Budgeting & Variance Analysis Flashcards
7 cards from real CPM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Budgeting & Variance Analysis flashcards as text
When comparing a flexible budget to a static budget, the key advantage of the flexible budget is that it:
Answer: Adjusts cost allowances to the actual level of activity achieved
A flexible budget recalculates cost allowances based on actual activity, making variance analysis more meaningful by separating volume effects from efficiency effects.
The labor efficiency variance is calculated as:
Answer: (Standard Hours − Actual Hours) × Standard Rate
Labor efficiency variance = (Standard Hours for actual output − Actual Hours worked) × Standard Rate, measuring whether workers were more or less efficient than planned.
A capital budget is primarily used to plan for:
Answer: Long-term investments in assets such as equipment and facilities
Capital budgets address long-term investment decisions, covering expenditures on assets expected to provide benefits over multiple years.
Which of the following best describes 'budgetary slack'?
Answer: Deliberately understating revenue or overstating expense targets to make goals easier to achieve
Budgetary slack occurs when managers intentionally build cushion into budgets—lower revenue targets or higher cost targets—to improve their chances of meeting or beating goals.
An unfavorable sales volume variance most directly indicates that:
Answer: Actual units sold were less than budgeted units
The sales volume variance compares budgeted and actual unit sales; fewer units sold than planned produces an unfavorable outcome.
In variance analysis, which report format is most useful for identifying which departments exceeded their budget by the largest absolute dollar amount?
Answer: Responsibility accounting performance report
A responsibility accounting performance report organizes actual vs. budgeted figures by cost center or department, making it easy to pinpoint where budget overruns occurred.
A company uses activity-based budgeting (ABB). The primary driver of this approach is to:
Answer: Base budgeted costs on the activities needed to produce planned output rather than on historical spending
ABB identifies the activities required to meet planned output and then determines the resources—and costs—those activities will consume, linking spending to work actually performed.