36. A planning budget is prepared before the period begins and is valid for what

Question

36.

A planning budget is prepared before the period begins and is valid for whatever the actual level of activity turns out to be.

True

False

37.

A flexible budget should not be used when making comparisons to actual results such as actual expenses.

True

False

38.

An unfavorable activity variance for a variable cost occurs because the actual level of activity is higher than expected when the static planning budget was prepared.

True

False

39.

An unfavorable spending variance may reflect waste as well as paying too much for inputs.

True

False

40.

A static planning budget is suitable for planning but is inappropriate for evaluating how well costs are controlled.

True

False

Explanation / Answer

36)Ans (False) The Planning Budget is prepared for the planned level of activity. It is static because it is not changes even if the level of activity subsequently changes. Actual may be different from budget because of various reasons like level of activity, changes in prices, etc.

37)Ans (False)When a flexible budget is used in performance evaluation, actual costs are compared to what the costs should have been for the actual level of activity during the period .

38 Ans(True) An unfavorable activity variance for a variable cost occurs because the actual level of activity is higher than expected when the static planning budget was prepared.

39 Ans (True) An unfavorable spending variance may reflect waste as well as paying too much for inputs.

40 Ans (True) A static planning budget is suitable for planning but is inappropriate for evaluating how well costs are controlled.

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