Question

1. A budget for capital expenditures is necessary for all the following reasons except:

a. fixed assets may become obsolete

b. amounts spent for network equipment may be a small amount

c. expansion may be necessary to meet increased demand

d. machinery and other fixed assets wear out

2. All variances from standard costs are usually transferred to the:

a. direct labor account

b. factory overhead account

c. cost of goods sold account

d. Work in Process account

3. If fixed costs increased and variable costs per unit increased, the break-even point would:

a. increase

b. remain the same

c. decrease

d. cannot be determined from the data provided

4. This budget is the necessary beginning point to prepare the direct labor cost budget?

a. Direct materials purchases budget

b. Cash budget

c. Production budget

d. Sales budget

Answer 1

Part 1) OPTION B---- Amounts spent for network equipment may be a small amount

All other options are right.

Planning for capital expenditure is necessary since fixed assets and other machinery wear out and become obsolete.companies must constantly update and upgrade their equipment, hence capital expenditure budget becomes necessity.

Part 2) OPTION C----- Cost of Goods Sold account

The difference between actual and standard data are recorded in variance account and manufacturing overhead account which are ultimately transferred to cost of goods sold account.

Part 3) OPTION A---- Increase

BEP formula = Fixed costs/ (SP per unit - VC per unit). If fixed costs and variable costs per unit will increase, then BEP will increase automatically

Part 4) OPTION C----- Production Budget

To prepare a direct labor budget, production budget is used. Number of units to be produced as Production Budget is multiplied by the direct labor time needed to make each unit.