True/False Questions by KeWjCeJx

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									                         BGN 5e Exam Questions - Chapter 8

1. Which of the following are characteristics of a flexible budget?
   A) A flexible budget takes into account how changes in activity affect costs.
   B) It is an estimate of what revenues and costs should have been, given the actual level
      of activity for the period.
   C) When used in performance evaluation, actual costs are compared to what the costs
      should have been for the actual level of activity during the period rather than to the
      static planning budget.
   D) All of the above.


   Feedback – The correct answer is D:
   Learning Objective 1 – The characteristics of a planning budget include the following:
   A flexible budget takes into account how changes in activity affect costs. It is an estimate
   of what revenues and costs should have been, given the actual level of activity for the
   period. When used in performance evaluation, actual costs are compared to what the
   costs should have been for the actual level of activity during the period rather than to the
   static planning budget.


2. Ricky’s Fiesta Diner is a family-owned restaurant that serves pizza and Italian dishes.
   Data concerning the restaurant’s monthly revenues and costs appear below (q refers to
   the number of meals served):

                             Formula
   Revenue                          $12q
   Cost of ingredients            $3.50q
   Wages                          $7,500
   Utilities               $600 + $0.20q
   Rent                           $2,500

   Assuming that 1,500 meals are served, the net operating income that would be included
   in the diner’s planning budget for January would be:
   A) $1,500.
   B) $1,850.
   C) $16,150.
   D) $18,000.


   Feedback – The correct answer is B:
   Learning Objective 1 – Determine the net operating income that would be included in
   the planning budget as follows:

   Budgeted meals served (q)                         1,500
   Revenue ($12q)                                 $18,000
   Expenses:
     Cost of ingredients ($3.50q)                   5,250
     Wages ($7,500)                                 7,500
     Utilities ($600 + $0.20q)                        900
     Rent ($2,500)                                  2,500
   Total expense                                   16,150
   Net operating income                           $ 1,850


3. Ricky’s Fiesta Diner is a family-owned restaurant that serves pizza and Italian dishes.
   Data concerning the restaurant’s monthly revenues and costs appear below (q refers to
   the number of meals served):

                             Formula
   Revenue                          $12q
   Cost of ingredients            $3.50q
   Wages                          $7,500
   Utilities               $600 + $0.20q
   Rent                           $2,500

   Assume that 1,600 meals were served in January. The total expense that would be
   budgeted at this level of activity would be:
   A) $2,680.
   B) $16,150.
   C) $16,250.
   D) $19,200.


   Feedback – The correct answer is A:
   Learning Objective 1 – Determine the total expense that would be budgeted at this level
   of activity as follows:

                    Ricky’s Fiesta Diner
                      Flexible Budget
              For the Month Ended January 31

   Budgeted meals served (q)                        1,600

   Revenue ($12q)                                 $19,200
   Expenses:
     Cost of ingredients ($3.50q)                   5,600
     Wages ($7,500)                                 7,500
     Utilities ($600 + $0.20q)                        920
     Rent ($2,500)                                  2,500
   Total expense                                   16,520
   Net operating income                           $ 2,680


4. Ricky’s Fiesta Diner is a family-owned restaurant that serves pizza and Italian dishes.
   Data concerning the restaurant’s monthly revenues and costs appear below (q refers to
   the number of meals served):

                             Formula
   Revenue                          $12q
   Cost of ingredients            $3.50q
   Wages                          $7,500
   Utilities               $600 + $0.20q
   Rent                           $2,500

   Actual results for the diner for January were as follows:

                               Actual
                               Results
   Budgeted meals served          1,600

   Revenue                      $18,800
   Expenses:
    Cost of ingredients           5,200
    Wages                         7,200
    Utilities                       928
    Rent                          2,500
   Total expense                 15,828
   Net operating income         $ 2,972

   Refer to the information set forth above and, as needed, to the information provided in
   the exam questions #2 and #3 set forth above. The flexible budget performance report for
   the diner for January would include the following:
   A) a total activity variance of $830 F, a revenue variance of $400 U, and a spending
       variance of $692 F.
   B) a total activity variance of $830 F, a revenue variance of $1,200 F, and a spending
       variance of $370 U.
   C) a total activity variance of $1,850 F, a revenue variance of $400 U, and a spending
       variance of $692 F.
   D) cannot be determined.


   Feedback – The correct answer is A:
   Learning Objectives 2, 3, and 4 – Determine the information that would be set forth in
   the flexible budget performance report as follows:

                                                                       Revenue
                                                                         and
                                  (1)      Activity          (2)      Spending     (3)
                               Planning    Variances       Flexible   Variances   Actual
                                Budget     (2) – (1)       Budget     (3) – (2)   Results
Budgeted meals served (q)         1,500                       1,600                 1,600

Revenue ($12q)                 $18,000    $1,200       F   $19,200    $400    U   $18,800
Expenses:
Cost of ingredients ($3.50q)     5,250      350    U         5,600     400    F     5,200
Wages ($7,500)                   7,500        0              7,500     300    F     7,200
Utilities ($600 + $0.20q)          900       20    U           920       8    U       928
Rent ($2,500)                    2,500        0              2,500       0          2,500
Total expense                   16,150      370    U        16,520     692    F    15,828
Net operating income           $ 1,850    $ 830    F       $ 2,680    $292    F    $2,972

								
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