Test 3

Question 1

MATCHING:

Define Organizational Goals

Answer 1

company’s broad objectives established by management that employees work to achieve

Question 2

MATCHING:

Define Strategic Long-Range Plan

Answer 2

statement detailing steps to take to achieve a company’s goals (3 - 5 year plan)

Question 3

MATCHING:

Define Master Plan

Answer 3

the financial plan of an organization for the upcoming year

(tactical short-range profit plan, “static budget”)

Question 4

MATCHING:

Define Budget

Answer 4

a financial plan of the resources needed to carry out activities and meet financial goals

Question 5

MATCHING:

Define Operating Budget

Answer 5

encompassing budget for operating activities, including:
-Sales Budget
-Production Budget
-COGS Budget
-Marketing and Administrative Budget
-Income Statement Budget

Question 6

MATCHING:

Define Favorable Variance

Answer 6

when taken alone, INCREASES operating profit

Question 7

MATCHING:

Define Flexible Budget

Answer 7

budget that indicates revenues, costs, and profits for different levels of activity

-developed for SEVERAL levels of sales volume
-separates the fixed and variable costs

Question 8

MATCHING:

Define Sales Activity Variance

Answer 8

difference between operating profit in the Master Budget and operating profit in the Flexible Budget that arises because the actual number of units sold is different from the budgeted number

Question 9

MATCHING:

Define Standard Costing

Answer 9

an accounting method that assigns costs to cost objects at predetermined amounts

Question 10

MATCHING:

Define Price Variance

Answer 10

difference between ACTUAL costs and BUDGETED costs multiplied by the actual quantity
-PURCHASING DEPT. owns this

(AP-SP) x AQ

Question 11

MATCHING:

Define Efficiency Variance

Answer 11

difference between ACTUAL quantity and BUDGETED quantity multiplied by the standard price
-PRODUCTION DEPT. owns this

(AQ-SQ) x SP

Question 12

MATCHING:

Define Production Variance

Answer 12

“Input” variance, consisting of both Price and Efficiency variance

Question 13

What are the three benefits of budgeting?

Answer 13

1. Sets benchmarks for evaluation performance
2. Uncovers potential bottlenecks
3. Formulates a manager’s planning efforts

Question 14

A Master Budget is composed of:

Answer 14

1. Operating Budgets
2. Financial Budgets

Question 15

Regarding Operating Budgets, which budget is often the MOST DIFFICULT part of budgeting?

Answer 15

Sales Budget (“foundation”) - uses objectivity

Question 16

What does a Cash Budget emphasize?

Answer 16

emphasizes when cash is RECIEVED and PAID (NOT a restate Income Statement)

Question 17

On which basis in the Balance Sheet in Financial Budgets?

Answer 17

Accrual Basis

Question 18

What is a Production Budget?

Answer 18

the production plan of resources needed to meet current sales demand and ensure that inventory levels are sufficient for future sales

Question 19

What is the Basic Cost Flow Model?

Answer 19

BB + TI = TO + EB

or Beg. Bal + Production - Sales = End. Bal.

Question 20

T/F: Assembling a Master Budget is a complex process requiring careful coordination of many different organization segments

Answer 20

TRUE

Question 21

When does the Master Budget process usually start?

Answer 21

several months before year-end (not too early, not too late)

Question 22

Who formally adopts the Master Budget?

Answer 22

Board of Directors

Question 23

What is a Variance?

Answer 23

difference between planned result and actual outcome

Question 24

What is an Unfavorable Variance?

Answer 24

when taken alone, DECREASES operating profit

Question 25

Is it correct to say that Favorable Variances are “always good” and Unfavorable Variances are “always bad?”

Answer 25

NO - Favorable Variances are not necessarily good and Unfavorable Variances are not necessarily bad

Question 26

How many levels of sales volume is a Master Budget developed for, and can this be changed after being developed?

Answer 26

Developed for ONE level of sales volume

DOES NOT change after being developed

Question 27

What is the importance of Sales Activity Variance?

Answer 27

it isolates the change in operating profits caused by the actual sales activity versus the Master Budget (before considering differences in selling prices, variable costs, and fixed costs)

Question 28

How is Sales Revenue calculated for Sales Activity Variance?

Answer 28

(Actual Units - Budgeted Units) x Budgeted Sales Unit Price

Question 29

How are Variable Costs calculated for Sales Activity Variance?

Answer 29

(Actual Units - Budgeted Units) x Budgeted Unit Cost

Question 30

Are there any changes to fixed costs in Sales Activity variance?

Answer 30

NO

Question 31

When does a Flexible Budget Variance occur?

Answer 31

when sales price/unit, variable cost/unit, and/or fixed cost was different than planned

Question 32

What is a Sales Price Variance?

Answer 32

(Actual Selling Price - Budgeted Selling Price) x Actual # units sold

Question 33

T/F: Direct Materials, Direct Labor, and Variable Overhead each have a price and efficiency variance component.

Answer 33

TRUE

Question 34

Price Variance + Efficiency Variance = _______________

Answer 34

Flexible Budget Variance

Question 35

Are Fixed Costs period costs or product costs?

Answer 35

Period costs by nature

Question 36

Does Fixed Overhead have an efficiency variance? Why or Why not?

Answer 36

NO - Fixed Overhead has no input/output relationships

Question 37

Price Variance for Fixed Overhead is ____________ - ______________.

Answer 37

Actual Fixed OH - Flexible Budget Fixed OH

Question 38

What is Volume Variance?

Answer 38

the difference between budgeted and applied fixed OH under full absorption costing

it is the variance that arises because the volume used to apply fixed OH differs from the estimated volume used to estimate fixed cost/unit