000 unfavorable
C) $204,000 favorable
D) $204,000 unfavorable
Answer: C
Explanation: Static-budget variance of variable costs = $1,081,000 − $1,285,000 = $204,000 F
Diff: 2
Objective: 1
AACSB: Application of knowledge

11) Schooner Corporation used the following data to evaluate its current operating system. The company sells items for $24 each and used a budgeted selling price of $24 per unit.

Actual Budgeted
Units sold 177,000 units 184,000 units
Variable costs $1,090,000 $1,290,000
Fixed costs $804,000 $780,000

What is the static-budget variance of operating income?
A) $8,000 favorable
B) $176,000 unfavorable
C) $32,000 favorable
D) $7,000 unfavorable
Answer: A
Explanation: Actual Static Static-budget
Results Budget Variance
Units sold 177,000 184,000

Revenues $4,248,000 $4,416,000 $(168,000) U
Variable costs 1,090,000 1,290,000 (200,000) F
Contribution margin $3,158,000 $3,126,000 32,000 F
Fixed costs 804,000 780,000 24,000 U
Operating income $2,354,000 $2,346,000 $8,000 F
Diff: 3
Objective: 1
AACSB: Application of knowledge

12) Daniels Corporation used the following data to evaluate their current operating system. The company sells items for $19 each and had used a budgeted selling price of $20 per unit.

Actual Budgeted
Units sold 280,000 units 279,000 units
Variable costs $980,000 $881,000
Fixed costs $58,000 $45,000

What is the static-budget variance of revenues?
A) $299,000 favorable
B) $260,000 favorable
C) $260,000 unfavorable
D) $299,000 unfavorable
Answer: C
Explanation: Static-budget variance of revenues = (280,000 units × $19) − (279,000 units × $20) = $260,000 U
Diff: 2
Objective: 1
AACSB: Application of knowledge

13) Daniels Corporation used the following data to evaluate their current operating system. The company sells items for $19 each and had used a budgeted selling price of $20 per unit.

Actual Budgeted
Units sold 280,000 units 270,000 units
Variable costs $990,000 $887,000
Fixed costs $60,000 $47,000

What is the static-budget variance of variable costs?
A) $116,000 favorable
B) $116,000 unfavorable
C) $103,000 favorable
D) $103,000 unfavorable
Answer: D
Explanation: Static-budget variance of variable costs = $990,000 − $887,000 = $103,000 U
Diff: 2
Objective: 1
AACSB: Application of knowledge

14) Daniels Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and had used a budgeted selling price of $19 per unit.

Actual Budgeted
Units sold 280,000 units 278,000 units
Variable costs $960,000 $886,000
Fixed costs $60,000 $51,000

What is the static-budget variance of operating income?
A) $325,000 favorable
B) $325,000 unfavorable
C) $316,000 favorable
D) $316,000 unfavorable
Answer: B
Explanation: Actual Static Static-budget
Results Budget Variance
Units sold 280,000 278,000

Revenues $5,040,000 $5,282,000 $(242,000) U
Variable costs 960,000 886,000 (74,000) U
Contribution margin $4,080,000 $4,396,000 316,000 U
Fixed costs 60,000 51,000 9,000 U
Operating income $4,020,000 $4,345,000 $325,000 U
Diff: 3
Objective: 1
AACSB: Application of knowledge

15) Johnson Company had planned for operating income of $10 million in the master budget with a contribution margin of $3 million, but actually achieved operating income of only $7 million and a contribution margin of $2.5 million.
A) The static-budget variance for operating income is $3 million favorable.
B) The static-budget variance for operating income is $3 million unfavorable.
C) The flexible-budget variance for operating income is $3 million favorable.
D) The flexible-budget variance for operating income is $3 million unfavorable.
Answer: B
Diff: 2
Objective: 1
AACSB: Analytical thinking

16) A master budget is called a static budget because it is developed around a single planned output level.
Answer: TRUE
Diff: 1
Objective: 1
AACSB: Analytical thinking

17) For revenue items, a favorable variance means that actual revenues are less than expected.
Answer: FALSE
Explanation: Favorable means the revenues were more than expected (budgeted revenues)
Diff: 2
Objective: 1
AACSB: Application of knowledge
18) A variance is the difference between the actual cost for the current and expected (or budgeted) performance.
Answer: TRUE
Diff: 2
Objective: 1
AACSB: Analytical thinking

19) A favorable expense variance results when actual costs exceed budgeted costs.
Answer: FALSE
Explanation: A favorable variance results when actual costs are less than budgeted costs.
Diff: 2
Objective: 1
AACSB: Analytical thinking

20) Management by exception is the practice of concentrating on areas not operating as anticipated (such as a cost overrun) and placing less attention on areas operating as anticipated.
Answer: TRUE
Diff: 1
Objective: 1
AACSB: Analytical thinking

21) A favorable variance indicates that budgeted costs are less than actual costs.
Answer: FALSE
Explanation: A favorable variance indicates that budgeted costs are greater than actual costs.
Diff: 2
Objective: 1
AACSB: Analytical thinking

22) A favorable variance should be ignored by management.
Answer: FALSE
Explanation: Favorable variance investigation may lead to improved production methods, other discoveries for future opportunities, or not be good news at all and adversely affect other variances.
Diff: 1
Objective: 1
AACSB: Analytical thinking

23) Variances are used for evaluating performance and for motivating managers.
Answer: TRUE
Diff: 2
Objective: 1
AACSB: Analytical thinking

24) Static-budget variance for operating income is calculated by taking a difference between static-budget operating income and actual operating income.
Answer: TRUE
Diff: 2
Objective: 1
AACSB: Analytical thinking
25) Explain the difference between a static budget and a flexible budget. Explain what is meant by a static budget variance and a flexible budget variance.
Answer: A static budget is one based on the level of output planned at the start of the budget period. A flexible budget calculates budgeted revenue and budgeted costs based on the actual output in the budget period. The only difference between the static budget and the flexible budget is that the static budget is prepared for the planned output, whereas the flexible budget is prepared based on the actual output.

A static budget variance is the difference between the actual results and the corresponding budgeted amounts in the static budget. A flexible-budget variance is the difference between an actual result and the corresponding flexible-budget amount based on the actual output in the budget period.
Diff: 2
Objective: 1
AACSB: Analytical thinking

7.2 Objective 7.2

1) The flexible budget contains ________.
A) budgeted amounts for actual output
B) static budget amounts for planned output
C) actual costs for actual output
D) actual costs for planned output
Answer: A
Diff: 1
Objective: 2
AACSB: Analytical thinking

2) Which of the following items will be same for a flexible budget and a master budget?
A) total variable cost
B) total expected fixed costs
C) total contribution margin
D) total expected revenues
Answer: B
Diff: 2
Objective: 2
AACSB: Analytical thinking

3) 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
Objective: 2
AACSB: Analytical thinking
4) A company budgets 10,000 units of sales based on a projected selling price of $13.00. The actual units sold were 15,000 at a price of $10. What is the flexible budget for sales?
A) $195,000
B) $150,000
C) $130,000
D) $100,000
Answer: A
Explanation: 15,000 x $13
Diff: 2
Objective: 2
AACSB: Analytical thinking

5) An unfavorable flexible-budget variance for variable costs may be the result of ________.
A) using more input quantities than were budgeted
B) paying lower prices for inputs than were budgeted
C) selling output at a higher selling price than budgeted
D) selling less quantity compared to the budgeted
Answer: A
Diff: 3
Objective: 2
AACSB: Analytical thinking

6) In a flexible budget ________.
A) variable costs are calculated proportionately for the budgeted level of sales
B) fixed costs are calculated proportionately for the actual level of sales
C) fixed costs are kept at the same level of static budget
D) variable costs are kept at the same level of static budget
Answer: C
Diff: 2
Objective: 2
AACSB: Analytical thinking

7) Which of the following information is needed to prepare a flexible budget?
A) actual units sold
B) actual variable cost
C) actual selling price per unit
D) actual fixed cost
Answer: A
Diff: 3
Objective: 2
AACSB: Analytical thinking

8) Which of the following is true of flexible budget?
A) It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.
B) It calculates total fixed cost by multiplying actual units by budgeted fixed cost per unit.
C) It calculates revenues by multiplying budgeted units by actual selling price per unit.
D) It calculates contribution margin by multiplying budgeted units by actual contribution margin per unit.
Answer: A
Diff: 2
Objective: 2
AACSB: Analytical thinking
9) A flexible-budget variance is $600 favorable for unit-related costs. This indicates that costs were ________.
A) $600 more than the master budget
B) $600 less than for the planned level of activity
C) $600 more than standard for the achieved level of activity
D) $600 less than standard for the achieved level of activity
Answer: D
Diff: 2
Objective: 2
AACSB: Analytical thinking

10) Goodard Inc. planned to use $153 of material per unit but actually used $140 of material per unit, and planned to make 1,100 units but actually made 940 units.

The flexible-budget amount for materials is ________.
A) $168,300
B) $143,820
C) $154,000
D) $131,600
Answer: B
Explanation: 940 units × $153 = $143,820
Diff: 2
Objective: 2
AACSB: Application of knowledge

11) Goodard Inc. planned to use $156 of material per unit but actually used $141 of material per unit, and planned to make 1,150 units but actually made 920 units.

The flexible-budget variance for materials is ________.
A) $13,800 favorable
B) $13,800 unfavorable
C) $17,250 unfavorable
D) $17,250 favorable
Answer: A
Explanation: ($141 − $156) × 920 = $13,800 F
Diff: 2
Objective: 2
AACSB: Application of knowledge

12) Goodard Inc. planned to use $155 of material per unit but actually used $147 of material per unit, and planned to make 1,110 units but actually made 1,000 units.

The sales-volume variance for materials is ________.
A) $8,000 favorable
B) $16,170 unfavorable
C) $17,050 unfavorable
D) $8,000 unfavorable
Answer: C
Explanation: (1,000 − 1,110) × $155 = $17,050 U
Diff: 2
Objective: 2
AACSB: Application of knowledge
13) Harland Corporation currently produces cardboard boxes in an automated process. Expected production per month is 20,000 units, direct material costs are $2.50 per unit, and manufacturing overhead costs are $15,000 per month. Manufacturing overhead is all fixed costs. What are the flexible budget for 14,000 and 20,000 units, respectively?
A) $14,000; $65,000
B) $14,000; $30,000
C) $50,000; $65,000
D) $50,000; $30,000
Answer: C
Explanation: 14,000 units 20,000 units
Materials ($2.50) $35,000 $50,000
Machinery 15,000 15,000
Flexible Budgets $50,000 $$65,000
Diff: 2
Objective: 2
AACSB: Application of knowledge

14) Jalbert Incorporated planned to use materials of $11 per unit but actually used materials of $15 per unit, and planned to make 1,560 units but actually made 1,730 units.

The flexible-budget amount for materials is ________.
A) $17,160
B) $23,400
C) $19,030
D) $25,950
Answer: C
Explanation: 1,730 units × $11 = $19,030
Diff: 2
Objective: 2
AACSB: Application of knowledge

15) Jalbert Incorporated planned to use materials of $11 per unit but actually used materials of $13 per unit, and planned to make 1,590 units but actually made 1,780 units.

The flexible-budget variance for materials is ________.
A) $3,180 favorable
B) $3,560 unfavorable
C) $3,180 unfavorable
D) $3,560 favorable
Answer: B
Explanation: ($13 − $11) × 1,780 = $3,560 U
Diff: 2
Objective: 2
AACSB: Application of knowledge
16) Jalbert Incorporated planned to use materials of $9 per unit but actually used materials of $14 per unit, and planned to make 1,640 units but actually made 1,770 units.

The sales-volume variance for materials is ________.
A) $1,170 unfavorable
B) $1,820 unfavorable
C) $1,170 favorable
D) $1,820 favorable
Answer: C
Explanation: (1,770 − 1,640) × $9 = $1,170 F
Diff: 2
Objective: 2
AACSB: Application of knowledge

17) Better Products Inc. planned to use $43 of material per unit but actually used $32 of material per unit, and planned to make 1,510 units but actually made 1,340 units.

The flexible-budget amount for materials is ________.
A) $57,620
B) $64,930
C) $48,320
D) $42,880
Answer: A
Explanation: 1,340 units × $43 = $57,620
Diff: 2
Objective: 2
AACSB: Application of knowledge

18) Better Products Inc. planned to use $36 of material per unit but actually used $34 of material per unit, and planned to make 1,520 units but actually made 1,310 units.

The flexible-budget variance for materials is ________.
A) $3,040 favorable
B) $3,040 unfavorable
C) $2,620 unfavorable
D) $2,620 favorable
Answer: D
Explanation: ($34 − $36) × 1,310 = $2,620 F
Diff: 2
Objective: 2
AACSB: Application of knowledge