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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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