CERTIFIED MANAGEMENT ACCOUNTANT (CMAO EXAM SAMPLE QUES CMA 11-1. Rainbow Inc. re
ID: 2518861 • Letter: C
Question
CERTIFIED MANAGEMENT ACCOUNTANT (CMAO EXAM SAMPLE QUES CMA 11-1. Rainbow Inc. recently appointed Margaret Joyce as vice president of finance QUESTIONS and asked her to design a new budgeting system. Joyce has changed to a monthly budgeting system b company's annual budget by twelve. Joyce then prepared monthly budgets for eac iviing the and asked the managers to submit monthly reports comparing actual to budget ach departnt report for Department A is shown below. RAINBOW INC Monthly Report for Department A Actual Budget Variance 1,000 900 100F Units Variable production costs 2,800 2,700 100U 4,500 300U 4,050 200U ....4,800 Fixed costs 2,700 300U 100U 1,350 150U 990 110U 100U Depreciation Taxes Insurance 1,000 1,500 1,100 .1,000 900 Administration .. . . 900 This monthly budget has been imposed from the top and will create behavior problems. All of the following are causes of such problems except a. the use of a flexible budget rather than a fixed budget. b. top management authoritarian attitude toward the budget process. c. the inclusion of non-controllable costs such as depreciation. d. the lack of consideration for factors such as seasonalityExplanation / Answer
answer: A. the use of flexible budget rather than a fixed budget.
By using flexible budget can be adjusted to actual production and sales. This will ensure that the focus is on the variances due to causes rather than volume of output and sales.