Chapter 8: Budgets and Variance

Question 1

What is a standard cost?

Answer 1

A standard cost is a pre-determined unit cost that acts as a target

Question 2

What is a standard cost card?

Answer 2

A standard cost card is a document that details the standard costs associated with producing a specific product or service.

Question 3

What is a fixed budget?

Answer 3

A fixed budget is a budget produced for a single activity level

Question 4

What is a flexed budget?

Answer 4

A flexed budget is a budget that is designed to change as volume of activity changes.

Question 5

What is a rolling budget?

Answer 5

A rolling budget is a budget that is kept continuously up to date by adding another accounting period.

Question 6

What could cause a difference between budgeted and actual sales revenue?

Answer 6

A change in…
• the price of the product
• the volume of sales

Question 7

What could cause a difference between budgeted and actual material costs?

Answer 7

A change in…
• the price of material
• the amount of material used
• the quality of material

Question 8

What could cause a difference between budgeted and actual labour costs?

Answer 8

A change in…
• the hourly rate paid to employees
• the efficiency of staff
• the overtime

Question 9

What are possible solutions for sales revenue variances?

Answer 9

• lowering the price to increase sales
• increase advertising

Question 10

What are possible solutions for material cost variances?

Answer 10

• change of supplier to improve prices
• negotiation of discounts
• updating machinery
• better quality control to reduce wastage

Question 11

What are possible solutions for labour cost variances?

Answer 11

• updating machinery to improve efficiency
• better supervision of staff
• increased training to reduce errors