Cost Accounting Ch. 7

Efficiency is the relative amount of inputs used to achieve a given output level.

Answer: TRUE

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 budgeted price.

Answer: TRUE

Effectiveness is the degree to which a predetermined objective or target is met.

Answer: TRUE

Possible operational causes of an unfavorable direct materials efficiency variance include poor design of products or processes.

Answer: TRUE

The degree to which a predetermined objective or target is met is known as ________. A) efficiency B) variance C) effectiveness D) benchmarking

Answer:C

Lunicious Corporation currently produces baseball caps in an automated process. Expected production per month is 15,000 units, direct material costs are $3.50 per unit, and manufacturing overhead costs are $40,000 per month. Manufacturing overhead is entirely fixed costs. What is the flexible budget for 12,000 and 15,000 units, respectively? A) $74,000; $92,500 B) $74,000; $84,500 C) $82,000; $92,500 D) $82,000; $84,500

12,000 units Materials ($3.00) $42,000 +Machinery 40,000 =Flexible Budget $82,000 15,000 units Materials ($3.00) +Machinery 40,000 =Flexible Budget $92,500

Which of the following information is needed to prepare a flexible budget? A) actual units sold B) actual variable cost C) actual selling price per unit D) actual fixed cost

A

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

Answer: A

Which of the following can be a reason for a favorable price variance for direct materials? A) a decrease in the price of materials due to an oversupply of materials B) an unexpected increase in the price of materials C) less amount of material used during production than planned for actual output D) workers taking less time to produce the products

Answer: A

Which of the following is a disadvantage of using the standards developed by a firm itself to develop a budget? A) A firm's inefficiencies will be part of the data. B) They are not based on realized benchmarks. C) The expected future changes are not included in the standards. D) The flexible-budget amounts are difficult to determine.

Answer: B

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

Answer: C

Which of the following is an advantage of using actual input data from past periods to develop a budget? A) Past inefficiencies are excluded in the preparation of new budget. B) Expected future changes are incorporated in the preparation of new budget C) Information is available at a low cost. D) Data represents the ideal performance.

Answer: C

A price variance reflects the difference between ________. A) a standard input price in a company and its competitor B) an actual input price used last period and current period C) an actual input price used in a company and its competitor D) an actual input price and a budgeted input price

Answer: D

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

Answer: TRUE

Direct material price variance is likely to be unfavorable if the purchasing manager switched to a lower-price supplier.

Answer: FALSE Explanation: Direct material price variance is likely to be favorable if the purchasing manager switched to a lower-price supplier.

A standard price is the minimum price a company will have to pay for a unit of input.

Answer: FALSE Explanation: A standard price is a carefully determined price a company expects to pay for a unit of input.

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

Answer: TRUE

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

Answer: TRUE

Variance analysis should be used ________. A) to understand why variances arise and to improve future performance B) as the sole source of information for performance evaluation C) to punish employees that do not meet standards D) to set the standards which are very easy to achieve to encourage employees to focus on meeting standards

Answer:A

Which of the following is a reason for a favorable material price variance? A) the purchasing manager bargaining effectively with suppliers B) the purchasing manager giving orders for small quantity to reduce storage cost C) the purchasing manager accepting a bid from the highest-priced supplier to ensure the quality of material D) the personnel manager hiring underskilled workers

Answer:A

These questions refer to flexible-budget variance formulas with the following descriptions for the variables: A = Actual; B = Budgeted; P = Price; Q = Quantity. 23) 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 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

Answer:A Answer:B

Berman'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. Material A: Flexible Budget: $40,000 Variances: Price: $1,000 F Efficiency: $3,000 U Material B: Flexible Budget:60,000 Variances: Price: 500 U Efficiency:1,500 F Direct manufacturing labor: Flexible Budget: 80,000 Variances: Price: 500U Efficiency:2,500F 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 The actual amount spent for Material B was ________. A) $58,000 B) $59,000 C) $60,000 D) $61,000 The actual amount spent for direct manufacturing labor was ________. A) $80,000 B) $83,000 C) $82,000 D) $78,000 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:A Answer:B Explanation: B) $60,000 + $500 U - $1,500 F = $59,000 Answer:D Explanation: D) $80,000 + $500 U - $2,500 F = $78,000 Answer:C

Budgeted quantity Direct materials: 0.30 pounds Direct labor: 0.20 hours Budgeted price $20 per pound $12 per hour During July, GII produced and sold 3,000 containers using 1,000 pounds of direct materials at an average cost per pound of $19 and 625 direct manufacturing labor hours at an average wage of $11.75 per hour. July's direct material flexible-budget variance is ________. A) $1,000 unfavorable B) $2,000 favorable C) $2,500 unfavorable D) $0 The direct material price variance during July is ________. A) $1,100 unfavorable B) $1,100 favorable C) $1,000 unfavorable D) $2,000 unfavorable The direct material efficiency variance during July is ________. A) $1,000 unfavorable B) $1,100 favorable C) $2,000 unfavorable D) $1,000 favorable The direct manufacturing labor flexible-budget variance during July is ________. A) $375.00 unfavorable B) $131.25 favorable C) $143.75 unfavorable D) $1,000 favorable The direct manufacturing labor price variance during July is ________. A) $375.00 unfavorable B) $156.25 favorable C) $243.75 favorable D) $1,000 unfavorable The direct manufacturing labor efficiency variance during July is ________. A) $300.00 unfavorable B) $156.25 favorable C) $143.75 favorable D) $131.75 unfavorable

Answer:A Explanation: A) Direct material flexible-budget variance = (1,000 × $19) − (3,000 × 0.30 × $20) = $1,000 U Answer:B Explanation: B) Direct material price variance = 1,000 × ($20 − $19) = $1,000 F Answer:C Explanation: C) Direct material efficiency variance = $20 × *1,000 − (3,000 × 0.30)+ = $2,000 U Answer:C Explanation: C) Direct manufacturing labor flexible-budget variance = (625 × $11.75)−(3,000 × 0.20 × $12)= $143.75 U Answer:B Explanation: B) Direct manufacturing labor price variance = 625 dlh × ($11.75 − $12.00) = $156.25 F Answer:A Explanation: A) Direct manufacturing labor efficiency variance = *625 dlh − (3,000 × 0.20)+ × $12 = $300 U

An unfavorable efficiency variance for direct manufacturing labor might indicate that ________. A) there is unexpected increase in direct labor rates B) work is scheduled inefficiently C) lower-quality materials were purchased D) more higher-skilled workers were scheduled than planned

Answer:B

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

Answer:B

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

Answer:B

Which of the following is true of variance? A) Managers should interpret a favorable variance as "good news" or assume it means their subordinates performed well. B) A variance within an acceptable range is considered to be an "in-control occurrence" and calls for no investigation or action by managers. C) The purchasing manager secured a discount for buying in bulk with fewer purchase orders which results in unfavorable material price variance. D) Managers' performance must be evaluated solely on single variance.

Answer:B

A favorable price variance for direct manufacturing labor might indicate that ________. A) employees were paid more than planned B) unexpected increase in direct labor rates C) underskilled employees are being hired D) congestion due to scheduling problems

Answer:C

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

Which of the following statements is true about analyzing a single variance? A) It should be overemphasized to take proper decision. B) It should be evaluated in isolation from other variances. C) It can lead to different other variances. D) It should be used for quality evaluation.

Answer:C

Budgeted quantity Direct materials: 2.0 pounds Direct labor: 0.20 hours Budgeted price $6.25 per pound $13.00 per hour During September, DVO produced and sold 1,100 pies using 2,300 pounds of direct materials at an average cost per pound of $6.00 and 200 direct labor hours at an average wage of $13.25 per hour. September's direct material flexible-budget variance is ________. A) $100.00 unfavorable B) $150.00 favorable C) $50.00 unfavorable D) $575 favorable The direct material price variance during September is ________. A) $575 favorable B) $575 unfavorable C) $50.00 unfavorable D) $50.00 favorable The direct material efficiency variance during September is ________. A) $575 favorable B) $575 unfavorable C) $625 favorable D) $625 unfavorable The direct labor flexible-budget variance during September is ________. A) $210.00 favorable B) $210.00 unfavorable C) $250.00 favorable D) $250.00 unfavorable The direct labor price variance during September is ________. A) $260.00 unfavorable B) $280.00 favorable C) $50.00 unfavorable D) $50.00 favorable The direct labor efficiency variance during September is ________. A) $260.00 favorable B) $250.00 unfavorable C) $280.00 favorable D) $210.00 unfavorable

Answer:C Explanation: C) Direct material flexible-budget variance = (2,300 × $6.00)−(1,100 × 2.0 × $6.25) = $50.00 U Answer:A Explanation: A) Direct material price variance = 2,300 × ($6.00 − $6.25) = $575 F Answer:D Explanation: D) Direct material efficiency variance = $6.25 × *2,300 − (1,100 × 2.0)+ = $625 U Answer:A Explanation: A) Direct labor flexible-budget variance = (200 × $13.25) − (1,100 × 0.20 × $13) = $210.00 F Answer:C Explanation: C) Direct labor price variance = 200 dlh × ($13.25−$13.00) = $50 U Answer:A Explanation: A) Direct labor efficiency variance = *200 dlh − (1,100 × 0.20)+ × $13 = $260 F

Budgeted quantity Direct materials: 0.10 pounds Direct labor: 0.05 hours Budgeted price $60 per pound $30 per hour During June, AII produced and sold 20,000 containers using 1,900 pounds of direct materials at an average cost per pound of $64 and 1,000 direct manufacturing labor-hours at an average wage of $30.50 June's direct material flexible-budget variance is ________. A) $7,200 unfavorable B) $600 favorable C) $1,600 unfavorable D) $500 favorable The direct material price variance during June is ________. A) $7,600 unfavorable B) $1,600 favorable C) $1,600 unfavorable D) $500 favorable The direct manufacturing labor price variance during June is ________. A) $500 unfavorable B) $500 favorable C) $7,600 unfavorable D) 1,600 unfavorable The direct manufacturing labor efficiency variance during June is ________. A) $125 unfavorable B) $500 favorable C) $1,600 unfavorable D) $0

Answer:C Explanation: C) Flexible- budget variance = (1,900 × $64) − (20,000 × 0.10 × $60) = $1,600 U Answer:A Explanation: A) Direct material price variance = 1,900 × ($64 − $60) = $7,600 U Answer:A Explanation: A) Direct manufacturing labor price variance = 1,000 dlh × ($30 − $30.50) = $500 U Answer:D Explanation: D) Direct manufacturing labor efficiency variance = [1,000 dlh−(20,000 × 0.05)] × $30 = $0

Standard material cost per kg of raw material is $5. Standard material allowed per unit is 2 Kg. Actual material used per unit is 2.5 Kg. Actual cost per kg is $4.5. What is the standard cost per output unit? A) $9 B) $11.25 C) $10 D) $12.5

Answer:C Explanation: C) Standard cost per output unit = Standard material cost per kg × standard material allowed per unit = $5 × 2kg = $10

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

Answer:D

Efficiency is ________. A) the degree to which a predetermined objective or target is met B) the difference between an actual input quantity and a budgeted input quantity C) the continuous process of comparing a firm's performance levels against the best levels of performance in competing companies D) the relative amount of inputs used to achieve a given output level

Answer:D

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

Answer:TRUE

An efficiency variance reflects the difference between ________. A) actual input quantities used last period and current period B) an actual input quantity and a budgeted input quantity C) an actual input quantity used in a company and its main competitor's D) a standard input quantity in a company and its main competitor's

B

A favorable flexible-budget variance for variable costs may be the result of using more input quantities than were budgeted.

FALSE Explanation: An unfavorable flexible-budget variance for variable costs may be the result of using more input quantities than were budgeted.

Failure of a firm's managers to execute the sales plans may create a favorable sales-volume variance.

FALSE Explanation: Failure of a firm's managers to execute the sales plans may create an unfavorable sales-volume variance.

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

FALSE Explanation: A static-budget variance can be subdivided into the flexible-budget variance and the sales-volume variance.

Coroid Corporation used the following data to evaluate their current operating system. The company sells items for $11 each and had used a budgeted selling price of $12 per unit. Actual Units sold:280,000 units Variable costs:$900,000 Fixed costs:$ 55,000 Budgeted Units sold:275,000 units Variable costs:$885,000 Fixed costs:$ 52,000 What is the static-budget variance of revenues? A) $55,000 favorable B) $220,000 favorable C) $220,000 unfavorable D) $55,000 unfavorable What is the static-budget variance of variable costs? A) $12,000 favorable B) $12,000 unfavorable C) $15,000 favorable D) $15,000 unfavorable What is the static-budget variance of operating income? A) $238,000 favorable B) $238,000 unfavorable C) $235,000 favorable D) $235,000 unfavorable

Static-budget variance of revenues (280,000 units × $11) − (275,000 units × $12) =$220,000 U Static-budget variance of variable costs $900,000 − $885,000 = $15,000 U B: Take Operating Income from Actual and Budgeted and subtract Revenue - Variable Cost = CM CM - Fixed Cost = Operating Income

Contrafic Corporation used the following data to evaluate its current operating system. The company sells items for $21 each and used a budgeted selling price of $21 per unit. Actual: Units sold: 180.000 units Variable costs: $1,080,000 Fixed costs: $800,000 Budgeted: Units sold: 185,000 units Variable costs: $1,295,000 Fixed costs: $775,000 What is the static-budget variance of revenues? A) $105,000 favorable B) $105,000 unfavorable C) $8,000 favorable D) $8,000 unfavorable What is the static-budget variance of variable costs? A) $25,000 favorable B) $25,000 unfavorable C) $215,000 favorable D) $215,000 unfavorable What is the static-budget variance of operating income? A) $85,000 favorable B) $90,000 unfavorable C) $110,000 favorable D) $105,000 unfavorable

Static-budget variance of revenues (180,000 units × $21) - (185,000 units × $21) =$105,000 U Static-budget variance of variable costs $1,080,000 − $1,295,000 = $215,000 F A: WORK OUT-Find the differences in static and actual....i think

Lander Corporation used the following data to evaluate their current operating system. The company sells items for $18 each and used a budgeted selling price of $18 per unit. Actual: Units sold: 41,000 units Variable costs: $164,000 Fixed costs: $46,000 Budgeted: Units sold: 40,000 units Variable costs: $156,000 Fixed costs: $48,000 What is the static-budget variance of revenues? a. $18,000 favorable b. $18,000 unfavorable c. $6,000 favorable d. $4,000 unfavorable What is the static-budget variance of variable costs? a. $2,000 favorable b. $8,000 unfavorable c. $4,000 favorable d. $6,000 unfavorable 8) What is the static-budget variance of operating income? A) $10,000 favorable B) $10,000 unfavorable C) $12,000 favorable D) $12,000 unfavorable

Static-budget variance of revenues: 41,000 units x $18 = 738,000 40,000 units x $18 = 720,000 738,000 - 720,000 = 18,000 favorable (A) Static-budget variance of variable costs: $164,000 - 156,000 = $8,000 unfavorable (B) C WORK OUT

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 Administrative $ 3 per unit Selling $ 1 per unit Fixed costs: Manufacturing $60,000 Administrative $20,000

Units 10,000 Sales $240,000 Variable costs: Manufacturing 120,000 Administrative 30,000 Selling 10,000 Total variable costs 160,000 Contribution margin 80,000 Fixed costs: Manufacturing 60,000 Administrative 20,000 Operating income/(loss) $ -0- Units 11,000 Sales $264,000 Variable costs: Manufacturing 132,000 Administrative 33,000 Selling 11,000 Total variable costs: 176,000 Contribution margin 88,000 Fixed costs: Manufacturing 60,000 Administrative 20,000 Operating income/(loss) $ 8,000 Units 12,000 Sales $288,000 Variable costs: Manufacturing 144,000 Administrative 36,000 Selling 12,000 Total variable costs: 192,000 Contribution margin 96,000 Fixed costs: Manufacturing 60,000 Administrative 20,000 Operating income/(loss) $ 16,000

A favorable variance indicates that budgeted costs are less than actual costs.

FALSE A favorable variance indicates that budgeted costs are greater than actual costs.

A favorable variance results when actual costs exceed budgeted costs.

FALSE An unfavorable variance results when actual costs exceed budgeted costs.

An unfavorable variance is conclusive evidence of poor performance.

FALSE Explanation: An unfavorable variance suggests further investigation, not conclusive evidence of poor performance.

Managers must not interpret variances in isolation of each other.

Answer:TRUE

A difference between the static-budget and the flexible-budget amounts is called the sales-volume variance.

TRUE

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

TRUE

A master budget is called a static budget because it is developed around a single planned output level.

TRUE

A sales-volume variance may be the result of quality problems leading to customer dissatisfaction.

TRUE

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.

TRUE

Variances are used for evaluating performance and for motivating managers.

TRUE

A favorable variance indicates that a. budgeted costs are less than actual costs b. actual revenues exceed budgeted revenues c. actual operating income is less than a budgeted amount d budgeted contribution margin is more than the actual amount

actual revenues exceed budgeted revenues

Management by exception is a practice whereby managers focus more closely on... a. a static budget b. areas that are not operating as anticipated c. activity-based costing d. exceptional decision-making models

areas that are not operating as anticipated

A master budget is a. a budget which starts from a zero base b. developed for a period for a planed output c.developed at the end of a period d. a type of flexible budget

developed fora period for a planned output

An unfavorable variance indicates that... a. the actual costs are less than the budgeted costs b. the actual revenues exceed the budgeted revenues c. the actual units sold are less than the budgeted units d. the budgeted contribution margin is more than the actual amount

the actual units sold are less than the budgeted units

A variance is ... a. the difference between actual fixed cost per unit and standard variable cost per unit b. the standard units of inputs for one output c. the difference between an actual result and a budgeted performance d. the different between actual variable cost per unit and standard fixed cost per unit

the difference between an actual result and a budgeted performance

Which of the following elements are used in calculating revenue in a flexible budget? A) budgeted selling price and actual quantity of output B) actual selling price and budgeted quantity of output C) budgeted selling price and budgeted quantity of output D) actual selling price and actual quantity of output

A

A favorable variance can be automatically interpreted as "good news."

Answer: FALSE Explanation: A favorable variance may not be good news at all because it adversely affects other variances that increase total costs.

From the perspective of control, the direct materials price variance should be isolated at the time of sales.

Answer: FALSE Explanation: From the perspective of control, the direct materials price variance should be isolated at the time of purchase of materials.

Standard labor rate is $8 per hour. Standard labor allowed per unit is 0.6 hours. Actual cost per labor hour is $7.5 and actual labour hour per unit is 0.7 hours. What is the standard labor cost per output unit? A) $4.5 B) $4.8 C) $5.6 D) $5.25

Answer: B Explanation: B) Standard cost per output unit = Standard labor allowed per unit × Standard labor rate = $8 × 0.6 hours = $4.8 per unit

A firm's inefficiencies, such as the wastage of direct materials, are incorporated in past data. Hence the data represents the ideal performance of a firm.

Answer: FALSE Explanation: A firm's inefficiencies, such as the wastage of direct materials, are incorporated in past data. Hence the data does not represent the ideal performance of a firm.

A favorable efficiency variance for direct materials might indicate that ________. A) lower-quality materials were purchased B) work is scheduled efficiently C) there is an unexpected increase in direct labor rates D) management hired underskilled workers

Answer:B

Which of the following statements is true of benchmarking? A) It is a systematic approach of optimizing business processes. B) It fails to help to improve organizational performance as benchmarking data does not provide insight into why costs or revenues differ across companies. C) It is difficult to ensure that the benchmark numbers are comparable due to the existence of differences across companies. D) It considers four major business aspects such as financial, customer, internal business processes, and learning and growth.

Answer:C

Midend'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. Material A: Flexible Budget: $25,000 Variances: Price: $1,500U Efficiency: $1,800F Material B: Flexible Budget: 32,000 Variances: Price: 600F Efficiency: 900U Material C: Flexible Budget: 42,000 Variances: Price: 1,300U Efficiency: 900F The actual amount spent for Material A was ________. A) $28,300 B) $25,300 C) $24,700 D) $21,700 The actual amount spent for Material B was ________. A) $31,700 B) $30,500 C) $33,500 D) $32,300 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

Answer:C Explanation: C) Actual amount spent for Material A = $25,000 + $1,500 U−$1,800 F = $24,700 Answer:D Explanation: D) Actual amount spent for Material B = $32,000 −$600 F + $900 U = $32,300

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

B

Benchmarking is a process ________. A) in which overhead costs are absorbed into units of output, or 'jobs' B) in which a firm's performance levels are compared against the best levels of performance in competing companies or in companies having similar processes C) which is based on calculating the breakeven point and analyzing the consequences of changes in various factors calculating the breakeven point D) in which the underlying processes of an organization is optimized using a systematic approach to achieve more efficient goals

B

In a flexible budget ________. A) variable costs are calculated proportionately for the budgeted level of sales B) fixed costs are calculated proportionately for the actual level of sales C) fixed costs are kept at the same level of static budget D) variable costs are kept at the same level of static budget

C

Dynondo Incorporated planned to use materials of $12 per unit but actually used materials of $13 per unit, and planned to make 1,500 units but actually made 1,800 units. 14) The flexible-budget amount for materials is ________. A) $18,000 B) $19,500 C) $21,600 D) $23,400 The flexible-budget variance for materials is ________. A) $1,500 favorable B) $1,800 unfavorable C) $1,500 unfavorable D) $1,800 favorable The sales-volume variance for materials is ________. A) $3,600 favorable B) $3,900 unfavorable C) $3,600 unfavorable D) $3,900 favorable

C) 1,800 units × $12 = $21,600 B) ($13 − $12) × 1,800 = $1,800 U A) (1,800 − 1,500) × $12 = $3,600 F

A flexible-budget variance is $600 favorable for unit-related costs. This indicates that costs were ________. A) $600 more than the master budget B) $600 less than for the planned level of activity C) $600 more than standard for the achieved level of activity D) $600 less than standard for the achieved level of activity

D

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

Direct materials variances: Actual unit cost = $68,600/14,000 square yards = $4.90 per square yard Price variance = 14,000 × ($5.00 - $4.90) = $1,400 favorable Efficiency variance = $5.00 × [14,000 - (1,500 × 10)] = $5,000 favorable b.Direct manufacturing labor variances: Actual labor rate = $79,800/7,600 = $10.50 per hour Price variance = 7,600 × ($10.50 - $10.00) = $3,800 unfavorable Efficiency variance = $10.00 × (7,600 - 7,500) = $1,000 unfavorable

The flexible-budget variance is the total of price variance and efficiency variance.

TRUE

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

TRUE

When actual revenues exceed budgeted revenues, a favorable variance arises.

TRUE

An unfavorable flexible-budget variance for variable costs may be the result of ________. A) using more input quantities than were budgeted B) paying lower prices for inputs than were budgeted C) selling output at a higher selling price than budgeted D) selling less quantity compared to the budgeted

A

Which of the following is true of flexible budget? A) It calculates total variable cost by multiplying actual units by budgeted variable cost per unit. B) It calculates total fixed cost by multiplying actual units by budgeted fixed cost per unit. C) It calculates revenues by multiplying budgeted units by actual selling price per unit. D) It calculates contribution margin by multiplying budgeted units by actual contribution margin per unit.

A

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

Answer: C

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.

Answer: FALSE Explanation: When benchmarking, management accountants are more valuable when they analyze thecosts and also provide management with insight as to why the revenues and costs differ between companies.

In variance analysis, if any single performance measure is underemphasized, managers will tend to make decisions that will cause the particular performance measure to look good.

Answer: TRUE Explanation: In variance analysis, if any single performance measure is overemphasized, managers will tend to make decisions that will cause the particular performance measure to look good.

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

Answer:A

Which of the following is an example of nonfinancial performance measure? A) percentage of products started and completed without requiring any rework B) direct manufacturing labor efficiency variance C) direct materials price variance D) quantity discounts obtained on order of large quantity

Answer:A

A company has a policy "investigate all variances exceeding $3,000 or 15% of the budgeted cost, whichever is lower." There is a variance of $2,000 in repair and maintenance costs of $12,000. What does the company do in the given situation? A) It should be ignored as it is less than $3,000. B) It deserves more attention as it is more than 15% of total repair cost. C) It should be considered an in-control occurrence. D) It should be investigated as all variances are equally important.

Answer:B

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

Answer:B

Which of the following is an example of financial performance measure? A) number of square yards of cloth used to produce 1,000 jackets B) direct manufacturing labor efficiency variance C) the percentage of jackets started and completed without requiring any rework D) quality of direct material

Answer:B

Cost reductions can be the result of ________. A) price increments B) congestion due to scheduling a large number of rush orders C) producing products faster and more efficiently D) inappropriate assignment of labor or machines to specific jobs

Answer:C

Effectiveness is ________. A) the relative amount of inputs used to achieve a given output level B) the continuous process of comparing a firm's performance levels against the best levels of performance in competing companies C) the degree to which a predetermined objective or target is met D) is a practice whereby managers focus more closely on areas that are not operating as expected and less closely on areas that are

Answer:C

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

Answer:C

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

Answer:FALSE Explanation: It is best to rely on a combination of financial and nonfinancial performance measures.

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

Answer:FALSE Explanation: The most common outcome when variance analysis is used for performance evaluation is that managers seek targets that are easily attainable and avoid targets that require creativity and resourcefulness.

A percentage of products started and completed without requiring any rework is an example of nonfinancial performance measure.

Answer:TRUE

A variance within an acceptable range is considered to be an "in-control occurrence" and calls for no investigation or action by managers.

Answer:TRUE

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

Answer:TRUE

Benchmarking measures how well a company and its managers are doing in comparison to other organizations.

Answer:TRUE

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

Answer:TRUE

ACTUAL RESULTS: Sales volume (in units) 12,000 Sales revenues $600,000 Variable costs 307,200 Contribution margin 292,800 Fixed costs 274,800 Operating profit $18,000 STATIC BUDGET: Sales volume (in units) 15,000 Sales revenues $750,000 Variable costs 360,000 Contribution margin 390,000 Fixed costs 270,000 Operating profit $120,000 The flexible budget will report ________ for variable costs. A) $245,760 B) $360,000 C) $288,000 D) $384,000 The flexible budget will report ________ for the fixed costs. A) $343,500 B) $270,000 C) $274,800 D) $216,000 The flexible-budget variance for variable costs is ________. A) $19,200 unfavorable B) $61,440 unfavorable C) $52,800 favorable D) $76,800 favorable

C) 12,000 units × $360,000 / 15,000 = $288,000 B) $270,000, given in the static budget A) $307,200 − (12,000 × $360,000/15,000) = $19,200 U

Dynozz Corporation currently produces cardboard boxes in an automated process. Expected production per month is 15,000 units, direct material costs are $0.50 per unit, and manufacturing overhead costs are $15,000 per month. Manufacturing overhead is all fixed costs. What are the flexible budget for 10,000 and 15,000 units, respectively? A) $15,000; $22,500 B) $15,000; $17,500 C) $20,000; $22,500 D) $20,000; $17,500

Explanation: C) 10,000 units Materials ($0.50)$ 5,000 +Machinery 15,000 =Flexible Budgets $20,000 15,000 units Materials ($0.50) $7,500 +Machinery 15,000 =Flexible Budgets $22,500

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.. 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.

a. Direct materials variances: Actual unit cost = $39,375/3,150 square yards = $12.50 per square yard Price variance = 3,150 × ($13.50 - $12.50) = $3,150 favorable Efficiency variance = $13.50 × [3,150 - (1,500 × 2)] = $2,025 unfavorable b. Direct manufacturing labor variances: Actual labor rate = $45,150/2,100 = $21.50 per hour Price variance = 2,100 × ($21.50 - $20.00) = $3,150 unfavorable Efficiency variance = $20.00 × (2,100 - (1,500 × 1.5) = $3,000 favorable

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

a.Standard cost per roll = $9,000/450 = $20.00 Standard number of pounds per roll = $20/$4 = 5 pounds per roll b.Actual pounds = ($9,000 + $80)/$4 = 2,270 pounds c.Materials price variance = $9,600 - ($9,000 + $80) = $520 unfavorable d.Total standard labor cost of actual hours = (450 × 3 × $8) + $400 = $11,200 Actual hours = $11,200/$8 = 1,400 Total actual cost = 1,400 × $8.25 = $11,550 e.Labor price variance = $11,550 - $11,200 = $350 unfavorable

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 supervisor C) financial supervisor D) logistic manager

A

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

A

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.

A static budget is one based on the level of output planned at the start of the budget period. A flexible budget calculates budgeted revenue and budgeted costs based on the actual output in the budget period. The only difference between the static budget and the flexible budget is that the static budget is prepared for the planned output, whereas the flexible budget is prepared based on the actual output. A static budget variance is the difference between the actual results and the corresponding budgeted amounts in the static budget. A flexible-budget variance is the difference between an actual result and the corresponding flexible-budget amount based on the actual output in the budget period.

Aurous Incorporated planned to use $35 of material per unit but actually used $34 of material per unit, and planned to make 1,500 units but actually made 1,300 units. 17) The flexible-budget amount for materials is ________. A) $45,500 B) $52,500 C) $51,000 D) $44,200 The flexible-budget variance for materials is ________. A) $1,500 favorable B) $1,500 unfavorable C) $1,300 unfavorable D) $1,300 favorable The sales-volume variance for materials is ________. A) $7,000 favorable B) $7,000 unfavorable C) $6,800 unfavorable D) $6,800 favorable

A) 1,300 units × $35 = $45,500 D) ($34 − $35) × 1,300 = $1,300 F B) (1,300 − 1,500) × $35 = $7,000 U

Standard cost per output unit for each variable direct cost input is calculated by multiplying ________. A) standard input allowed for one output unit by standard price per input unit B) standard input allowed for one output unit by actual price per input unit C) actual input allowed for one output unit by standard price per input unit D) actual input allowed for one output unit by actual price per input unit

Answer: A

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

Answer:D

The flexible-budget variance for materials is $5,000 (U). The sales-volume variance is $13,000 (U). The price variance for material is $31000 (F). The efficiency variance for direct manufacturing labor is $7,000(F). Calculate the efficiency variance for materials. A) $36,000 favorable B) $13,000 unfavorable C) $6,000 favorable D) $36,000 unfavorable

Answer:D Explanation: D) $5,000(U) = $31,000(F) + Price variance Price variance = $5,000 + $31,000 = $36,000 (U)

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

Answer:FALSE Explanation: A deficiency of using budgeted input quantity information based on actual quantity data from past periods is that past inefficiencies are included.

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.

Answer:FALSE Explanation: An advantage of using standard times is they aim to take into account changes expected to occur in the budget period.

Direct manufacturing labor efficiency variance is likely to be unfavorable if underskilled workers are put on a job.

Answer:TRUE

It is difficult for firms to find appropriate benchmarks because differences can exist across companies in their strategies, inventory costing methods, depreciation methods, and so on.

Answer:TRUE

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

Answer:TRUE

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

Answer:TRUE

An unfavorable sales-volume variance could result from ________. A) an inappropriate assignment of labor or machines to specific jobs B) competitors taking market share C) an inefficiency of a purchasing manager in bargaining with suppliers D) a decrease in actual selling price compared to anticipated selling price

B

The sales-volume variance is sometimes due to ________. A) the difference between selling price and budgeted selling price B) quality problems leading to customer dissatisfaction C) unexpected increase in manufacturing labor time D) unexpected increase in the use of quantities of inputs of raw material

B

Which of the following items will be same for a flexible budget and a master budget? A) total variable cost B) total fixed costs C) total contribution margin D) total revenues

B

Domose Inc. planned to use $150 of material per unit but actually used $147 of material per unit, and planned to make 1,100 units but actually made 900 units. The flexible-budget amount for materials is ________. A) $165,000 B)$135,000 C) $161,700 D) $132,300 The flexible-budget variance for materials is ________. A) $2,700 favorable B) $2,700 unfavorable C) $3,300 unfavorable D) $3,300 favorable The sales-volume variance for materials is ________. A) $2,700 favorable B) $29,400 unfavorable C) $30,000 unfavorable D) $2,700 unfavorable

B) 900 units × $150 = $135,000 A) ($147−$150) × 900 = $2,700 F C) (900 − 1,100) × $150 = $30,000 U

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.

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

A favorable variance should be ignored by management.

FALSE Favorable variance investigation may lead to improved production methods, other discoveries for future opportunities, or not be good news at all and adversely affect other variances.

When considered in isolation, a favorable variance decreases operating income relative to the budgeted amount.

FALSE When considered in isolation, a favorable variance increases operating income relative to the budgeted amount.

A flexible-budget variance pertaining to revenues is often called a sales-volume variance.

FALSE Explanation: A flexible-budget variance for revenues is called the selling-price variance because it arises solely from the difference between the actual selling price and the budgeted selling price.

A variance is the difference between the actual cost for the current and expected (or budgeted) performance.

TRUE

Static-budget variance for operating income is calculated by taking a difference between static-budget operating income and actual operating income.

TRUE

The following data for the Prender Company pertain to the production of 800 urns during August. Direct Materials (all materials purchased were used) Standard cost: $4.80 per pound of urn. Total actual cost: $4,480. Standard cost allowed for units produced was $4,800. Materials efficiency variance was $96 unfavorable. Direct Manufacturing Labor: Standard cost is 2 urns per hour at $19.20 per hour. Actual cost per hour was $19.60. Labor efficiency variance was $288 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?

a. Standard cost per urn = $4,800 / 800= $6.00 per urn Standard number of pounds per urn = $6.00 / $4.80= 1.25 pound per urn b. Materials price variance = Total variance - efficiency variance = ($4,480−$4,800) − $96 unfavorable = $416 favorable c. Total standard labor cost of actual hours = ((800/2) × $19.2) − $288 favorable = $7,392 Actual hours = $7,392/19.2 = 385 hours Total actual costs = 385 × $19.60 = $7,546 d.Labor price variance = $7,546 − $7,392= $154 unfavorable

The following data for the Panoid Garden Supplies Company pertains to the production of 2,000 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 $3.00 per metal tool. Total actual cost: $9,000. Materials flexible-budget efficiency variance was $500 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 $500 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?

a.Standard cost per garden spade = $1.00 (handle) + $3.00 (tool)= $4.00 per garden spade b.Standard cost allowed for all units = 2,000 × $4.00= $8,000 per garden spade c.Total materials variance = $8,000 − $9,000= $1,000 unfavorable d.Materials price variance = Total variance - efficiency variance = ($9,000 − $8,000) − $500 unfavorable = $500 unfavorable e.Total standard labor cost of actual hours = ((2,000/5) × $20) − $500 favorable = $7,500 Actual hours= $7,500/20 = 375 hours Total actual costs= 375 × $21 = $7,875 f.Labor price variance= $7,500 − $7,875 = $375 unfavorable