ADM 2341 Lecture 9: Chapter 9- Flexible Budgetting

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rubyporpoise627

10 Nov 2015

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The budgets we just went over are static budgets: a static budget is prepared only for the planned or budgeted level of activity. These budgets are suitable for planning; however they can be inadequate for control if the actual level of activity during the period differs significantly from the budgeted level. Therefore an alternative approach is needed to restore the usefulness of budgets as a control tool. Flexible budgets: may be prepared for any activity level within the relevant range. Show costs that should have been incurred at the actual level of activity, enabling apples to apples cost comparisons: reveal variances related to cost control. U=unfavorable variance (unable to achieve the budgeted level of activity, and the costs were higher than expected. ) F= favorable variance (when costs are lower than expected) This question can"t be answered using a static budget. To answer the question, we must flex the budget to the actual level of activity.

Related Questions

I need some feedback if these are correct.
1.
A flexible budget is a budget that:
A) is updated with actual costs as they occur during theperiod.
B) is updated to reflect the actual level of activity during theperiod.
C) is prepared using a computer spreadsheet application.
D) contains only variable production costs.
2.
Ofarrell Snow Removal's cost formula for its vehicle operating costis $1,840 per month plus $377 per snow-day. For the month ofNovember, the company planned for activity of 14 snow-days, but theactual level of activity was 19 snow-days. The actual vehicleoperating cost for the month was $9,280. The vehicle operating costin the flexible budget for November would be closest to:
A) $9,003
B) $7,118
C) $9,280
D) $9,660
3.
Entler Framing's cost formula for its supplies cost is $2,250 permonth plus $16 per frame. For the month of June, the companyplanned for activity of 502 frames, but the actual level ofactivity was 497 frames. The actual supplies cost for the month was$10,580. The supplies cost in the planning budget for June would beclosest to:
A) $10,580
B) $10,282
C) $10,686
D) $10,202
4.
Johannsen Catering uses two measures of activity, jobs and meals,in the cost formulas in its budgets and performance reports. Thecost formula for catering supplies is $310 per month plus $103 perjob plus $23 per meal. A typical job involves serving a number ofmeals to guests at a corporate function or at a host's home. Thecompany expected its activity in February to be 28 jobs and 187meals, but the actual activity was 26 jobs and 192 meals. Theactual cost for catering supplies in February was $7,620. Thecatering supplies in the flexible budget for February would beclosest to:
A) $7,495
B) $7,404
C) $7,620
D) $6,960
5.
Kimbril Catering uses two measures of activity, jobs and meals, inthe cost formulas in its budgets and performance reports. The costformula for catering supplies is $530 per month plus $91 per jobplus $12 per meal. A typical job involves serving a number of mealsto guests at a corporate function or at a host's home. The companyexpected its activity in January to be 27 jobs and 174 meals, butthe actual activity was 31 jobs and 173 meals. The actual cost forcatering supplies in January was $5,330. The activity variance forcatering supplies in January would be closest to:
A) $255 F
B) $255 U
C) $352 F
D) $352 U
6.
Lapinsky Air uses two measures of activity, flights and passengers,in the cost formulas in its budgets and performance reports. Thecost formula for plane operating costs is $31,400 per month plus$2,148 per flight plus $7 per passenger. The company expected itsactivity in April to be 89 flights and 261 passengers, but theactual activity was 84 flights and 260 passengers. The actual costfor plane operating costs in April was $204,810. The spendingvariance for plane operating costs in April would be closestto:
A) $8,842 U
B) $19,589 F
C) $19,589 U
D) $8,842 F
7.
Velten Corporation's flexible budget performance report for lastmonth shows that actual indirect materials cost, a variable cost,was $45,198 and that the spending variance for indirect materialscost was $9,114 favorable. During that month, the company worked18,600 machine-hours. Budgeted activity for the month had been19,000 machine-hours. The cost formula per machine-hour forindirect materials cost must have been closest to:
A) $1.90
B) $2.86
C) $1.94
D) $2.92
8.
Which of the following comparisons best isolates the impact thatchanges in prices of inputs and outputs have on performance?
A) static planning budget and flexible budget
B) static planning budget and actual results
C) flexible budget and actual results
D) master budget and static planning budget
9.
The excess or deficiency of cash available over disbursements onthe cash budget is calculated as follows:
A) The beginning balance less the expected cash receipts less theexpected cash disbursements.
B) The cash available less the expected cash receipts plus theexpected cash disbursements.
C) The beginning balance plus the expected cash receipts less theexpected cash disbursements.
D) None of the above.
10.
There are various budgets within the master budget. One of thesebudgets is the production budget. Which of the following BESTdescribes the production budget?
A) It details the required direct labor hours.
B) It details the required raw materials purchases.
C) It is calculated based on the sales budget and the desiredending inventory.
D) It summarizes the costs of producing units for the budgetperiod.
1.B
2.A
3.A
4.C
5.D
6.C
7.A
8.B
9.A
10.C

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The St. Lucia Blood Bank, a private charity partly supported bygovernment grants, is located on the Caribbean island of St. Lucia.The blood bank has just finished its operations for September,which was a particularly busy month due to a powerful hurricanethat hit neighboring islands causing many injuries. The hurricanelargely bypassed St. Lucia, but residents of St. Lucia willinglydonated their blood to help people on other islands. As aconsequence, the blood bank collected and processed over 20% moreblood than had been originally planned for the month.

A report prepared by a government official comparing actualcosts to budgeted costs for the blood bank appears below. Continuedsupport from the government depends on the blood bankâs ability todemonstrate control over its costs.

St. Lucia Blood Bank Cost Control Report For the Month Ended September 30
	Actual Results		Planning Budget		Variances
Liters of blood collected		880		700
Medical supplies	$	10,311	$	8,155	$	2,156	U
Lab tests		12,223		10,045		2,178	U
Equipment depreciation		2,100		1,900		200	U
Rent		1,600		1,600		0
Utilities		338		310		28	U
Administration		14,055		13,890		165	U
Total expense	$	40,627	$	35,900	$	4,727	U

The managing director of the blood bank was very unhappy withthis report, claiming that his costs were higher than expected dueto the emergency on the neighboring islands. He also pointed outthat the additional costs had been fully covered by payments fromgrateful recipients on the other islands. The government officialwho prepared the report countered that all of the figures had beensubmitted by the blood bank to the government; he was just pointingout that actual costs were a lot higher than promised in thebudget.

The following cost formulas were used to construct the planningbudget:

	Cost Formulas
Medical supplies	$11.65q
Lab tests	$14.35q
Equipment depreciation	$1,900
Rent	$1,600
Utilities	$310
Administration	$1.70q

Required:

1. Complete the performance report for September using theflexible budget approach. (Indicate the effect of eachvariance by selecting "F" for favorable, "U" for unfavorable, and"None" for no effect (i.e., zero variance). Input all amounts aspositive values. Do not round intermediate calculations and roundyour final answers to nearest whole dollar.)

St. Lucia BloodBank
Flexible BudgetPerformance Report
For the MonthEnded September 30
	ActualResults	SpendingVariances	FlexibleBudget	ActivityVariances	PlanningBudget
Medicalsupplies	$10,311				$8,155
Lab tests	12,223				10,045
Equipmentdepreciation	2,100				1,900
Rent	1,600				1,600
Utilities	338				310
Administration	14,055				13,890
Totalexpense	$40,627				$35,900

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ADM 2341 Lecture 9: Chapter 9- Flexible Budgetting

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