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ch07tif - CHAPTER 7: FLEXIBLE BUDGETS, VARIANCES, AND...

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CHAPTER 7: FLEXIBLE BUDGETS, VARIANCES, AND MANAGEMENT CONTROL: I TRUE/FALSE 1. The master budget is one type of flexible budget. Answer : False Difficulty : 1 Objective : 1 The master budget is a static budget. 2. A flexible budget is calculated at the start of the budget period. Answer : False Difficulty : 1 Objective : 1 A flexible budget is calculated at the end of the budget period when actual output is known. 3. Information regarding the causes of variances is provided when the master budget is compared with actual results. Answer : False Difficulty : 2 Objective : 1 Little information regarding the causes of variances is provided when the master budget is compared with actual results because you are comparing a budget for one level of activity with actual costs for a different level of activity. 4. A favorable variance results when budgeted revenues exceed actual revenues. Answer : False Difficulty : 2 Objective : 1 An unfavorable variance results when budgeted revenues exceed actual revenues. 5. Management by exception is the practice of concentrating on areas not operating as anticipated (such as a cost overrun) and placing less attention on areas operating as anticipated. Answer : True Difficulty : 1 Objective : 1 6. The essence of variance analysis is to capture a departure from what was expected. Answer : True Difficulty : 1 Objective : 1 7. A favorable variance should be ignored by management. Answer : False Difficulty : 1 Objective : 1 Favorable variance investigation may lead to improved production methods, other discoveries for future opportunities, or not be good news at all and adversely affect other variances. 8. An unfavorable variance may be due to poor planning rather than due to inefficiency. Answer : True Difficulty : 2 Objective : 1 Chapter 7 Page 1
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9. If budgets contain slack, cost variances will tend to be favorable. Answer : True Difficulty : 2 Objective : 1 10. The only difference between the static budget and flexible budget is that the static budget is prepared using planned output. Answer : True Difficulty : 2 Objective : 2 11. The static-budget variance can be subdivided into the flexible-budget variance and the sales-volume variance. Answer : True Difficulty : 2 Objective : 2 12. The flexible-budget variance may be the result of inaccurate forecasting of units sold. Answer : False Difficulty : 3 Objective : 2 The sales-volume variance is the result of inaccurate forecasting of units sold. 13. Decreasing demand for a product may create a favorable sales-volume variance. Answer : False Difficulty : 2 Objective : 2 Decreasing demand for a product may create an unfavorable sales-volume variance. 14. An unfavorable variance is conclusive evidence of poor performance. Answer
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ch07tif - CHAPTER 7: FLEXIBLE BUDGETS, VARIANCES, AND...

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