Budgeting As A Control Tool

Question 1

What is the equation for profit

Answer 1

Revenue less expenses/costs equals profit

Question 2

What are the two types of costs

Answer 2

Variable costs, fixed costs

Question 3

When did costs behave in different ways

Answer 3

As the level of activity (units of output) changes

Question 4

What is the definition of variable costs

Answer 4

Variable costs are costs which vary with the level of activity

Question 5

What is the definition of fixed costs

Answer 5

They remain constant over why do ranges of activity and are not affected by changes in activity

Question 6

Add zero volume of activity variable cost is…

Answer 6

Zero

Question 7

At zero volume of activity they will be…

Answer 7

Some level of fixed costs

Question 8

What does the variable costs graph look like

Answer 8

A diagonal line

Question 9

What does the fixed costs graph look like

Answer 9

A straight horizontal line

Question 10

What is unit variable cost aka

Answer 10

Marginal cost

Question 11

Are fixed costs timebased

Answer 11

Almost always

Question 12

What are some examples of fixed costs for a manufacturing business

Answer 12

Factory rent, insurance, admin staff wages, heating and lighting

Question 13

What are some examples of variable costs. For a manufacturing business

Answer 13

Materials, machine operator wages, machine power, bits and blades for machines

Question 14

When do we need to flex the budget

Answer 14

When actual output differs to the budgeted level it is difficult to compare actual revenues and costs with those budgeted

Question 15

What does flexing the budget mean

Answer 15

It means revising it assuming a different level of output

Question 16

What has happened if there is a sales price variance

Answer 16

A different price has been charged than the original budget

Question 17

Give three possible reasons for sales price variance

Answer 17

Offering discounts on sales price, price have changed since budget prepared, increase/decrease in competition in the market place may affect price

Question 18

What has happened if there is a direct materials usage variance

Answer 18

A different amount of materials pony unit than originally budgeted has been used

Question 19

What are three possible reasons for a direct materials usage variance

Answer 19

High wastage of materials increasing amounts used, Lower quality materials meaning more is used, materials being stolen

Question 20

What happens if there is a direct materials price variance

Answer 20

Cost of materials is different than originally budgeted

Question 21

What are some reasons for direct labour efficiency variance

Answer 21

Poor quality materials taking longer to work with
Staff training time required not budgeted for
Lack of supervision

Question 22

What are some reasons for direct labour rate variance

Answer 22

Using a skilled worker instead of an unskilled worker
Paying overtime rates
Change on rates of pay since budget was set

Question 23

What are some possible reasons for a variable overhead variance

Answer 23

Change in overhead rates since budget was approved, lack of control of the overhead costs

Question 24

What are some possible reasons for fixed cost variance

Answer 24

Change in fixed costs since budget prepared, rent increases

Question 25

What should all significant variances be

Answer 25

Investigated

Question 26

What should the next budget take into account

Answer 26

That in the last budget variances a rose due to errors/bad assumptions in the budgeting process