Question

1. Which of the following best describes variance analysis?

		Comparing ideal costs to master budget costs
		Comparing flexible budget costs to master budget costs
		Comparing master budget costs to actual costs
		Comparing flexible budget costs to actual costs

2. The Rubber Division of Morgain Company manufactures rubber moldings and sells them externally for $29. Its variable cost is $12 per unit, and its fixed cost per unit is $8. Morgain's president wants the Rubber Division to transfer 5,000 units to another company division. Assuming the Rubber Division has available capacity for 5,000 additional units, the economic rule would set the transfer price as:

A. $8

B. $12

C. $20

D. $29

3. Cash decreases due to the purchase of equipment would be found in which section of the statement of cash flows?

		The accrual activities section
		The financing activities section
		The operating activities section
		The investing activities section

Answer 1

Part 1)

The correct answer is

Comparing flexible budget cost with actual cost

Explanation

Flexible budget is constructed using standard cost and revenue per unit but the number of units are as per actual result, thus giving better variance analysis.

Part 2)

The correct answer is

B) $12

Explanation

Since the rubber division has spare capacity for 5000 units, so it can transfer the 5000 units at variable cost.

Part 3)

The correct answer is

The investing activities section

Explanation

Purchase of cequipment is part of investing activity, so any cash outflow from it will be shown in investing activities section only.