Flexible budgeting (Practice questions and answer)

A . Estimate the variable and fixed cost using the high-low method

Month	Output	Cost
May	4,500	$2,000
June	5,500	$2,500
July	2,000	$1,600
August	7,000	$3,500
September	10,000	$4,000

Answer:

B. The budgeted electricity cost for a business is $30,000 based upon production of 1,000 units. However if 1,400 units were to be produced the budgeted cost rises to $31,600. Using the high/low approach what would be the budgeted electricity cost if 2,100 units were to be produced?

A. $8,400

B. $17,600

C. $26,000

D. $34,400

Answer:

A high low method analysis will first of all split out the budgeted VC and FC:

C. The total costs of a business for differing levels of output are as follows:

Output (units)	Total costs ($'000)
500	70
200	30
300	50
800	90
1,000	110

Required

What are the fixed and variable elements of the total cost using the High/Low method?

A. Y = $30,000 + $100x

B. Y = $30,000 + $110x

C. Y = $10,000 + $110x

D. Y = $10,000 + $100x

D . Using the information calculated in the previous example, answer the following:

If production next year is expected to be 780 units what would the total cost be?

E. The following table shows the number of clients who attended a particular accountancy practice over the last four weeks and the total costs incurred during each of the weeks:

Week Number of clients Total cost

$

1 400 36,880

2 440 39,840

3 420 36,800

4 460 40,000

Applying the high low method to the above information, which of the following could be used to forecast total cost ($) from the number of clients expected to attend (where x = the expected number of clients)?

A. 7,280 + 74x

B. 16,080 + 52x

C. 3,200 + 80x

D. 40,000/x

F. The purpose of a flexible budget is to:

A. Compare actual and budgeted results at virtually any level of production

B. Reduce the total time in preparing the annual budget

C. Allow management some latitude in meeting goals

D. Eliminate cyclical fluctuations in production reports by ignoring variable costs

j . What is the name given to a budget which has been prepared by building on a previous periods budgeted or actual figures?

A. Incremental budget

B. Flexible budget

C. Zero based budget

D. Functional budget

L. A master budget comprises the:

A. budgeted income statement and budgeted cash flow only

B. budgeted income statement and budgeted balance sheet only

C. budgeted income statement and budgeted capital expenditure only

D. budgeted income statement, budgeted balance sheet and budgeted cash flow only.