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Business Accounting and Finance
Tony Davies, University of Wales, Lampeter, UK
Brian Pain, University of Luton, UK

Budgetary control

Self-test Questions


A standard cost is a basis for comparison of actual costs against planned costs. The types of standard that may be most effective for control purposes
A)are expected to be achieved under any circumstances
B)contain reasonable allowances for operational inefficiencies
C)contain no allowances for normal loss, waste and machine downtime
D)remain unchanged for successive accounting periods

Flexed budgets are used to show
A)the impact of the removal of 'padding' from operational budgets
B)perfect performance under perfect conditions
C)revised expected costs and revenues as a result of changes in activity levels
D)changes to budget targets following poor performance

Variance analysis is used to compare planned and actual performance. Which of the following is not a reason for the occurrence of variances?
A)operations being out of control
B)the use of standards that are out of date
C)actual performance being the same as standard performance
D)measurement errors

Direct materials variances may be analysed into
A)usage and efficiency variances
B)price and usage variances
C)efficiency and price variances
D)price and productivity variances

Direct labour variances may be analysed into
A)efficiency and rate variances
B)usage and rate variances
C)usage and price variances
D)efficiency and price variances

Which of the following may be the likely reason for an adverse materials variance?
A)employment of higher skilled operators
B)price reductions and reduced wastage
C)overestimated materials costs used in the standards
D)increased waste and price increases

Which of the following may be the likely reason for a favourable direct labour rate variance?
A)overestimated standard labour time per unit
B)overestimated standard labour cost pending the result of wage negotiations
C)changes to the product specification which reduced manufacturing time
D)reduction in direct labour costs due to a strike in the factory

Which of the following is not likely to be the reason for a favourable materials usage variance?
A)employment of lower skilled operators
B)supplier invoice error
C)improved stock control
D)use of higher quality materials

Questions 9 and 10 refer to the following diagram:

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The materials usage variance (in pounds) is

A)4,000 A
B)4,000 F
C)5,000 F
D)5,000 A

The materials price variance (in pounds) is
A)2,000 A
B)3,000 A
C)3,000 F
D)2,000 F