ACCT 2200 Chapter Notes - Chapter 9: Cost Driver

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5 May 2015

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Flexible budgets are an estimate of what revenues and costs ought to have been, adjusted to the actual level of activity for the period. Comparing static planning budget revenues and costs, to actual revenues and costs can lead to errors, due to change in level of activity. Flexible budgets allow managers to isolate the causes of differences. Activity variances are those that occur due to difference in level of activity in the planning budget and the actual level of activity. Revenue and spending variances is the difference between what the total revenue should have been, given the level of activity and the actual revenue. It is favorable if average selling price is greater than expected, and unfavorable if average selling price is lesser than expected. There may be more than more than one cost driver needed to adequately explain all the costs in an organization, and a flexible budget incorporates all relevant costs.

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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

The Toque Cooking Academy runs short cooking courses at itssmall campus. Management has identified two cost drivers that ituses in its budgeting and performance reportsâthe number of coursesand the total number of students. For example, the school might runfour courses in a month and have a total of 65 students enrolled inthose four courses. Data concerning the companyâs cost formulasappear below:

	Fixed Cost per Month		Cost per Course	Cost per Student
Instructorwages			$2,920
Classroomsupplies				$280
Utilities	$	1,220	$70
Campus rent	$	4,900
Insurance	$	2,300
Administrativeexpenses	$	4,000	$42	$7

For example, administrative expenses should be $4,000 per monthplus $42 per course plus $7 per student. The companyâs sales shouldaverage $860 per student.

The actual operating results forOctober appear below:

	Actual
Revenue	$	53,000
Instructorwages	$	10,960
Classroomsupplies	$	18,050
Utilities	$	1,910
Campus rent	$	4,900
Insurance	$	2,440
Administrativeexpenses	$	4,049

Required:

The Toque Cooking Academy expects to run four courses with atotal of 65 students in October. Complete the companyâs planningbudget for this level of activity.

Toque Cooking Academy
Planning Budget
For the Month Ended October 31
Revenue	$55,900
Expenses:
Instructor wages	11,680
Classroom supplies	18,200
Utilities	1,900
Campus rent	4,900
Insurance	2,300
Administrative expenses	4,000
Total expense	42,980
Net operating income	$12,920

The school actually ran four courses with a total of 63 studentsin October. Complete the companyâs flexible budget for this levelof activity.

Toque Cooking Academy
Flexible Budget
For the Month Ended October 31
Revenue	$54,180
Expenses:
Instructor wages	10,960
Classroom supplies	17,640
Utilities	1,910
Campus rent	4,900
Insurance	2,300
Administrative expenses	4,000
Total expense	41,710
Net operating income	$12,470

Complete the flexible budget performance report that shows bothactivity variances and revenue and spending variances for October.(Indicate the effect of each variance by selecting "F" forfavorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance). Input all amounts as positive values.)

Toque Cooking Academy
Flexible Budget Performance Report
For the Month Ended October 31
	Activity Variances	Revenue and Spending Variances
Revenue
Expenses:
Instructor wages
Classroom supplies
Utilities
Campus rent
Insurance
Administrative expenses
Total expense
Net operating income

burgundyrat867

I NEED 2 PARAGRAPHS REPLY TO THIS TYPING SO I CAN COPY IT

How are budgets used for performance evaluation?

Financial budgets are normally prepared by the finance oraccounting department of a company. In small businesses, the owneris required to prepare this budget. A performance budget allowsbusinesses to plan for future expenditures. A budget, therefore,determines the amount of capital required to generate a certainlevel of sales. Businesses also adjust future expenses based on thepast budget performance. Through analyzing and reviewing thebudgets, a business will know the amount it has and identifies ifexternal financing is required.

A budget helps businesses track its spending variances. Althoughfinancial budgets are prepared on annual basis, tracking of budgetvariances is done monthly (Vitez, 2018). This tracking enablesbusinesses to understand where the funds were spent and comparewith the number of revenues generated. Anny excessive budgetvariances will require businesses to review their budgets to makesure they are accurately forecasted.

Businesses use performance reports to provide additionalinformation to the managers concerning the budget variances (Vitez,2018). This information may be either financial or non-financialinformation which may impact the budget to exceed its allowablelimits. Resource costs may cause the financial budgets to increase.Inferior resources are examples of non-financial budgets which maymake the budget to increase.

Performance evaluation requires managers to have a benchmark forthe past years will act as a guideline in future. This is normallycommunicated to managers through a budget for their responsibilitycenter. At the end of the accounting year, each center is evaluatedbased on the actual sales generated. This information will onlyappear on the performance evaluation report.

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ACCT 2200 Chapter Notes - Chapter 9: Cost Driver

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