ACC-1B Lecture Notes - Lecture 27: Variable Cost, Controllability, Fixed Cost

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4 Dec 2020

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Definition- a series of static budgets that project data for various levels of activity. The process enhances the relevance of the data. This type of budget permits a comparison of actual and planned results at the level of activity achieved. Manufacturing overhead costs- the activity index is usually the same as the index used in developing the predetermined overhead rate. (direct labor hours or machine hours) Selling and administrative expense- the activity usually is sales or net sales. Budgetary control- the use of budgeting in controlling operations (developing budgets, analyzing the difference between actual and budgeted results, Taking corrective action, modifying future plans: budgetary works best with a formalized reporting system that includes (a) Identify the name of the budget (b) state the frequency of the report such as weekly or monthly (c) specify the purpose of the report (d) Budget reports- reports that compare actual results with planned objectives. Variance- the difference between actual and planned activity level.

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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

magentabat295

1. The selling and administrative expense budget of SpurlockCorporation is based on budgeted unit sales, which are 6,300 unitsfor February. The variable selling and administrative expense is$9.30 per unit. The budgeted fixed selling and administrativeexpense is $118,440 per month, which includes depreciation of$19,530 per month. The remainder of the fixed selling andadministrative expense represents current cash flows. The cashdisbursements for selling and administrative expenses on theFebruary selling and administrative expense budget should be:
A) $98,910
B) $157,500
C) $58,590
D) $177,030

2.
Guthridge Inc. is working on its cash budget for February. Thebudgeted beginning cash balance is $26,000. Budgeted cash receiptstotal $104,000 and budgeted cash disbursements total $100,000. Thedesired ending cash balance is $40,000. To attain its desiredending cash balance for February, the company needs toborrow:
A) $0
B) $10,000
C) $40,000
D) $70,000

3.
A flexible budget:
A) classifies budget requests by activity and estimates thebenefits arising from each activity.
B) presents a statement of expectations for a period of time butdoes not present a firm commitment.
C) presents the plan for only one level of activity and does notadjust to changes in the level of activity.
D) presents the plan for a range of activity so that the plan canbe adjusted for changes in activity levels.

4.
Johnson's Snow Removal's cost formula for its vehicle operatingcost is $1,240 per month plus $348 per snow-day. For the month ofDecember, the company planned for activity of 12 snow-days, but theactual level of activity was 14 snow-days. The actual vehicleoperating cost for the month was $6,330. The vehicle operating costin the planning budget for December would be closest to:
A) $5,426
B) $6,112
C) $5,416
D) $6,330

5.
Corporation uses activity based costing and has three activitypools: Batch Setup, Order Processing, and Product Assembly. Thecompany uses the following activity rates from its activity-basedcosting to assign overhead costs to products: Batch Setup - $93.62per batchOrder Processing - $19.25 per orderProduct Assembly -$2.15 per assembly hourData concerning two products appearbelow:Product X60R - number of batches - 59, number of orders - 11,number of assembly hours - 687Product G96Y - number of batches -15, number of orders - 7, number of assembly hours - 716How muchoverhead cost would be assigned to Product X60R using theactivity-based costing system?
A) $5,523.58
B) $87,070.14
C) $115.02
D) $7,212.38

6.Corporation uses an activity-based costing system with threeactivity cost pools (Assembly, Setting Up and Other). The companyhas provided the following data concerning its costs: Wages -$240,000, Depreciation - $200,000, Utilities - $100,000.Distribution of these costs across the activity pools is asfollows: Wages (Assembly - 40%, Setting Up - 40%, Other - 20%),Depreciation (Assembly - 20%, Setting Up - 45%, Other - 35%),Utilities (Assembly - 35%, Setting Up - 40%, Other - 25%).How muchcost, in total, would be allocated in the first-stage allocation tothe Other activity cost pool?
A) $143,000
B) $144,000
C) $108,000
D) $135,000

7.
Which of the following statements is true for a company that usesvariable costing?
A) The unit product cost changes because of changes in the numberof units manufactured.
B) Profit fluctuates with sales.
C) Any underapplied overhead is included in the product cost.
D) Product costs include variable administration costs.

marooncricket707

Phoenix Companyâs 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units.

PHOENIX COMPANY
Fixed Budget Report
For Year Ended December 31, 2017

Machinery repairs (variable cost)

45,000

DepreciationâPlant equipment (straight-line)

300,000

Utilities ($45,000 is variable)

195,000

Plant management salaries

Sales salary (fixed annual amount)

235,000

430,000

General and administrative expenses

Entertainment expense

85,000

440,000

Income from operations

370,000

Prepare flexible budgets for the company at sales volumes of 14,000 and 16,000 units and classify all items listed in the fixed budget as variable or fixed.

PHOENIX COMPANY
Fixed Budget Report
For Year Ended December 31, 2017
	Flexible Budget		Flexible Budget for:
	Variable Amount per Unit	Total Fixed Cost	Units Sales of 14,000	Unit Sales of 16,000

Variable costs









Fixed costs

The companyâs business conditions are improving. One possible result is a sales volume of 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2017 budgeted amount of $370,000 if this level is reached without increasing capacity?

PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (in units)	15,000	18,000
Contribution margin (per unit)
Contribution margin
Fixed costs
Operating income

An unfavorable change in business is remotely possible; in this case, production and sales volume for 2017 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level? (Enter any loss with minus sign.)

PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (in units)	15,000	12,000
Contribution margin (per unit)
Contribution margin
Fixed costs
Operating income (loss)

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ACC-1B Lecture Notes - Lecture 27: Variable Cost, Controllability, Fixed Cost

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