Question

1. Which of the following statement is FALSE?

a. The difference between the static budget and the flexible budget is the sale-volume variance.

b. The difference between allocated and budgeted overhead is the production volume variance

c. The amount of variable overhead allocated equals toe flexible budget amount

d. The production volume variance arises for both fixed and variable overhead cost

2.Flexible-budget variance measure:

a. What the costs and revenues should have been for the budgeted number of the outputs.

b. the differences between budgeted expenditures and actual expenditure for the budgeted number of outputs

c.the difference between budgeted and actual variable costs.

d. the difference between expected expenditures for the actual number of outputs and the actual expenditures for the actual number of outputs

e. what the costs and revenues should have been for the static budgeted number of outputs

Answer 1

Question 1:

Options a and b are true definitions and need no further expansion.

Option c is true because the flexible budget corresponds to budget at the desired sales amount which will in fact correspond to the variable overheads allocated. The flexible budget is prepared on the budgeted rates but at a desired number of sales units.

Option d is false because variable overhead only has cost variance, expenditure variance and efficiency variance. Volume variance is only there for fixed overheads.

Option d is the answer.

Question 2:

Just explained above, the flexible budget aims to establish budgeted amounts for the actual number of units. So the difference between the figures of a flexible budget and the actual amounts gives the flexible budget variance. Option d corresponds to this.

option d is the correct answer.

The other options do not fit the definition of flexible budget variance as explained above and are hence wrong options.