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Management Accounting

Willie Seal, University of Essex, UK
Ray Garrison, Brigham Young University, Provo, Utah, USA
Eric Noreen, INSEAD, France

Flexible Budgets, Overhead Analysis and Critiques of Budgeting

Self-test Questions


1	One of the following statements is not true (Learning Objective 1 Ch 14)
		A)	Flexible budgets are superior to Static budgets
		B)	Flexible budgets improve management of costs when activity levels vary
		C)	Flexible budgets take into account changed costs when activity levels vary
		D)	Flexible budgets are valid for all levels of activity


2	One of the activities below is not true when choosing the measurement of activity (Learning Objective 2 Ch 14)
		A)	The activity base is best expressed in currency terms
		B)	The activity base should be simple and easy to understand
		C)	A causal relationship should exist between the activity base and the activity
		D)	Direct Labour hours could be an example of a good activity base


3	One of these statements is true (Learning Objective 2 Ch 14)
		A)	It is not possible to have any degree of control over fixed costs
		B)	Variable costs can always be controlled easily
		C)	Favourable variances are always good
		D)	Some variance should not be investigated because they are too small


4	One of the following statements is untrue (Learning Objective 3 Ch 14)
		A)	The variable overhead spending variance has the same cause(s) as the labour rate variance
		B)	The variable overhead spending variance is only of use if variable overheads vary with hours worked
		C)	If actual rather than standard hours are used then only a spending variance will be calculated
		D)	The variable overhead spending variance is useful only if the costs vary with the actual hours worked


5	One of these is untrue (Learning Objective 4 Ch 14)
		A)	The reasons for the variable overhead efficiency variance are the same as those behind the labour efficiency variance
		B)	The variable overhead efficiency variance is only of use if variable overheads vary with hours worked
		C)	The variable overhead efficiency variance measures the inefficient use of the variable overheads
		D)	The variable overhead efficiency variance shows the inefficient use of the base (usually labour hours)


6	One of the following statements is untrue (Learning Objective 5 Ch 14)
		A)	The denominator activity changes frequently throughout the year
		B)	Fixed costs do not change with activity within the relevant range
		C)	The predetermined overhead rate gives stability to costing products during the year
		D)	The denominator activity is important as this can have a big effect on overall unit cost


7	The following information relates to Questions 7-10: _ The fixed overhead budget variance is (Learning Objective 7 Ch 14)
		A)	NIL
		B)	£4,000 U
		C)	£4,000 F
		D)	None of these


8	A possible cause of the fixed overhead budget variance in Q7 could have been (Learning Objective 7 Ch 14)
		A)	We produced more units than budgeted for due to poor production control
		B)	We produced less units than budgeted for as demand was reduced
		C)	We overspent on overheads due to poor accounting controls
		D)	We underspent on overheads due to a rent reduction


9	The fixed overhead volume variance is (Learning Objective 7 Ch 14)
		A)	NIL
		B)	£4,000 U
		C)	£4,000 F
		D)	None of these


10	A possible cause of the fixed overhead volume variance in Q9 could have been (Learning Objective 7 Ch 14)
		A)	We worked more hours than we should have done due to bad working practices
		B)	We worked less hours than we should have done due to good working practices
		C)	We produced more units than budgeted for due to poor production control
		D)	We produced less units than budgeted for as demand was reduced


11	Which one of the following is not a criticism that has been made of budgets (Learning Objective 8 Ch 14)
		A)	Budgets concentrate on events that are easy to measure
		B)	Benchmarking is a not a valid alternative to some of the functions of budgets
		C)	Activities covered by budgets become institutionalised
		D)	Budgets hinder any response by the organisation to uncertainty

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