Flexible Budgets MCQs

1. Which of the following is not characteristic of a flexible budget?

A flexible budget provides estimates of what costs should be for any activity within a relevant range

Flexible budgets take into account change in costs that should occur as a consequence of changes in activity

A flexible budget is prepared at the beginning of the budgeting period and is valid only for the planned level of activity

When a flexible budget is used for performance evaluation, actual costs are compared to what costs should have been for the actual level of activity during the period rather than to the budgeted costs from the original budget

2. The static budget:

Works well to illustrate controls over costs

Confuses control over activity with control over costs

Provides meaningful budget numbers at different levels of activity

None of the above

3. The flexible budget relates to activity-based costing in which of the following ways:

Flexible budget is incompatible with activity-based budgeting

Flexible budgeting can be compared with activity-based budgeting cost drivers in total but not individually

Flexible budgeting can be compared with activity-based budgeting cost drivers individually as long as the comparison is based on common measures of activity such as direct labor-hours or machine-hours

Flexible budgeting can be compared with activity-based budgeting cost drivers individually as long as the comparison is based on different types of activity rather than common measures such as direct labor-hours or machine-hours

4. The budget variance is:

The difference between the actual fixed overhead costs and overhead costs incurred at the standard level of activity

The difference between the budgeted fixed overhead costs and overhead costs incurred at the standard level of activity

Favorable if the company operated at an activity level greater than planned for the period

Unfavorable if actual fixed overhead cost is greater than the budgeted fixed overhead cost

5. Which of the following is true about overhead variances?

Under or overapplied overhead is the difference between the amount of overhead applied to products and the actual overhead costs incurred during the period

The sum of the overhead variances equals the under or overapplied overhead cost for the period

Unfavorable overhead variances are equal to underapplied overhead and favorable variances are equal to overapplied overhead

All of the above

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