Question

1. Which of the following statements is true concerning the flexible budget?

a.	The flexible budget shows the expected relation between costs and volume.
b.	The flexible budget has a fixed cost component which is expected to be incurred regardless of the level of activity.
c.	The flexible budget has a variable cost per unit of activity component where variable costs change in total as the level of activity changes.
d.	all of the above.

   2.   What is the primary difference between a fixed budget and a flexible budget?

a.	A fixed budget includes only fixed costs, while a flexible budget includes only variable costs.
b.	A fixed budget is concerned only with future acquisitions of fixed assets, while a flexible budget is concerned with expenses, which vary with sales.
c.	A fixed budget cannot be changed after the period begins, while a flexible budget can be changed after the period begins.
d.	A fixed budget is a plan for a single level of sales (or other measure of activity), while a flexible budget consists of several plans, one for each of several levels of sales (or other measure of activity).

   3.   Which of the following might cause a materials variance?

a.	Failing to take purchase discounts.
b.	Using a better grade of raw material.
c.	Changes in the market supply for the raw materials.
d.	All of the above.

Answer 1

Solution 1:

Flexible Budget is the budget that is prepared for different production levels or capacity utilization. It changes in accordance with the activity level. While fixed budget is prepared at one production level and under only one set of condition. flexible budget comprises of several budgets and works in different conditions.

Therefore flexible budget shows the expected relation between costs and volume. flexible budget has a fixed cost component which is expected to be incurred regardless of the level of activity. Flexible budget has a variable cost per unit of activity component where variable costs change in total as the level of activity changes.

Therefore choice d is correct i.e. all above statements are true for flexible budget.

Solution 2:

Flexible Budget is the budget that is prepared for different production levels or capacity utilization. It changes in accordance with the activity level. While fixed budget is prepared at one production level and under only one set of condition. flexible budget comprises of several budgets and works in different conditions.

Therefore primary difference between fixed budget and flexible budget is A fixed budget is a plan for a single level of sales (or other measure of activity), while a flexible budget consists of several plans, one for each of several levels of sales (or other measure of activity).

Thus choice d is correct.

Solution 3:

Material variance is having two component. Material price variance and material quantity variance. material variance refers to variance of actual cost with standard cost. Actual cost may vary from standard cost due to various reasons like failure to get discount, use of better grade of raw material and changes in market supply of raw material, wastage of material by labor etc.

Therefore choice d is correct. All of aboce might cause material variance.