Apply Flexible And Rolling Budgets
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CPA Business Analysis and Reporting (BAR) › Apply Flexible And Rolling Budgets
Harwood Industries budgets variable manufacturing costs at $14 per unit and fixed manufacturing costs at $120,000 per month. The static budget assumed 8,000 units. Actual production was 9,500 units. What are the total costs in the flexible budget prepared at the actual production level?
$253,000
$232,000
$267,000
$240,000
Explanation
Flexible budget total cost = (Variable rate x Actual units) + Fixed costs = ($14 x 9,500) + $120,000 = $133,000 + $120,000 = $253,000. Option A is the static budget cost at 8,000 units ($14 x 8,000 + $120,000 = $232,000). Option C applies an incorrect variable rate. Option D uses a rounded unit count that does not match the actual production level.
Harwood Industries has a static budget cost of $232,000 (at 8,000 units) and actual costs of $262,500 (at 9,500 units). What is the static budget variance for total manufacturing costs?
$30,500 unfavorable
$30,500 favorable
$20,500 unfavorable
$9,500 unfavorable
Explanation
Static budget variance = Actual costs - Static budget costs = $262,500 - $232,000 = $30,500 unfavorable. This total variance includes both the effect of producing more units than planned and the effect of price or efficiency differences at those units. Option A is only the flexible budget variance. Option B labels the direction incorrectly. Option C uses an incorrect static budget figure.
Harwood Industries has a static budget variance of $30,500 unfavorable and a flexible budget variance of $9,500 unfavorable. What is the sales volume (activity) variance for costs, and what does it represent?
$9,500 unfavorable, representing only price and efficiency differences
$30,500 unfavorable, representing the total static budget variance
$21,000 favorable, representing savings from operating at higher volume
$21,000 unfavorable, representing the additional cost incurred from producing 1,500 more units than budgeted
Explanation
Sales volume variance = Static budget variance - Flexible budget variance = $30,500 - $9,500 = $21,000 unfavorable. This represents the expected cost increase from producing 1,500 more units than the static budget assumed: 1,500 units x $14 variable rate = $21,000. Option B misidentifies the direction; producing more units increases total expected variable costs. Option C reports only the flexible budget variance. Option D reports the total static variance without separating the two components.
A rolling (continuous) budget is best described as which of the following?
A budget that maintains a constant forward-looking horizon by adding a new period each time the most recent period ends
A budget that revises revenue targets quarterly based on actual sales results
A budget that adjusts each month's actual costs for variances from the prior month
A budget assembled by consolidating individual department budgets into a single company-wide plan
Explanation
A rolling budget (also called a continuous budget) adds a new future period - typically a month or quarter - as each period expires, keeping the budget horizon constant (often 12 months). This means management always has a full forward-looking plan rather than one that grows staler as the year progresses. Option A describes an adjustment process, not the defining feature of a rolling budget. Option C describes a bottom-up budgeting consolidation process. Option D describes a revised forecast, not the structural mechanics of a rolling budget.
Using the sales department flexible budget of $102,600, actual costs for the month were $109,400. What is the flexible budget variance for the sales department?
$6,800 favorable
$10,000 unfavorable
$3,200 unfavorable
$6,800 unfavorable
Explanation
Flexible budget variance = Actual costs - Flexible budget = $109,400 - $102,600 = $6,800 unfavorable. Actual spending exceeded the amount expected for the actual level of activity, indicating a spending or efficiency issue. Option B applies the correct amount but labels the direction incorrectly. Options C and D use incorrect flexible budget or actual cost figures.
Crestview Corp.'s production department has variable costs of $22 per unit and fixed overhead of $180,000. The static budget was prepared for 10,000 units. What are total budgeted costs in the flexible budget prepared at 12,000 units?
$420,000
$488,000
$400,000
$444,000
Explanation
Flexible budget at 12,000 units = ($22 x 12,000) + $180,000 = $264,000 + $180,000 = $444,000. Option A is the static budget cost at 10,000 units. Option C is the flexible budget at 14,000 units. Option D applies an incorrect variable rate.
Using Crestview Corp.'s budget formula (variable $22 per unit, fixed $180,000), what are total budgeted costs in the flexible budget prepared at 14,000 units?
$444,000
$488,000
$500,000
$420,000
Explanation
Flexible budget at 14,000 units = ($22 x 14,000) + $180,000 = $308,000 + $180,000 = $488,000. Option A is the flexible budget at 12,000 units. Option B applies an incorrect variable rate. Option D overstates the variable component.
Crestview Corp. has a static budget cost of $400,000 and actual costs of $452,000 at actual production of 12,000 units. What is the static budget variance?
$8,000 unfavorable
$52,000 favorable
$44,000 unfavorable
$52,000 unfavorable
Explanation
Static budget variance = Actual costs - Static budget costs = $452,000 - $400,000 = $52,000 unfavorable. This total variance combines the cost of producing more units than planned ($44,000 volume variance) and the price/efficiency difference at actual volume ($8,000 flexible budget variance). Option B labels the direction incorrectly. Option C is only the sales volume variance component. Option D is only the flexible budget variance component.
Stonebrook Co. is adding the next Q4 to its rolling budget. Current-year Q4 revenue was $2,500,000. The new Q4 budget assumes 8% revenue growth, variable costs at 55% of revenue, and fixed costs of $400,000. What is the budgeted operating income for the newly added quarter?
$740,000
$815,000
$785,000
$850,000
Explanation
Budgeted revenue = $2,500,000 x 1.08 = $2,700,000. Variable costs = 55% x $2,700,000 = $1,485,000. Contribution margin = $2,700,000 - $1,485,000 = $1,215,000. Operating income = $1,215,000 - $400,000 = $815,000. Option A applies a lower growth rate. Option C omits the fixed cost deduction from contribution margin. Option D uses a higher variable cost percentage.
A company's flexible budget formula for manufacturing overhead is $6.50 per machine hour plus $95,000 of fixed overhead. Actual machine hours for the period were 18,000. What is the flexible budget allowance for manufacturing overhead?
$207,500
$212,000
$218,000
$225,000
Explanation
Flexible budget overhead = ($6.50 x 18,000) + $95,000 = $117,000 + $95,000 = $212,000. Option A uses an incorrect variable rate of $6.25. Option B applies a rate of $6.83, overstating the variable component. Option D applies a rate of $7.22.