True/False Questions

______1. A process whereby the effect of fluctuations in level of activity is built into the budgeting system is referred to as flexible budgeting.

____ 2. The budget procedure that requires all levels of management to start from zero in estimating sales, production, and other operating data is called continuous budgeting.

____ 3. Normally standard costs should be revised when labor rates change to incorporate new union contracts.

____ 4. The relevant range is useful for analyzing cost behavior for management decision-making purposes.

____ 5. Standard costs should always be revised when they differ from actual costs.

____ 6. The capital expenditures budget summarizes future plans for acquisition of fixed assets.

____ 7. Because variable costs are assumed to change in constant proportion with changes in the activity level, the graph of the variable costs when plotted against the activity level appears as a circle.

____ 8. Total fixed costs change as the level of activity changes.

____ 9. A favorable cost variance occurs when actual cost is less than budgeted cost at actual volumes.

____ 10. The budgeted volume of production is based on the sum of (1) the expected sales volume and (2) the desired ending inventory, less (3) the estimated beginning inventory.

____ 11. One reason not to depend solely on historical records to set standards is that there may be inefficiencies contained in past costs.

____ 12. The difference between the standard cost of a product and its actual cost is called a variance.

____ 13. If yearly insurance premiums are increased, this change in fixed costs will result in an increase in the break-even point.

____ 14. After the sales budget is prepared, the production budget is normally prepared next.

____ 15. The variance from standard for factory overhead cost resulting from operating at a level above or below 100% of normal capacity is termed volume variance.

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