Questions 1-25 Which of the following formulas should be used to allocate variable costs from service departments to user departments? budgeted unit rate × total budgeted units planned to be used actual unit rate × total budgeted units planned to be used budgeted unit rate × actual units used actual unit rate × actual units used

Cubic feet are the logical cost driver for depreciation expense from heating and air conditioning equipment. The cost object is the assembly department in a factory. True/ False

Examples of service departments in a hospital include the housekeeping and laundry departments.

True/ False

If the vast majority of costs were directly traceable to cost objects, then cost allocation would be a minor issue.

True/ False

Service department costs can be assigned to ________. customers only producing departments only customers and producing departments none of the above

A major benefit of effective budgeting is that ________. it compels managers to think ahead it aids managers in communicating objectives to employees it provides benchmarks to evaluate subsequent performance all of the above

A budget is a qualitative expression of a plan of action.

True/ False

The effectiveness of any budgeting system depends directly on the attitudes of top management toward the budgeting system.

True/ False

Managers may ________ their budgeted costs or ________ their budgeted revenue to create a budget target that is easier to achieve. understate; overstate overstate; understate understate; understate overstate; overstate

Managers may lie to increase the resources allocated to their departments.

True/ False

Which of the following budgets identifies the overall goals and objectives of the organization? capital budget cash budget master budget strategic plan

The two main components of the master budget are the ________. cash budget and the capital budget purchases budget and the budgeted income statement budgeted income statement and the budgeted balance sheet operating budget and the financial budget

Which of the following is NOT a component of the operating budget? capital budget purchases and cost of goods sold budget budgeted income statement operating expense budget

The financial budget includes ________. the capital budget and the sales budget only the capital budget and the budgeted income statement only the capital budget, the cash budget and the budgeted balance sheet the cash budget and the purchases budget only

The final output of the operating budget is ________. budgeted statement of stockholders' equity budgeted balance sheet budgeted income statement budgeted statement of cash flows

What item is NOT a line item on the purchases and cost of goods sold budget purchases of inventory sales beginning inventory desired ending inventory

The first step in preparing the master budget is the ________. cash budget capital budget operating expense budget sales budget

The cash budget begins with the ending cash balance from the previous period.

True/ False

Variances should be investigated if they ________. are favorable are unfavorable are smaller than the variances in the prior period exceed certain dollar amounts or percentage deviations from the budget

A budget prepared for different levels of activity is called a ________. rolling budget operating budget flexible budget static budget

If actual expenses are less than expected expenses, the expense variance will be unfavorable.

True/ False

The fixed factory overhead (volume) variance is a measure, among other things, of capacity usage.

True/ False

The formula for the direct materials price variance is ________. AVOH – (SVOH x DL) (AR-SR) x AH (AQ-SQ) x SP (AP-SP) x AQ

A quantity variance for direct materials measures the deviation between the quantity of inputs that should have been used to achieve the actual output and the actual quantity of inputs used to achieve the actual output.

True/ False

Currently attainable standards are levels of performance that can be achieved by realistic levels of effort.

True/ False

Problems 26-35 are worth 5 points each. Please show the answer and all of your work. Take all the space needed.

Stevens Company has two production departments called Assembly and Finishing. The maintenance department serves both production departments. Maintenance costs are allocated based on labor hours. Budgeted fixed costs for the maintenance department are $40,000. Budgeted variable costs for the maintenance department are $4.00 per labor hour. Other relevant data follow:

AssemblyFinishing
Capacity available18,000 labor hrs 12,000 labor hrs
Capacity used15,000 labor hrs 9,000 labor hrs

Actual maintenance department costs:
Fixed$36,000
Variable$100,000

The amount of fixed maintenance department costs allocated to the Assembly Department should be ________.
A) $16,000
B) $22,500
C) $24,000 $25,000

Robert Company has two production departments called Assembly and Finishing. The maintenance department serves both production departments. Maintenance costs are allocated based on labor hours. Budgeted fixed costs for the maintenance department are $30,000. Budgeted variable costs for the maintenance department are $5.00 per labor hour. Actual maintenance department costs are $36,000 fixed and $100,000 variable. Other relevant data follow:
AssemblyFinishing
Capacity available20,000 labor hours15,000 labor hours
Capacity used 15,000 labor hours 9,000 labor hours

The amount of variable maintenance department costs allocated to the Assembly Department should be ________.
A) $48,000
B) $62,500
C) $75,000
D) $100,000

Downstairs Company has the following sales budget for the last six months of 2010:

July$100,000
August70,000
September110,000
October80,000
November100,000
December94,000

Historically, the cash collection of sales has been as follows:
65% of sales collected in month of sale
25% of sales collected in month following sale
10% of sales collected in second month following sale

What are the expected cash collections of sales in October?
A) $79,500
B) $86,500
C) $92,400
D) $99,500

Orange Company had the following information available:

Expected Costs and Selling Price Based on 5,000 units:
Variable manufacturing costs per unit$32
Fixed manufacturing costs per unit$20
Selling price per unit$70

Expected production level5,000 units

Hint: Fixed costs (in total) stay the same at all levels of manufacturing although budgeted at $100,000 (5,000 units at $20/unit)

In the flexible budget at 10,000 units, what is the total manufacturing cost?
A) $250,000
B) $420,000
C) $520,000
D) $700,000

Wooden Flooring plans inventory levels (at cost) at the end of each month as follows: May - $275,000, June - $220,000, July - $200,000, August - $240,000. Sales are expected to be as follows: June - $440,000, July - $350,000, August - $300,000. Cost of goods sold is 60% of sales.

Prepare a purchases budget for June, July, and August.

A delivery company is trying to predict costs of operating a fleet of trucks. They estimate that fuel at $0.50 per mile and fixed maintenance costs at $9,500 per truck. Prepare a flexible budget for fuel and maintenance costs for each truck at mileage levels of 20,000, 30,000, and 40,000 miles.

– 35.
Direct MaterialDirect Labor
Std. price per unit of input$12 per foot$14 per hour
Actual price per unit of input$14 per foot$13 per hour
Std. inputs allowed per unit of output5 feet3 hours
Actual units of input2,500 feet1,550 hours

Actual units of output600 units

Required:
Compute the price and quantity variances for direct materials and direct labor and indicate whether they are favorable or unfavorable.

Direct material: Price variance: Quantity variance:

Direct labor: Price variance: Quantity variance: