FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Question
1) Why do companies develop flexible
Because actual activity level may not be the same as the budgeted activity level.
Because flexible budgets reflect the normal production capacity.
Because flexible budgets are more accurate than static budgets.
Because static budgets become obsolete in the end of year when variance analysis are performed.
2) If excessive direct hours are used in the current operations, what variance would be resulted under the
Unfavorable labor efficiency variance
Favorable labor quality variance
Favorable labor efficiency variance
Unfavorable labor rate variance
3) The following actual and standard cost data for direct material and direct labor relate to the production of 4,000 units of product:
Actual Costs
Standard Costs
Direct Material
4,900 lb. $5.85 per pound
5,000 lb. $5.90 per pound
Direct Labor
1,900 hrs. $20.50 per hour
2,000 hrs. $20.00 per hour
What is the materials price variance?
$2,950 Unfavorable
$245 Favorable
$245 Unfavorable
$2,950 Favorable
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- PRINCIPLE OF HEALTHCARE FINANCEarrow_forwardWhy is the identification of favorable and unfavorable variances so important to a company? How can the identification of the variances help management control costs? Please explain. Considering the flexible budgeting topic, it is important to look at this analysis as a significant contribution to the management of the company. Knowing what the bottom line profit or loss is important. But what is more important is to understand how your actual results varied in terms of units sold versus how the actual cost of each unit differed from the budget. What is a good example of this?arrow_forwardowe subject-Accountingarrow_forward
- Which of the following statements is true? A) The spending variance for a variable expense will usually equal zero. B) The spending variance for a variable expense will be favorable if the amount of the expense contained in the flexible budget is greater than the actual amount of the expense. C) The spending variance for a variable expense will be favorable if the amount of the expense contained in the flexible budget is less than the actual amount of the expense. D) The spending variance for a variable expense can be favorable or unfavorable depending on whether the actual expense is greater than or less than the planned expense.arrow_forwardWhich statement is true? A. Gross profit (GP) variance analysis, is an essential part of financial statements analysis that is used to evaluate the performance of a firm's departments responsible for the firm's line activities (functions). B. Increases and decreases in sales and cost of sales have direct relationship with increases and decreases in GP. C. If there is a negative sales price variance and there is no cost variance, the gross profit variance will be equal to the sales price variance. D. A zero cost variance indicates that there is no difference between the standard cost prices and actual cost prices. E. none of the abovearrow_forwardWhich of the following statements about fixed overhead variances is FALSE? O The budget variance represents the difference between the original budgeted fixed overhead cost and the applied fixed overhead cost during a period. O An unfavorable volume variance means that a firm's production facilities were under-utilized by producing less units of products than budgeted. O The volume variance is a measure of facility utilization. O Fixed overhead variances consist of a budget variance and a volume variance. Ne: Previousarrow_forward
- How do managers use budgets to control business activities?a) Match the concept (by number) to the correct terminology. 1. Static Budget2. Budget Performance Report3. Variance4. Static Budget Variance5. Flexible Budget6. Flexible Budget Variance7. Sales Volume Variance______ A budget prepared for various levels of sales volume.______ The difference between actual results and the expected results in the flexible budget for the actual units sold. ______ The difference between the expected results in the flexible budget for the actual units soldand the static budget. _____ The difference between actual results and the expected results in the static budget. _____ A report that summarizes the actual results, budgeted amounts, and the differences. _____ A budget prepared for only one level of sales volume. _____ The difference between an actual amount and the budgeted amount; labeled as favorable if it increases operating income and unfavorable if it decreases operating income. In…arrow_forwardThe Provence Company has the following flexible budget variances: unfavorable direct material price variance and favorable direct material quantity variance. A logical explanation for this is: a) They made fewer products than they budgeted for. b) They purchased cheaper material than budgeted. c) All of these choices are logical explanations. d) They purchased higher quality material than budgeted.arrow_forwardIs it possible for a retail store such as Apple to use variances in analyzing its operating performance? Explain.arrow_forward
- These are True/False questions. ____ 6. If the total unit cost of manufacturing Product Y is currently $36 and the total unit cost after modifying the style is estimated to be $48, the differential cost for this situation is $12. ____ 7. A process whereby the effect of fluctuations in level of activity is built into the budgeting system is referred to as flexible budgeting. ____ 8. In an investment center, the manager has the responsibility and the authority to make decisions that affect not only costs and revenues, but also the plant assets invested in the center. ____ 9. The capital expenditures budget summarizes future plans for acquisition of fixed assets. ____ 10. The process by which management plans, evaluates, and controls long-term investment decisions involving fixed assets is called capital investment analysis.arrow_forwardA company has set a new policy of acquiring materials from a second hand auction because it is cheaper than market price. Upon further investigations you have discovered that the materials from the auction are lower than the normal standard. How is the new policy likely to impact on the following variances: Material Usage: Choose... Labour Efficiency: Choose... Fixed overhead expenditure: Variable overhead efficiency: Previous page Choose... Choose... Next pagearrow_forward
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