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Chap 9

1. Consider the following statements: I. The main difference between a flexible budget and a static budget is that the static budget is not adjusted for changes in the level of activity. II. To help assess how well a manager has controlled costs, actual costs should be compared to what the costs should have been for the actual level of activity. a. I is true; Il is true b. I is true; Il is false c. I is false; Il is true d. I is false; Il is false 2. Consider the following statements: I. The Activity variance for a cost is favorable if the actual cost exceeds the cost in the applicable flexible budget. II. A Planning Budget is a budget created at the beginning of the budget period that is valid only for the planned level of activity. a. I is true; Il is true b. I is true; Il is false c. I is false; Il is true d. I is false; Il is false 3. Consider the following statements: I. Differences between the static planning budget and the flexible budget show what should have happened because the actual level of activity differed from what had been planned. II. If the actual level of activity differs from what was planned, it would be misleading to compare actual costs to the static, unchanged planning budget. a. I is true; Il is true b. I is true; Il is false c. I is false; Il is true d. I is false; Il is false 4. A budget that is based on the actual activity of a period is known as a: A) continuous budget. B) flexible budget. C) static budget. D) master budget. 5. Sathre Corporation is an oil well service company that measures its output by the number of wells serviced. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. Fixed Element per Month Variable Element per Well Serviced $ 4,500 $ 900 $ 700 $ 33,000 Revenue Employee salaries and wages Servicing materials Other expenses $ 35,400 When the company prepared its planning budget at the beginning of December, it assumed that 34 wells would have been serviced. However, 32 wells were actually serviced during December. The "Employee salaries and wages" in the flexible budget for December would have been closest to: a. $57,600 b. $61,800 c. $63,600 d. $66,400 e. None of the above. The answer is 6. Mongelli Family Inn is a bed and breakfast establishment in a converted 100-year-old mansion. The Inn's guests appreciate its gourmet breakfasts and individually decorated rooms. The Inn's overhead budget for the most recent month appears below: 90guests $ 234 315 Activity level Variable overhead costs: Supplies Laundry Fixed overhead costs: Utilities Salaries and wages Depreciation Total overhead cost 220 4,290 2,680 $ 7,739 The Inn's variable overhead costs are driven by the number of guests. What would be the total budgeted overhead cost for a month if the activity level is 99 guests? a. $7,793.90 b. $61,541.00 c. $8,512.90 d. $7,739.00 e. None of the above. The answer is 7. Hamiter Framing's cost formula for its supplies cost is $2,600 per month plus $9 per frame. For the month of August, the company planned for activity of 572 frames, but the actual level of activity was 573 frames. The actual supplies cost for the month was $7,080. The supplies cost in the planning budget for August would be closest to: a. $6,080 b. $6,068 c. $7,748 d. $7,797 e. None of the above. The answer is 8, 313) Brong Corporation is a shipping container refurbishment company that measures its output by the number of containers refurbished. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes and the actual results of operations for March. Variable Element Fixed Element per per Container Actual Total Month Refurbished for March Revenue $ 5,900 $108,300 Employee salaries and wages $ 49,500 $ 900 $ 66,000 Refurbishing materials $ 500 $ 9,500 $ 40,300 $ 39,800 Other expenses When the company prepared its planning budget at the beginning of March, it assumed that 22 containers would have been refurbished. However, 18 containers were actually refurbished during March. The spending variance for total expenses for March would have been closest to: a. $5,300 U b. $300 F c. $5,300 F d. $300 U e. None of the above. The answer is 9. Standahl Air uses two measures of activity, flights and passengers, in the cost formulas in its budgets and performance reports. The cost formula for plane operating costs is $39,590 per month plus $2,649 per flight plus $4 per passenger. The company expected its activity in August to be 82 flights and 294 passengers, but the actual activity was 85 flights and 297 passengers. The actual cost for plane operating costs in August was $255,690. The activity variance for plane operating costs in August would be closest to: a. $2,294 F c. $7,959 F b. $7,959 U d. $2,294 U e. None of the above. The answer is

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