Question

Question 1

The production-volume variance is a component of the sales-volume variance.

True

False

Question 2

Long-run planning and short-run planning are best performed in combination with each other.

True

False

Question 3

Managers can always view a favorable variable overhead spending variance as desirable.

True

False

Question 4

Direct material price variance is likely to be unfavorable if the purchasing manager switched to a lower-price supplier.

True

False

Question 5

Managers must not interpret variances in isolation of each other

True

False

Question 6

Traditional-based budgeting (output-based cost drivers) provides better decision-making information than budgeting based on activity-based costing.

True

False

Question 7

To reduce budgetary slack management may ________.

incorporate stretch or challenge targets

use external benchmark performance measures

award bonuses for achieving budgeted amounts

reduce projected cost targets by 10% across all areas

Question 8

The cash budget is a schedule of expected cash receipts and disbursements that ________.

requires an aging of accounts receivable and accounts payable

is a self-liquidating cycle

is prepared immediately after the sales forecast

predicts the effect on the cash position at given levels of operations

Answer 1

Q1 - True, Production volume variance coupled it operating income variance leads to sales volume variance.

Q2 - True, long run plans can also be seen as a collection of various short-term plans and depend on a large extent on the short term plans to obtain guidance for long-term goals.

Q3 - False, this might not be true in all cases - for example, a favorable variance can be there because of low cost but poor quality purchases which is not a positive thing for the product quality.

Q4 - False, DMPV will favorable if the manager moved to a lower cost supplier

Q5 - True, All the variances are inter-related and help to ascertain responsible persons for various variances. Therefore, all the variances need to be analyzed in entirety with reference to each other.

Q6 - False, Activity Based costing provides better decision being more detailed and allocating the overheads on the basis of various sub cost drivers.

Q7 - Use external benchmark performance measures - budgetary slack is the cushion of under-budgeted revenue and over-budgeted expenses that are used by managers to safeguard themselves. External benchmarks help to curb any such excess cushion

Q8- predicts the level of cash at given levels of operations - cash budget as the name suggests is the budget for cash positions in the future