Chapter 7 - Budgets and Variances

Question 1

In management accounting terms, what is a Variance ?

Answer 1

A variance is a difference between the budgeted/standard cost or revenue and the actual cost or revenue

Question 2

Budgets can be used as a method of …………. and ……………. controll

Answer 2

1. Cost
2. Revenue

Question 3

Actual revenue - Budgeted revenue =

Answer 3

Variance

Question 4

Budgeted cost - Actual cost =

Answer 4

Variance

Question 5

Variances can be either ……… or ………… ?

Answer 5

• Favourable
• Adverse

Question 6

What makes a favourable cost variance ?

Answer 6

Actual costs are lower than budgeted costs

Question 7

What makes a favourable revenue variance ?

Answer 7

Actual revenues are higher than budgeted revenues

Question 8

What makes a favourable operating profit ?

Answer 8

Actual profit is higher than budgeted profit

Question 9

What makes a adverse cost variance ?

Answer 9

Actual costs are higher than budgeted costs

Question 10

What makes a adverse revenue variance ?

Answer 10

Actual revenues are lower than budgeted revenues

Question 11

What makes a adverse operating profit ?

Answer 11

Actual profit is lower than budgeted profit

Question 12

As a means of motivating employees, Budgets are an example of………….?

Answer 12

Responsibility accounting

Question 13

What reports are variances present on ?

Answer 13

Budget reports