Multiple Choice Questions
1.A budget prepared at a single volume of activity is referred to as a:
A. Strategic budget.
B. Standard budget.
C. Static budget.
D. Flexible budget.
2.Select the incorrect statement regarding flexible budgets.
A. Flexible budgets often show the estimated revenues and costs at multiple volume levels.
B. A flexible budget is used to compare actual to budgeted amounts.
C. A flexible budget is also known as a master budget.
D. Standard prices and costs are used in preparing a flexible budget.
3.Which of the following income statement formats is most commonly used with flexible budgeting?
A. Sales – variable costs = contribution margin; contribution margin – fixed costs = net income
B. Sales – cost of goods sold = gross margin; gross margin – operating expenses = net income
C. Sales – manufacturing costs – selling and administrative costs = net income
D. None of these answers is correct.
4.Spark Company’s static budget is based on a planned activity level of 45,000 units. At the same time the static budget was prepared, the management accountant prepared two additional budgets, one based on 40,000 units and one based on 50,000. The company actually produced and sold 49,000 units. In evaluating its performance, management should compare the company’s actual revenues and costs to which of the following budgets?
A. A budget based on 40,000 units
B. A budget based on 45,000 units
C. A budget based on 49,000 units
D. A budget based on 50,000 units
5.Jones Company developed the following static budget at the beginning of the company’s accounting period: If actual production totals 8,200 units, the flexible budget would show total costs of:
A. $8,000.
B. $8,100.
C. $8,200.
D. None of these is correct.
6.Static and flexible budgets are similar in that:
A. They both are based on the same per unit variable amounts and the same fixed costs.
B. They both concentrate solely on costs.
C. They both are prepared for multiple activity levels.
D. None of these answers is correct.
7.Which of the following applications is most suited for developing flexible budgets?
A. Database
B. Graphics
C. Spreadsheet
D. Word processing
8.Burruss Company developed a static budget at the beginning of the company’s accounting period based on an expected volume of 8,000 units: If actual production totals 10,000 units which is within the relevant range, the flexible budget would show fixed costs of:
A. $16,000.
B. $2 per unit.
C. $20,000.
D. None of these answers is correct.
9.When would a variance be labeled as favorable?
A. When actual costs are less than standard costs
B. When standard costs are equal to actual costs
C. When standard costs are less than actual costs
D. When estimated costs are greater than actual costs
10.When would a variance be labeled as unfavorable?
A. When standard costs are more than actual costs
B. When expected sales are less than actual sales
C. When actual sales are equal to expected sales
D. None of these answers is correct.
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