1. Which best describes a budget?

• ❌ Only used for facilitating decisions

• ❌ No more frequent than annual

• ✅ Detailed

• ❌ Qualitative

Explanation: Budgets are quantitative and detailed financial plans.

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2. When creating the master budget, managers usually start with the production budget.

• ❌ True

• ✅ False

Explanation: The master budget starts with the sales budget, not production.

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3. Which is true about the sales budget?

• ❌ Determined by planned production

• ❌ Is performed on an annual basis

• ✅ Can be separated into product-line specific budgets

• ❌ Long-term focused

Explanation: The sales budget is based on expected demand, not production, and can be broken down by product lines.

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4. A standard is informed by the budget but is calculated at a more aggregate level.

• ❌ True

• ✅ False

Explanation: Standards are usually more detailed, not more aggregate. They set per-unit expectations (materials, labor, overhead).

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5. Which best describes variance analysis?

• ❌ Performed at the aggregate level

• ❌ Used only annually

• ✅ Provides a comparison of actual and expected performance

• ❌ Prevents management by exception

Explanation: Variance analysis compares actual results to budgeted expectations.

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6. A flexible cost budget presents how much a company should have spent given the planned level of production.

• ❌ True

• ✅ False

Explanation: A flexible budget adjusts for actual production level, not planned.

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7. Regarding a favorable variance:

• ❌ Actual net income is less than budgeted

• ✅ Actual net income is greater than budgeted

• ❌ It reflects a desirable scenario

• ❌ It is more important than unfavorable variances

Explanation: Favorable variances generally increase net income, but they are not automatically “good” and not “more important.”

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8. Fixed cost variances include spending variances.

• ✅ True

• ❌ False

Explanation: Fixed costs don’t vary with activity, so the only variance they produce is a spending variance (actual vs budgeted fixed costs).

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🧾 Summary Table

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