BEC 2 Budgeting and Variance Analysis

Question 1

Identify the DM variance (two-way analysis)

Answer 1

1. DM price variance = (Actual Price -Standard Price) X Actual Quantity pruchased
2. DM quantity usage variance = (Actual quantity used - Standard Quantity allowed) X Standard Price

Question 2

Identify the DL variance (two-way analysis)

Answer 2

1. DL rate variance = (Actual Labor Rate - Standard Labor Rate) x Actual Hours Worked
2. DL efficiency variance = (Actual labor rate - Standard Hours Allowed) x Standard Labor Rate

Question 3

Identify the manufacturing O/H Variance.

Answer 3

VOH rate (spending) variance: Actual hours x (Actual rate - Standard rate)

VOH efficiency variance: Standard rate x (Actual hours - standard hours allowed for actual production volume)

FOH budget (spending) variance: Actual fixed O/H - Budgeted fixed overhead

FOH volume variance: Budgeted Fixed OH - Standard Fixed OH cost allocated to production*

• Based on actual production x standard rate

Question 4

Describe two alternative ways to calculate the volume variance.

Answer 4

Volume variance = Budgeted Fixed OH - Applied Fixed Overhead

Volume variance = (Actual production in units - Budgeted production in units) x Per unit standard fixed overhead rate

Question 5

What is the formula for sales volume variance?

Answer 5

Sales volume variance = (Actual sold units - Budgeted sales unit) x Standard contribution Margin Per unit

Question 6

What is the formula for sales price variance?

Answer 6

Sales Price Variance = (Actual SP / Unit - Budged SP / Unit) X Actual Units sold

Question 7

Define currently attainable standards.

Answer 7

Currently attainable standards represent costs that result from work performed by employees with appropriate training and experience but without extraordinary effort.

Question 8

Define ideal standards.

Answer 8

Ideal standards represent costs that result from perfect efficiency and effectiveness in job performance.

Question 9

Define flexible budget.

Answer 9

A flexible budget is a budget that can be adjusted to any actual level, it shows how costs vary with production volume.

Budgeted total cost = (VC per unit x Activity level) + Fixed Costs

Fixed cost in total are constant over the relevant range of activity level.

Question 10

Define a master budget.

Answer 10

A master budget documents specific short-term operating performance goals for a period of time, normally one year or less. The plan generally includes an operating (non financial) budget as well as a financial budget.

Question 11

List the operating budgets included in the master budget.

Answer 11

1. Sales budget
2. Production budget
3. Direct materials budget
4. Direct labor budget
5. Overhead budget
6. COGS budget
7. SG&A budget

Question 12

What is the equation for the direct materials purchases budget?

Answer 12

Units of DM needed for a production period

+ Desired ending inventory at the end of the period

• Beginning inventory at the start of the period

= Units of DM to be purchased for the period

x Cost per unit

= Cost of direct materials to be purchased for the period (purchases at cost)

Question 13

What is the equation for the DM usage budget?

Answer 13

BI at cost
+ Purchases at cost
- EI at cost

= DM usage (cost of material used)

Question 14

What is the equation for the DL budget?

Answer 14

Budgeted production (in units)
x Hours (or fractions of hours) required to produce each unit 

= total number of hours needed

x hourly wage rate

= total wages

Question 15

List the financial budgets included in the master budget.

Answer 15

1. Cash budget

2. pro forma financial statement

Question 16

Explain the sections of the cash budget.

Answer 16

1. Cash available: consists of cash balances (cash on hand) and cash collections from sales.
2. Cash disbursement: cash outlays associated with purchases and operating expenses
3. Financing: primarily involves using a line of credit to maintain minimum cash balance.