ACC 350 Week 8 Quiz 6 Chapter 7 – Strayer

ACC 350 Week 8 Quiz – Strayer (All Possible Questions With Answers)

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Chapter 7

Flexible Budgets, Direct-Cost Variances, and Management Control

1)

The master budget is one type of flexible budget.

2)

A flexible budget is calculated at the start of the budget period.

3)

Information regarding the causes of variances is provided when the master budget is compared with actual results.

4)

A variance is the difference between the actual cost for the current and previous year.

5)

A favorable variance results when budgeted revenues exceed actual revenues.

6)

Management by exception is the practice of concentrating on areas not operating as anticipated (such as a cost overrun) and placing less attention on areas operating as anticipated.

7)

The essence of variance analysis is to capture a departure from what was expected.

8)

A favorable variance should be ignored by management.

9)

An unfavorable variance may be due to poor planning rather than due to inefficiency.

10)

The only difference between the static budget and flexible budget is that the static budget is prepared using planned output.

11)

The static-budget variance can be subdivided into the flexible-budget variance and the sales-volume variance.

12)

The flexible-budget variance may be the result of inaccurate forecasting of units sold.

13)

Decreasing demand for a product may create a favorable sales-volume variance.

14)

An unfavorable variance is conclusive evidence of poor performance.

15)

A company would not need to use a flexible budget if it had perfect foresight about actual output units.

16)

The flexible-budget variance pertaining to revenues is often called a selling-price variance.

17)

Cost control is the focus of the sales-volume variance.

18)

The term efficiency variance is the direct-cost portion of the flexible-budget variance.

19)

Managers generally have more control over efficiency variances than price variances.

20)

To prepare budgets based on actual data from past periods is preferred since past inefficiencies are excluded.
21)

All budgets are based on standard costs.

22)

A standard is attainable through efficient operations but allows for normal disruptions such as machine breakdowns and defective production.

23)

One advantage of using standard times to develop a budget is they are simple to compile, are based solely on the past actual history, and do not require expected future changes to be taken into account.

24)

The presumed cause of a material price variance will determine how a company responds.

25)

The price variance is the difference between the actual price and the budgeted price of the input, multiplied by the actual quantity of input.

26)

For any actual level of output, the efficiency variance is the difference between actual quantity of input used and the budgeted quantity of input allowed to produce actual output, multiplied by the actual price.

27)

The use of high-quality raw materials is likely to result in a favorable efficiency variance and an unfavorable price variance.

28)

The direct manufacturing labor price variance is likely to be favorable if higher-skilled workers are put on a job.

29)

Although computed separately, price variances and efficiency variances should not be analyzed separately from each other.

30)

A favorable variance can be automatically interpreted as “good news.”
31)

Variances often affect each other.

32)

If variance analysis is used for performance evaluation, managers are encouraged to meet targets using creativity and resourcefulness.

33)

When using variance for performance evaluation, managers often focus on effectiveness and efficiency as two of the common attributes used in comparing expected results with actual results.

34)

For critical items such as product defects, a small variance may prompt investigation.

35)

A particular variance generally signals one particular problem.

36)

If budgets contain slack, cost variances will tend to be favorable.

37)

Continuous improvement budgeted costs target price reductions and efficiency improvements.

38)

Improvement opportunities are easier to identify when products have been on the market for a considerable period of time.

39)

It is best to rely totally on financial performance measures rather than using a combination of financial and nonfinancial performance measures.

40)

From the perspective of control, the direct materials price variance should be isolated at the time the direct materials are requisitioned for use.

41)

The goal of variance analysis is for managers to understand why variances arise, to learn, and to improve future performance.

42)

Employees logging in to production floor terminals and other modern technologies greatly facilitate the use of a standard costing system.

43)

Performance variance analysis can be used in activity-based costing systems.

44)

Price variances can be calculated for batch-level costs as well as for output unit-level costs.

45)

Benchmarking is the continuous process of measuring products, services, and activities against the best possible levels of performance, either inside or outside the organization.

46)

When benchmarking, the best levels of performance are typically found in companies that are totally different.

47)

One problem with benchmarking is ensuring that numbers are comparable.

48)

When benchmarking it is best when management accountants simply analyze the costs and allow management to provide the insight as to why the revenues and costs differ between companies.

49)

The master budget is:
A)

a flexible budget
B)

a static budget
C)

developed at the end of the period
D)

based on the actual level of output

50)

A flexible budget:
A)

is another name for management by exception
B)

is developed at the end of the period
C)

is based on the budgeted level of output
D)

provides favorable operating results

51)

Management by exception is the practice of concentrating on:
A)

the master budget
B)

areas not operating as anticipated
C)

favorable variances
D)

unfavorable variances

52)

A variance is:
A)

the gap between an actual result and a benchmark amount
B)

the required number of inputs for one standard output
C)

the difference between an actual result and a budgeted amount
D)

the difference between a budgeted amount and a standard amount

53)

An unfavorable variance indicates that:
A)

actual costs are less than budgeted costs
B)

actual revenues exceed budgeted revenues
C)

the actual amount decreased operating income relative to the budgeted amount
D)

All of these answers are correct.

54)

A favorable variance indicates that:
A)

budgeted costs are less than actual costs
B)

actual revenues exceed budgeted revenues
C)

the actual amount decreased operating income relative to the budgeted amount
D)

All of these answers are correct.

Answer the following questions using the information below:

Abernathy Corporation used the following data to evaluate their current operating system. The company sells items for \$10 each and used a budgeted selling price of \$10 per unit.

Actual Budgeted
Units sold 92,000 units 90,000 units
Variable costs \$450,800 \$432,000
Fixed costs \$ 95,000 \$100,000

55)

What is the static-budget variance of revenues?
A)

\$20,000 favorable
B)

\$20,000 unfavorable
C)

\$2,000 favorable
D)

\$2,000 unfavorable

56)

What is the static-budget variance of variable costs?
A)

\$1,200 favorable
B)

\$18,800 unfavorable
C)

\$20,000 favorable
D)

\$1,200 unfavorable

57)

What is the static-budget variance of operating income?
A)

\$3,800 favorable
B)

\$3,800 unfavorable
C)

\$6,200 favorable
D)

\$6,200 unfavorable

Answer the following questions using the information below:

Bates Corporation used the following data to evaluate their current operating system. The company sells items for \$10 each and used a budgeted selling price of \$10 per unit.

Actual Budgeted
Units sold 495,000 units 500,000 units
Variable costs \$1,250,000 \$1,500,000
Fixed costs \$ 925,000 \$ 900,000

58)

What is the static-budget variance of revenues?
A)

\$50,000 favorable
B)

\$50,000 unfavorable
C)

\$5,000 favorable
D)

\$5,000 unfavorable

59)

What is the static-budget variance of variable costs?
A)

\$200,000 favorable
B)

\$50,000 unfavorable
C)

\$250,000 favorable
D)

\$250,000 unfavorable

60)

What is the static-budget variance of operating income?
A)

\$175,000 favorable
B)

\$195,000 unfavorable
C)

\$225,000 favorable
D)

\$325,000 unfavorable

Answer the following questions using the information below:

Racine Filter Corporation used the following data to evaluate their current operating system. The company sells items for \$14.50 each and had used a budgeted selling price of \$15 per unit.

Actual Budgeted
Units sold 206,000 units 200,000 units
Variable costs \$965,000 \$950,000
Fixed costs \$ 53,000 \$ 50,000

61)

What is the static-budget variance of revenues?
A)

\$90,000 favorable
B)

\$13,000 favorable
C)

\$13,000 unfavorable
D)

\$6,000 favorable

62)

What is the static-budget variance of variable costs?
A)

\$13,000 favorable
B)

\$13,000 unfavorable
C)

\$15,000 favorable
D)

\$15,000 unfavorable

63)

What is the static-budget variance of operating income?
A)

\$31,000 unfavorable
B)

\$26,000 favorable
C)

\$28,000 favorable
D)

\$28,000 unfavorable

64)

Regier Company had planned for operating income of \$10 million in the master budget but actually achieved operating income of only \$7 million.
A)

The static-budget variance for operating income is \$3 million favorable.
B)

The static-budget variance for operating income is \$3 million unfavorable.
C)

The flexible-budget variance for operating income is \$3 million favorable.
D)

The flexible-budget variance for operating income is \$3 million unfavorable.

65)

The flexible budget contains:
A)

budgeted amounts for actual output
B)

budgeted amounts for planned output
C)

actual costs for actual output
D)

actual costs for planned output

66)

The following items are the same for the flexible budget and the master budget EXCEPT the same:
A)

variable cost per unit
B)

total fixed costs
C)

units sold
D)

sales price per unit

67)

The sales-volume variance is due to:
A)

using a different selling price from that budgeted
B)

inaccurate forecasting of units sold
C)

poor production performance
D)

Both A and B are correct.

68)

An unfavorable sales-volume variance could result from:
A)

decreased demand for the product
B)

competitors taking market share
C)

customer dissatisfaction with the product
D)

All of these answers are correct.

69)

If a sales-volume variance was caused by poor-quality products, then the ________ would be in the best position to explain the variance.
A)

production manager
B)

sales manager
C)

D)

management accountant

70)

The variance that is BEST for measuring operating performance is the:
A)

static-budget variance
B)

flexible-budget variance
C)

sales-volume variance
D)

selling-price variance

71)

An unfavorable flexible-budget variance for variable costs may be the result of:
A)

using more input quantities than were budgeted
B)

paying higher prices for inputs than were budgeted
C)

selling output at a higher selling price than budgeted
D)

Both A and B are correct.

72)

An unfavorable variance:
A)

may suggest investigation is needed
B)

is conclusive evidence of poor performance
C)

demands that standards be recomputed
D)

indicates continuous improvement is needed

73)

All of the following are needed to prepare a flexible budget EXCEPT determining the:
A)

budgeted variable cost per output unit
B)

budgeted fixed costs
C)

actual selling price per unit
D)

actual quantity of output units

74)

The variance that LEAST affects cost control is the:
A)

flexible-budget variance
B)

direct-material-price variance
C)

sales-volume variance
D)

direct manufacturing labor efficiency variance

75)

A flexible-budget variance is \$800 favorable for unit-related costs. This indicates that costs were:
A)

\$800 more than the master budget
B)

\$800 less than for the planned level of activity
C)

\$800 more than standard for the achieved level of activity
D)

\$800 less than standard for the achieved level of activity

Answer the following questions using the information below:

JJ White planned to use \$82 of material per unit but actually used \$80 of material per unit, and planned to make 1,200 units but actually made 1,000 units.

76)

The flexible-budget amount is:
A)

\$80,000
B)

\$82,000
C)

\$96,000
D)

\$98,400

77)

The flexible-budget variance is:
A)

\$2,000 favorable
B)

\$14,000 unfavorable
C)

\$16,400 unfavorable
D)

\$2,400 favorable

78)

The sales-volume variance is:
A)

\$2,000 favorable
B)

\$14,000 unfavorable
C)

\$16,400 unfavorable
D)

\$2,400 favorable

79)

Aebi Corporation currently produces cardboard boxes in an automated process. Expected production per month is 20,000 units, direct-material costs are \$0.60 per unit, and manufacturing overhead costs are \$9,000 per month. Manufacturing overhead is allocated based on units of production. What is the flexible budget for 10,000 and 20,000 units, respectively?
A)

\$10,500; \$16,500
B)

\$10,500; \$21,000
C)

\$15,000; \$21,000
D)

None of these answers are correct.

Answer the following questions using the information below:

McKenna Incorporated planned to use \$24 of material per unit but actually used \$25 of material per unit, and planned to make 1,000 units but actually made 1,200 units.

80)

The flexible-budget amount is:
A)

\$24,000
B)

\$25,000
C)

\$28,800
D)

\$30,000

81)

The flexible-budget variance is:
A)

\$4,800 favorable
B)

\$1,200 unfavorable
C)

\$5,000 unfavorable
D)

\$6,000 favorable

82)

The sales-volume variance is:
A)

\$4,800 favorable
B)

\$1,200 unfavorable
C)

\$5,000 unfavorable
D)

\$6,000 favorable

Answer the following questions using the information below:

Seldon Incorporated planned to use \$37.50 of material per unit but actually used \$36.75 of material per unit, and planned to make 900 units but actually made 800 units.

83)

The flexible-budget amount is:
A)

\$30,000
B)

\$33,750
C)

\$29,400
D)

\$600

84)

The flexible-budget variance is:
A)

\$3,750 favorable
B)

\$3,750 unfavorable
C)

\$600 unfavorable
D)

\$600 favorable

85)

The sales-volume variance is:
A)

\$3,750 favorable
B)

\$3,750 unfavorable
C)

\$600 unfavorable
D)

\$600 favorable

86)

Hemberger Corporation currently produces baseball caps in an automated process. Expected production per month is 20,000 units, direct material costs are \$1.50 per unit, and manufacturing overhead costs are \$23,000 per month. Manufacturing overhead is allocated based on units of production. What is the flexible budget for 10,000 and 20,000 units, respectively?
A)

\$26,500; \$41,500
B)

\$26,500; \$53,000
C)

\$38,000; \$53,000
D)

None of these answers are correct.

Answer the following questions using the information below:

The actual information pertains to the month of August. As part of the budgeting process, Alloway’s Fencing Company developed the following static budget for August. Alloway is in the process of preparing the flexible budget and understanding the results.

Actual Flexible Static
Results Budget Budget
Sales volume (in units) 20,000 25,000

Sales revenues \$1,000,000 \$ \$1,250,000
Variable costs 512,000 \$ ________ 600,000

Contribution margin 488,000 \$ 650,000

Fixed costs 458,000 \$ ________ 450,000
Operating profit \$ 30,000 \$ \$ 200,000

87)

The flexible budget will report ________ for variable costs.
A)

\$512,000
B)

\$600,000
C)

\$480,000
D)

\$640,000

88)

The flexible budget will report ________ for the fixed costs.
A)

\$458,000
B)

\$450,000
C)

\$360,000
D)

\$572,500

89)

The flexible-budget variance for variable costs is:
A)

\$32,000 unfavorable
B)

\$120,000 unfavorable
C)

\$32,000 favorable
D)

\$120,000 favorable

90)

The PRIMARY reason for low operating profits was:
A)

the variable-cost variance
B)

increased fixed costs
C)

a poor management accounting system
D)

lower sales volume than planned

Answer the following questions using the information below:

The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy Department of Wooden Figurines Incorporated had developed the following static budget for the third quarter. Duck Decoy is in the process of preparing the flexible budget and understanding the results.

Actual Flexible Static
Results Budget Budget
Sales volume (in units) 13,000 12,000

Sales revenues \$257,500 \$ \$250,000
Variable costs 154,000 \$ ________ 175,000

Contribution margin 103,500 \$ 75,000

Fixed costs 50,500 \$ ________ 49,500
Operating profit \$ 53,000 \$ \$ 25,500

91)

The flexible budget will report ________ for variable costs.
A)

\$154,000
B)

\$189,583
C)

\$175,000
D)

\$13,583

92)

The flexible budget will report ________ for the fixed costs.
A)

\$50,500
B)

\$49,500 Favorable
C)

\$49,500
D)

\$1,000 Unfavorable

93)

The flexible-budget variance for variable costs is:
A)

\$21,000 favorable
B)

\$13,583 unfavorable
C)

\$35,583 unfavorable
D)

\$35,583 favorable

94)

The PRIMARY reason for high actual operating profits was:
A)

the variable-cost variance
B)

increased fixed costs
C)

higher sales volume than planned
D)

lower sales volume than planned

Answer the following questions using the information below:

Peters’ Company manufactures tires. Some of the company’s data was misplaced. Use the following information to replace the lost data:

Actual Results Flexible Budget Variances Flexible Budget Sales-Volume Variances Static Budget
Units sold 225,000 225,000 206,250
Revenues \$84,160 \$2,000 F (A) \$2,800 U (B)
Variable costs (C) \$400 U \$31,720 \$4,680 F \$36,400
Fixed costs \$16,560 \$1,720 F \$18,280 0 \$18,280
Operating income \$35,480 (D) \$32,160 (E) \$30,280

95)

What amounts are reported for revenues in the flexible-budget (A) and the static-budget (B), respectively?
A)

\$82,160; \$79,360
B)

\$82,160; \$84,960
C)

\$84,960; \$88,960
D)

\$84,960; \$83,360

96)

What are the actual variable costs (C)?
A)

\$36,400
B)

\$32,120
C)

\$31,320
D)

\$27,040

97)

What is the total flexible-budget variance (D)?
A)

\$120 unfavorable
B)

\$0
C)

\$680 favorable
D)

\$3,320 favorable

98)

What is the total sales-volume variance (E)?
A)

\$7,480 unfavorable
B)

\$2,800 unfavorable
C)

\$1,880 favorable
D)

\$7,480 favorable

99)

What is the total static-budget variance?
A)

\$5,200 favorable
B)

\$3,320 favorable
C)

\$1,880 unfavorable
D)

\$1,880 favorable

100)

The flexible-budget variance for direct cost inputs can be further subdivided into a:
A)

static-budget variance and a sales-volume variance
B)

sales-volume variance and an efficiency variance
C)

price variance and an efficiency variance
D)

static-budget variance and a price variance

101)

Budgeted input quantity information may be obtained from:
A)

actual input quantities used last period
B)

C)

data from other companies that have similar processes
D)

All of these answers are correct.

102)

When actual input data from past periods is used to develop a budget:
A)

past inefficiencies are excluded
B)

expected future changes are incorporated
C)

information is available at a low cost
D)

audited financial information must be used

103)

When standards are used to develop a budget:
A)

past inefficiencies are excluded
B)

benchmarking must also be used
C)

information is available at a low cost
D)

flexible-budget amounts are difficult to determine

104)

The term budget indicates:
A)

that standards have been used to develop the budget
B)

that actual input data from past periods have been used to develop the budget
C)

that engineering studies have been used to develop the budget
D)

planned amounts for a future accounting period

105)

A standard input:
A)

is a carefully determined price, cost, or quantity
B)

is usually expressed on a per unit basis
C)

may be developed using engineering studies
D)

All of these answers are correct.

106)

Ideal standards:
A)

assume peak operating conditions
B)

allow for normal machine breakdowns
C)

greatly improve employee motivation and performance
D)

All of these answers are correct..

107)

A favorable price variance for direct materials indicates that:
A)

a lower price than planned was paid for materials
B)

a higher price than planned was paid for materials
C)

less material was used during production than planned for actual output
D)

more material was used during production than planned for actual output

108)

A favorable efficiency variance for direct manufacturing labor indicates that:
A)

a lower wage rate than planned was paid for direct labor
B)

a higher wage rate than planned was paid for direct labor
C)

less direct manufacturing labor-hours were used during production than planned for actual output
D)

more direct manufacturing labor-hours were used during production than planned for actual output

109)

An unfavorable price variance for direct materials might indicate:
A)

that the purchasing manager purchased in smaller quantities due to a change to just-in-time inventory methods
B)

congestion due to scheduling problems
C)

that the purchasing manager skillfully negotiated a better purchase price
D)

that the market had an unexpected oversupply of those materials

110)

A favorable efficiency variance for direct materials might indicate:
A)

that lower-quality materials were purchased
B)

an overskilled workforce
C)

poor design of products or processes
D)

a lower-priced supplier was used

111)

A favorable price variance for direct manufacturing labor might indicate that:
A)

employees were paid more than planned
B)

budgeted price standards are too tight
C)

underskilled employees are being hired
D)

an efficient labor force

112)

An unfavorable efficiency variance for direct manufacturing labor might indicate that:
A)

work was efficiently scheduled
B)

machines were not properly maintained
C)

budgeted time standards are too lax
D)

more higher-skilled workers were scheduled than planned

Answer the following questions using the information below:

Robb Industries, Inc. (RII), developed standard costs for direct material and direct labor. In 2004, RII estimated the following standard costs for one of their major products, the 10-gallon plastic container.

Budgeted quantity Budgeted price
Direct materials 0.10 pounds \$30 per pound
Direct labor 0.05 hours \$15 per hour

During June, RII produced and sold 5,000 containers using 490 pounds of direct materials at an average cost per pound of \$32 and 250 direct manufacturing labor-hours at an average wage of \$15.25 per hour.

113)

June’s direct material flexible-budget variance is:
A)

\$980 unfavorable
B)

\$300 favorable
C)

\$680 unfavorable
D)

None of these answers are correct.

114)

June’s direct material price variance is:
A)

\$980 unfavorable
B)

\$300 favorable
C)

\$680 favorable
D)

None of these answers are correct.

115)

June’s direct material efficiency variance is:
A)

\$980 unfavorable
B)

\$300 favorable
C)

\$680 favorable
D)

None of these answers are correct.

116)

June’s direct manufacturing labor price variance is:
A)

\$62.50 unfavorable
B)

\$62.50 favorable
C)

\$3,811.75 unfavorable
D)

None of these answers are correct.

117)

June’s direct manufacturing labor efficiency variance is:
A)

\$62.50 unfavorable
B)

\$62.50 favorable
C)

\$3,811.75 unfavorable
D)

None of these answers are correct.

Answer the following questions using the information below:

Sawyer Industries, Inc. (SII), developed standard costs for direct material and direct labor. In 2004, SII estimated the following standard costs for one of their major products, the 30-gallon heavy-duty plastic container.

Budgeted quantity Budgeted price
Direct materials 0.20 pounds \$25 per pound
Direct labor 0.10 hours \$15 per hour

During July, SII produced and sold 10,000 containers using 2,200 pounds of direct materials at an average cost per pound of \$24 and 1,050 direct manufacturing labor hours at an average wage of \$14.75 per hour.

118)

July’s direct material flexible-budget variance is:
A)

\$2,800 unfavorable
B)

\$2,200 favorable
C)

\$5,000 unfavorable
D)

None of these answers are correct.

119)

July’s direct material price variance is:
A)

\$2,800 favorable
B)

\$2,200 favorable
C)

\$5,000 unfavorable
D)

None of these answers are correct.

120)

July’s direct material efficiency variance is:
A)

\$2,800 unfavorable
B)

\$2,200 favorable
C)

\$5,000 unfavorable
D)

None of these answers are correct.

121)

July’s direct manufacturing labor flexible-budget variance is:
A)

\$750.00 unfavorable
B)

\$262.50 favorable
C)

\$487.50 unfavorable
D)

None of these answers are correct.

122)

July’s direct manufacturing labor price variance is:
A)

\$750.00 unfavorable
B)

\$262.50 favorable
C)

\$487.50 favorable
D)

None of these answers are correct.

123)

July’s direct manufacturing labor efficiency variance is:
A)

\$750.00 unfavorable
B)

\$262.50 favorable
C)

\$487.50 favorable
D)

None of these answers are correct.

Answer the following questions using the information below:

Apple Valley Orchards, Inc. (AVO), developed standard costs for direct material and direct labor. In 2008, AVO estimated the following standard costs for one of their most well loved products, the AVO classic Grandma’s large apple pie which had a brown sugar coating on the top of the crust as well as including cranberry and mince ingredients in addition to the apples.

Budgeted quantity Budgeted price
Direct materials 1.5 pounds \$7.25 per pound
Direct labor 0.25 hours \$14.00 per hour

During September, AVO produced and sold 1,200 pies using 1,875 pounds of direct materials at an average cost per pound of \$7.00 and 280 direct labor hours at an average wage of \$14.25 per hour.

124)

September’s direct material flexible-budget variance is:
A)

\$100.00 unfavorable
B)

\$100.00 favorable
C)

\$75.00 unfavorable
D)

None of these answers are correct.

125)

September’s direct material price variance is:
A)

\$468.75 favorable
B)

\$468.75 unfavorable
C)

\$75.00 unfavorable
D)

None of these answers are correct.

126)

September’s direct material efficiency variance is:
A)

\$468.75 favorable
B)

\$468.75 unfavorable
C)

\$543.75 favorable
D)

\$543.75 unfavorable

127)

September’s direct labor flexible-budget variance is:
A)

\$210.00 favorable
B)

\$210.00 unfavorable
C)

\$280.00 favorable
D)

\$280.00 unfavorable.

128)

September’s direct labor price variance is:
A)

\$210.00 unfavorable
B)

\$210.00 favorable
C)

\$70.00 unfavorable
D)

\$70.00 favorable

129)

September’s direct labor efficiency variance is:
A)

\$280.00 favorable
B)

\$280.00 unfavorable
C)

\$210.00 favorable
D)

\$210.00 unfavorable

Answer the following questions using the information below:

These questions refer to flexible-budget variance formulas with the following descriptions for the variables: A = Actual; B = Budgeted; P = Price; Q = Quantity.

130)

The best label for the formula (AQ – BQ) BP is the:
A)

efficiency variance
B)

price variance
C)

total flexible-budget variance
D)

spending variance

131)

The best label for the formula (AP – BP) AQ is the:
A)

efficiency variance
B)

price variance
C)

total flexible-budget variance
D)

spending variance

132)

The best label for the formula [(AP)(AQ) – (BP)(AQ)] is the:
A)

efficiency variance
B)

price variance
C)

total flexible-budget variance
D)

spending variance

133)

The best label for the formula [(AP)(AQ) – (BP)(BQ)] is the:
A)

efficiency variance.
B)

price variance
C)

total flexible-budget variance
D)

spending variance

Answer the following questions using the information below:

Ruben’s Camera Shop has prepared the following flexible budget for September and is in the process of interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance.

Flexible Variances
Budget Price Efficiency
Material A \$20,000 \$1,000F \$3,000U
Material B 30,000 500U 1,500F
Direct manufacturing labor 40,000 500U 2,500F

134)

The MOST likely explanation of the above variances for Material A is that:
A)

a lower price than expected was paid for Material A
B)

higher-quality raw materials were used than were planned
C)

the company used a higher-priced supplier
D)

Material A used during September was \$2,000 less than expected

135)

The actual amount spent for Material B was:
A)

\$28,000
B)

\$29,000
C)

\$30,000
D)

\$31,000

136)

The actual amount spent for direct manufacturing labor was:
A)

\$40,000
B)

\$43,000
C)

\$42,000
D)

\$38,000

137)

The MOST likely explanation of the above direct manufacturing labor variances is that:
A)

the average wage rate paid to employees was less than expected
B)

employees did not work as efficiently as expected to accomplish the job
C)

the company may have assigned more experienced employees this month than originally planned
D)

management may have a problem with budget slack and might be using lax standards for both labor-wage rates and expected efficiency

Answer the following questions using the information below:

Hector’s Camera Shop has prepared the following flexible budget for September and is in the process of interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance.

Flexible Variances
Budget Price Efficiency
Material A \$20,000 \$1,000U \$1,200F
Material B 30,000 500F 800U
Material C 40,000 1,400U 1,000F

138)

The actual amount spent for Material A was:
A)

\$18,800
B)

\$20,200
C)

\$19,800
D)

\$21,000

139)

The actual amount spent for Material B was:
A)

\$29,700
B)

\$30,800
C)

\$30,500
D)

\$30,300

140)

The explanation that lower-quality materials were purchased is MOST likely for:
A)

Material A
B)

Material B
C)

Material C
D)

both Material A and C

141)

A purchasing manager’s performance is BEST evaluated using the:
A)

direct materials price variance
B)

direct materials flexible-budget variance
C)

direct manufacturing labor flexible-budget variance
D)

affect the manager’s action has on total costs for the entire company

142)

One of the primary reasons for using cost variances is:
A)

they diagnose the cause of a problem and what should be done to correct it
B)

for superiors to communicate expectations to lower-level employees
C)

D)

for financial control of operating activities and understanding why variances arise

143)

A favorable cost variance of significant magnitude:
A)

is the result of good planning
B)

if investigated, may lead to improved production methods
C)

indicates management does not need to be concerned about lax standards
D)

does not need to be investigated

144)

The variances that should be investigated by management include:
A)

only unfavorable variances
B)

only favorable variances
C)

all variances, both favorable and unfavorable
D)

both favorable and unfavorable variances considered significant in amount for the company

145)

Typically, managers have the LEAST control over:
A)

the direct material price variance
B)

the direct material efficiency variance
C)

machine maintenance
D)

the scheduling of production

146)

If manufacturing machines are breaking down more than expected, this will contribute to a(n):
A)

favorable direct manufacturing labor price variance
B)

unfavorable direct manufacturing labor price variance
C)

favorable direct manufacturing labor efficiency variance
D)

unfavorable direct manufacturing labor efficiency variance

147)

A single variance:
A)

signals the cause of a problem
B)

should be evaluated in isolation from other variances
C)

may be the result of many different problems
D)

should be used for performance evaluation

148)

Variance analysis should be used:
A)

to understand why variances arise
B)

as the sole source of information for performance evaluation
C)

to punish employees that do not meet standards
D)

to encourage employees to focus on meeting standards

149)

Variances should be investigated:
A)

when they are kept below a certain amount
B)

when there is a small variance for critical items such as product defects
C)

even though the cost of investigation exceeds the benefit
D)

when there is an in-control occurrence

150)

When continuous improvement budgeted costing is implemented, cost reductions can result from:
A)

price reductions
B)

reducing materials waste
C)

producing products faster and more efficiently
D)

All of these answers are correct.

151)

Nonfinancial performance measures:
A)

are usually used in combination with financial measures for control purposes
B)

are used to evaluate overall cost efficiency
C)

allow managers to make informed tradeoffs
D)

are often the sole basis of a manager’s performance evaluations

152)

Unfavorable direct material price variances are:
A)

always credits
B)

always debits
C)

credited to the Materials Control account
D)

credited to the Accounts Payable Control account

153)

Favorable direct manufacturing labor efficiency variances are:
A)

always credits
B)

always debits
C)

debited to the Work-in-Process Control account
D)

debited to the Wages Payable Control account

154)

From the perspective of control, the direct materials efficiency variance should be isolated at the time of:
A)

purchase
B)

use
C)

completion of the entire product
D)

sale of the product

155)

Standard costing systems are a useful tool when using:
A)

just-in-time systems
B)

total quality management
C)

computer-integrated manufacturing systems
D)

All of these answers are correct.

156)

Performance variance analysis can be calculated for:
A)

output unit-level costs
B)

batch-level costs
C)

product-sustaining costs
D)

All of these answers are correct.

157)

A favorable efficiency variance for material-handling labor-hours per batch could result from:
A)

inefficient production-floor layouts compared to those expected when preparing the budget
B)

materials-handling labor waiting to pick up materials
C)

well-trained and experienced material-handling employees
D)

lower wages than planned for material-handling labor

158)

The process by which a company’s products or services are measured relative to the best possible levels of performance is known as:
A)

efficiency
B)

benchmarking
C)

a standard costing system
D)

variance analysis

159)

When benchmarking:
A)

the best levels of performance are usually found in companies that are within different industries
B)

finding appropriate benchmarks is a minor issue
C)

comparisons can highlight areas for better future cost management
D)

Both A and C are correct.

160)

Ensuring benchmark numbers are comparable can be difficult because differences can exist across companies with:
A)

overall company strategy
B)

depreciation methods
C)

inventory methods
D)

All of these answers are correct.

161)

When benchmarking, management accountants are MOST valuable when they:
A)

present differences in the benchmarking data to management
B)

highlight differences in the benchmarking data to management
C)

provide insight into why costs or revenues differ across companies
D)

provide complex mathematical analysis

162)

The president of the company, Gregory Peters, has come to you for help. Use the following data to prepare a flexible budget for possible sales/production levels of 10,000, 11,000, and 12,000 units. Show the contribution margin at each activity level.

Sales price \$24 per unit
Variable costs:
Manufacturing \$12 per unit
Selling \$ 1 per unit
Fixed costs:
Manufacturing \$60,000

163)

Strauss Table Company manufactures tables for schools. The 20X5 operating budget is based on sales of 20,000 units at \$100 per table. Operating income is anticipated to be \$120,000. Budgeted variable costs are \$64 per unit, while fixed costs total \$600,000.

Actual income for 20X5 was a surprising \$354,000 on actual sales of 21,000 units at \$104 each. Actual variable costs were \$60 per unit and fixed costs totaled \$570,000.

Required:
Prepare a variance analysis report with both flexible-budget and sales-volume variances.

164)

Nicholas Company manufacturers TVs. Some of the company’s data was misplaced. Use the following information to replace the lost data:

Analysis Actual
Results Flexible Variances Flexible Budget Sales-
Volume Variances Static Budget
Units Sold 112,500 112,500 103,125
Revenues \$42,080 \$1,000 F (A) \$1,400 U (B)
Variable Costs (C) \$200 U \$15,860 \$2,340 F \$18,200
Fixed Costs \$8,280 \$860 F \$9,140 \$9,140
Operating Income \$17,740 (D) \$16,080 (E) \$15,140

Required:
a. What are the respective flexible-budget revenues (A)?
b. What are the static-budget revenues (B)?
c. What are the actual variable costs (C)?
d. What is the total flexible-budget variance (D)?
e. What is the total sales-volume variance (E)?
f. What is the total static-budget variance?

165)

Madzinga’s Draperies manufactures curtains. A certain window requires the following:

Direct materials standard 10 square yards at \$5 per yard
Direct manufacturing labor standard 5 hours at \$10

During the second quarter, the company made 1,500 curtains and used 14,000 square yards of fabric costing \$68,600. Direct labor totaled 7,600 hours for \$79,800.

Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labor price and efficiency variances for the quarter.

166)

Wilson’s Winter Woolens manufactures jackets and other wool clothing. A certain designed ski parka requires the following:

Direct materials standard 2 square yards at \$13.50 per yard
Direct manufacturing labor standard 1.5 hours at \$20.00 per hour

During the third quarter, the company made 1,500 parkas and used 3,150 square yards of fabric costing \$39,375. Direct labor totaled 2,100 hours for \$45,150.

Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labor price and efficiency variances for the quarter.

167)

The following data for the Alma Company pertain to the production of 1,000 urns during August.

Direct Materials (all materials purchased were used):

Standard cost: \$6.00 per pound of urn.
Total actual cost: \$5,600.
Standard cost allowed for units produced was \$6,000.
Materials efficiency variance was \$120 unfavorable.

Direct Manufacturing Labor:

Standard cost is 2 urns per hour at \$24.00 per hour.
Actual cost per hour was \$24.50.
Labor efficiency variance was \$336 favorable.

Required:

a. What is standard direct material amount per urn?
b. What is the direct material price variance?
c. What is the total actual cost of direct manufacturing labor?
d. What is the labor price variance for direct manufacturing labor?

168)

The following data for the Lewgrow Garden Supplies Company pertains to the production of 2,500 garden spades during March. The spade consists of a wooden handle and a metal forged tool that comes in contact with the ground.

Direct Materials (all materials purchased were used):

Standard cost: \$1.00 per handle and \$3.50 per metal tool.
Total actual cost: \$11,350.
Materials flexible-budget efficiency variance was \$650 unfavorable.

Direct Manufacturing Labor:

Standard cost is 5 garden spades per hour at \$20.00 per hour.
Actual cost per hour was \$21.00.
Labor efficiency variance was \$400 favorable.

Required:

a. What is the standard direct material amount per garden spade?
b. What is the standard cost allowed for all units produced?
c. What is the total direct materials flexible-budget variance?
d. What is the direct material flexible-budget price variance?
e. What is the total actual cost of direct manufacturing labor?
f. What is the labor price variance for direct manufacturing labor?

169)

The following data for the telephone company pertain to the production of 450 rolls of telephone wire during June. Selected items are omitted because the costing records were lost in a windstorm.

Direct Materials (All materials purchased were used.)

Standard cost per roll: a pounds at \$4.00 per pound.
Total actual cost: b pounds costing \$9,600.
Standard cost allowed for units produced was \$9,000.
Materials price variance: c .
Materials efficiency variance was \$80 unfavorable.

Direct Manufacturing Labor

Standard cost is 3 hours per roll at \$8.00 per hour.
Actual cost per hour was \$8.25.
Total actual cost: d .
Labor price variance: e .
Labor efficiency variance was \$400 unfavorable.

Required:
Compute the missing elements in the report represented by the lettered items.

170)

Littrell Company produces chairs and has determined the following direct cost categories and budgeted amounts:

Standard Inputs Standard Cost
Category for 1 output per input
Direct Materials 1.00 \$7.50
Direct Labor 0.30 9.00
Direct Marketing 0.50 3.00

Actual performance for the company is shown below:

Actual output: (in units) 4,000
Direct Materials:
Materials costs \$30,225
Input purchased and used 3,900
Actual price per input \$7.75
Direct Manufacturing Labor:
Labor costs \$11,470
Labor-hours of input 1,240
Actual price per hour \$9.25
Direct Marketing Labor:
Labor costs \$5,880
Labor-hours of input 2,100
Actual price per hour \$2.80

Required:
a. What is the combined total of the flexible-budget variances?
b. What is the price variance of the direct materials?
c. What is the price variance of the direct manufacturing labor and the direct marketing labor, respectively?
d. What is the efficiency variance for direct materials?
e. What are the efficiency variances for direct manufacturing labor and direct marketing labor, respectively?

171)

Coffey Company maintains a very large direct materials inventory because of critical demands placed upon it for rush orders from large hospitals. Item A contains hard-to-get material Y. Currently, the standard cost of material Y is \$2.00 per gram. During February, 22,000 grams were purchased for \$2.10 per gram, while only 20,000 grams were used in production. There was no beginning inventory of material Y.

Required:

a. Determine the direct materials price variance, assuming that all materials costs are the responsibility of the materials purchasing manager.
b. Determine the direct materials price variance, assuming that all materials costs are the responsibility of the production manager.
c. Discuss the issues involved in determining the price variance at the point of purchase versus the point of consumption.

172)

During February the Lungren Manufacturing Company’s costing system reported several variances that the production manager was surprised to see. Most of the company’s monthly variances are under \$125, even though they may be either favorable or unfavorable. The following information is for the manufacture of garden gates, its only product:

1. Direct materials price variance, \$800 unfavorable.
2. Direct materials efficiency variance, \$1,800 favorable.
3. Direct manufacturing labor price variance, \$4,000 favorable.
4. Direct manufacturing labor efficiency variance, \$600 unfavorable.

Required:

a. Provide the manager with some ideas as to what may have caused the price variances.
b. What may have caused the efficiency variances?

173)

Mayberry Company had the following journal entries recorded for the end of June. Unfortunately, the company’s only accountant quit on July 10 and the president is at a loss as to the company’s performance for the month of June.

Materials Control 150,000
Direct Materials Price Variance 5,000
Accounts Payable Control 145,000

Work-in-Process Control 60,000
Direct Materials Efficiency Variance 4,000
Materials Control 64,000

Work-in-Process Control 425,000
Direct Manufacturing Labor Price Variance 7,500
Direct Manufacturing Labor Efficiency Variance 9,000
Wages Payable Control 423,500

Required:

a. What kind of performance did the company have for June? Explain each variance.
b. Why is Direct Materials given in two entries?

174)

Waddell Productions makes separate journal entries for all cost accounting-related activities. It uses a standard cost system for all manufacturing items. For the month of June, the following activities have taken place:

Direct Manufacturing Materials Purchased \$300,000
Direct Manufacturing Materials Used 250,000
Direct Materials Price Variance 10,000 unfavorable
(at time of purchase)
Direct Materials Efficiency Variance 15,000 favorable
Direct Manufacturing Labor Price Variance 6,000 favorable
Direct Manufacturing Labor Efficiency Variance 4,000 favorable
Direct Manufacturing Labor Payable 170,000

Required:

Record the necessary journal entries to close the accounts for the month.

175)

Tyson’s Hardware uses a flexible budget to develop planning information for its warehouse operations. For 20X5, the company anticipated that it would have 96,000 sales units for 664 customer shipments. Average storage bin usage for various inventories was estimated to be 200 per day. The costs and cost drivers were determined to be as follows:

Item Fixed Variable Cost driver
Product handling \$10,000 \$1.25 per 100 units
Storage 3.00 per storage bin
Utilities 1,000 1.50 per 100 units
Shipping clerks 1,000 1.00 per shipment
Supplies 0.50 per shipment

During the year, the warehouse processed 90,000 units for 600 customer shipments. The workers used 225 storage bins on average each day to sort, store, and process goods for shipment. The actual costs for 20X5 were:

Item Actual costs
Product handling \$10,900
Storage 465
Utilities 2,020
Shipping clerks 1,400
Supplies 340

Required:
a. Prepare a static budget for 20X5 with static-budget variances.
b. Prepare a flexible budget for 20X5 with flexible-budget variances.

176)

Explain the difference between a static budget and a flexible budget. Explain what is meant by a static budget variance and a flexible budget variance.

177)

The textbook discusses three levels of variances, Level 0, Level 1, Level 2, and Level 3. Briefly explain the meaning of each of those levels and provide an example of a variance at each of those levels.

178)

Give at least three good reasons why a favorable price variance for direct materials might be reported.

179)

Give at least three good reasons why an unfavorable efficiency variance for direct manufacturing labor might be reported.

180)

Describe the purpose of variance analysis.

181)

Explain how variance analysis is used in conjunction with activity-based costing.

182)

What is benchmarking, and how is it useful to a company?