Budgeting and Variance Analysis - Exam Prep Insights

Budgeting and Variance Analysis - Applications

Q. A company budgeted for $200,000 in production costs but incurred $220,000. What is the cost variance?

Solution

Cost variance = Actual Costs - Budgeted Costs = $220,000 - $200,000 = $20,000 Unfavorable.

Correct Answer: B — $20,000 Unfavorable

Q. If a company has a budgeted overhead of $60,000 and actual overhead of $70,000, what is the overhead variance?

Solution

Overhead variance = Actual Overhead - Budgeted Overhead = $70,000 - $60,000 = $10,000 Unfavorable.

Correct Answer: B — $10,000 Unfavorable

Q. If a company has a budgeted profit of $30,000 and actual profit of $25,000, what is the profit variance?

Solution

Profit variance = Actual Profit - Budgeted Profit = $25,000 - $30,000 = -$5,000, which is unfavorable.

Correct Answer: B — $5,000 Unfavorable

Q. What is the break-even point in units if fixed costs are $100,000, variable cost per unit is $20, and selling price per unit is $50?

Solution

Break-even point (units) = Fixed Costs / (Selling Price - Variable Cost) = $100,000 / ($50 - $20) = 2,000 units.

Correct Answer: A — 2,000 units

Q. What is the contribution margin per unit if the selling price is $80 and variable costs are $50?

Solution

Contribution Margin per unit = Selling Price - Variable Costs = $80 - $50 = $30.

Correct Answer: A — $30

Q. What is the primary focus of cost control in budgeting?

Solution

Cost control primarily focuses on minimizing expenses to ensure that the organization operates within its budget.

Correct Answer: B — Minimizing expenses

Q. Which budgeting method involves preparing budgets based on the previous year's performance?

Solution

Incremental budgeting uses the previous year's budget as a base and adjusts for changes.

Correct Answer: B — Incremental budgeting

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