Question

true/ false

1. When a comparison of static and flexible budgets shows an unfavorable sales volume variance, the variable cost volume variances will also be unfavorable.

2. The differences between the standard and actual amounts are called variances.

3. The best standards to include in a standard cost system are ideal standards.

4. If the master budget prepared at a volume level of 20,000 units includes factory rent of $40,000, a flexible budget based on a volume of 21,000 units would include factory rent of $40,000.

Answer 1

1. False

The variable cost volume variance is independent of sales volume variance. Hence, it shall not depend upon the status of sales volume variance as there is no relation between these independent items.

2. True

Variances are the differences between actuals and standard amounts. Hence, the given statement is very true.

3. True

Ideal standards are very rigorous to obtain. Ideal standards do not give importance to any downtime of labor rest, lunch time or even holidays. This would create impact on variances. When ideal standards are normalized owing to above factors, normal standards are established which creates some sort of uniformness over calculations. Hence, ideal standards are best standards.

4. True

Factory rent is fixed expenses. It shall not change with change in volume of production. This means that when volume of 20,000 is changed to 40,000, the fixed expenses shall remain the same that includes factory rent. Thus, factory rent would be same.