Sydney, Inc. uses flexible budgets. At normal capacity of 8,000 units, budgeted

Question

Sydney, Inc. uses flexible budgets. At normal capacity of 8,000 units, budgeted manufacturing overhead is $64,000 variable and $180,000 fixed. If Sydney had actual overhead costs of $250,000 for 9,000 units produced, what is the difference between actual and budgeted costs?

a.) $2,000 favorable / b.) $8,000 favorable / c.)$6,000 unfavorable / d.) $2,000 unfavorable

Kevin Jarvis Industries produced 128,000 units in 60,000 direct labor hours. Production for the period was estimated at 132,000 units and 66,000 direct labor hours. A flexible budget would compare budgeted costs and actual costs, respectively, at:

a.) 60,000 hours and 60,000 hours. / b.) 64,000 hours and 60,000 hours. / c.) 64,000 hours and 66,000 hours. d.) 66,000 hours and 60,000 hours.

If an investment center has a $30,000 controllable margin and $400,000 of sales, what average operating assets are needed to have a return on investment of 10%?

a.) $300,000 / b.) $400,000 / c.) $40,000 / d.) $50,000

The flexible budget

a.) is a series of static budgets at different levels of activity. / b.) is prepared before the master budget. / c.) is relevant both within and outside the relevant range. d.) eliminates the need for a master budget.

At 9,000 direct labor hours, the flexible budget for indirect materials is $18,000. If $18,700 are incurred at 9,200 direct labor hours, the flexible budget report should show the following difference for indirect materials:

a.) $700 favorable. / b.) $700 unfavorable. / c.) $300 unfavorable / d.) $300 favorable.

Explanation / Answer

1. In a flexible budget, the variable costs will change in direct proportion to the activity and total fixed costs will remain unchanged.

Variable costs per unit as per the static budget = Total variable costs/units capacity = 64,000/8,000 = $8 per unit.

The flexible budget will be prepared for the actual production of 9,000 units. Total manufacturing overhead = overhead per unit*actual production = $8*9,000 = $72,000.

Fixed costs will be the same at $180,000. Total amount of flexible budget = manufacturing overhead+fixed costs = 72,000+180,000 = 252,000.

Actual overhead costs = $250,000. actual<flexible budget, so the variance is favorable. Amount = 252,000-250,000 = $2,000

Thus answer is option "a" - $2,000 favorable.

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