ch08 - CHAPTER 8 BUDGETARY CONTROL AND VARIANCE ANALYSIS...

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Unformatted text preview: CHAPTER 8 BUDGETARY CONTROL AND VARIANCE ANALYSIS TRUE/FALSE 1. If sales volume exceeds expectations, actual profit will always be higher than budgeted profit. LO1 False Actual profit may be lower than budgeted profit even though sales volume exceeds expectations. 2. Variance analysis may be performed to isolate the profit impact of individual input and output factors. LO1 True 3. Variance analysis is a technique used for determining the profit effect due to differences between the actual and budgeted size of the market for a product. LO1 False Variance analysis is a technique for determining why actual revenues, costs, and profit differ from their budgeted amounts. 4. For most organizations, a budget is the benchmark for evaluating actual performance. LO1 True 5. A good plan is the foundation for effective control. LO1 True 6. The input quantity variance is also referred to as the input efficiency variance because it captures the efficiency of input resource use. LO2 True 7. A variance is the difference between a budgeted amount and a forecasted amount. LO2 False A variance is the difference between an actual result and a budgeted amount. 8. Any profit difference between the master and flexible budgets is due solely to the difference between budgeted and actual sales. LO2 True 9. Total Profit Variance = Actual Profit Master Budget Profit. LO2 True 8-1 10. Sales Volume Variance = (Actual Sales Quantity Budgeted Sales Quantity) x Actual Unit Contribution Margin LO2 False Sales Volume Variance = (Actual Sales Quantity Budgeted Sales Quantity) x Budgeted Unit Contribution Margin) 11. A budget reconciliation is a report that uses variances to reconcile the difference between master budget profit and actual profit. LO3 True 8-2 Budgetary Control and Variance Analysis 12. If a materials input price is higher than budgeted, the result is an unfavorable materials efficiency variance. LO3 False If an input price is higher than budgeted, the result is an unfavorable materials price variance. 13. Small variances probably indicate random factors at work while large variances could signal a permanent change in the operating environment. LO3 True. 14. Cost variance analysis in a single-product company differs significantly from a multi-product company. LO3 False We calculate and interpret all of the cost variances in a multi-product firm exactly as we would for a single-product firm....
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This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.

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ch08 - CHAPTER 8 BUDGETARY CONTROL AND VARIANCE ANALYSIS...

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