COMMERCE 2AB3 Final: ch07tif
27 Nov 2018
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The master budget is one type of flexible budget. True/false: a flexible budget is calculated at the start of the budget period. A flexible budget is calculated at the end of the budget period when actual output is known. Information regarding the causes of variances is provided when the master budget is compared with actual results. Little information regarding the causes of variances is provided when the master budget is compared with actual results because you are comparing a budget for one level of activity with actual costs for a different level of activity. The essence of variance analysis is to capture a departure from what was expected. Answer: true: a favorable variance should be ignored by management. Favorable variance investigation may lead to improved production methods, other discoveries for future opportunities, or not be good news at all and adversely affect other variances. Difficulty: 1: an unfavorable variance may be due to poor planning rather than due to inefficiency.
