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Flexible budgets question answers

PART 4

11. Flexible budgets

All the following are true of flexible budgets EXCEPT that they:

  • Use the same flexible (variable) cost per unit as the master budget.
  • Result in higher total costs for greater levels of production.
  • Allow comparison of actual results to targets based on the achieved level of production.
  • Reflect the same level of production as the master budget
  • 12. ABC

Which of the following is a sign that an ABC system may be useful?

  • there are small amounts of support costs.
  • Products make diverse demands on resources because of differences in volume, process steps, batch size, or complexity.
  • Products a company is less suited to produce and sell show small profits.

Operations throughout the plant are fairly similar.

  • . Efficiency Variance

Apple Valley Orchards, Inc (AVO), developed standard costs for direct material and direct labor. in 2008, AVO estimated the following standard costs for one of their most well-loved products , the AVO classic Grandma’s large apple pie which had a brown sugar coating on the top of the crust as well as including cranberry and mince ingredients in addition to the apples .

 Budgeted quantityBudgeted price
Direct materials1.5 pounds$ 7.25 per pound
Direct labor0.25$ 14. 00 per hour

During September AVO produced and sold 1,200 pies using 1,875 pounds of direct materials at an average cost per pound of $ 7,00 and 280 direct labor hours at an average wage of $ 14.25 per hour.

13. What is AVO’s Labor Efficiency Variance for September 2008.

  • $ 70 unfavourable
  • $ 280 favourable
  • 20 hours
  • $ 280 unfavourable
  •  14. Decision making

14. Which of the following would NOT be considered on a make-or-buy decision?

  • Capacity-related costs that will no longer be incurred
  • Flexible costs of production
  • Potential rental income from space occupied by the production area
  • Unchanged supervisory costs.

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