Cost Ch.7

Which variance is calculated by using the formula: (AP - BP) AQ is the ________. A) efficiency variance B) price variance C) total flexible-budget variance D) material spending variance

price variance

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

underskilled employees are being hired

A company budgets 10,000 units of sales based on a projected selling price of $13.00. The actual units sold were 15,000 at a price of $10. What is the flexible budget for sales? A) $195,000 B) $150,000 C) $130,000 D) $100,000

$195,000

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

$600 less than standard for the achieved level of activity

Which of the following is the correct formula for the materials price variance? A) (Actual price of input - Budgeted price of input) x Budgeted quantity of input B) (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Budgeted price of input C) (Actual price of input - Budgeted price of input) x Actual quantity of input D) (Actual quantity of input used - Budgeted quantity of input allowed for actual output) x Actual price of input

(Actual price of input - Budgeted price of input) x Actual quantity of input

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.

It deserves more attention as it is more than 15% of total repair cost.

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.

It is difficult to ensure that the benchmark numbers are comparable due to the existence of differences across companies.

Which of the following is true of variance? A) Managers should interpret a favorable variance as "good news". B) Managers should not simply interpret a favorable variance as good but should understand why the variance occurred. C) A small variance or zero variance definitively reveals efficient performance. D) Managers' performance must be evaluated solely on single variance.

Managers should not simply interpret a favorable variance as good but should understand why the variance occurred.

If management experiences an unfavorable direct materials efficiency variance, which of the following would not be the possible corrective action? A) Improve the design of the product B) Provide additional training for the direct laborers C) Purchase higher quality materials D) Negotiate lower prices for material acquisition

Negotiate lower prices for material acquisition

Johnson Company had planned for operating income of $10 million in the master budget with a contribution margin of $3 million, but actually achieved operating income of only $7 million and a contribution margin of $2.5 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.

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

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 and can be unrealistic C) The expected future changes are not included in the standards. D) The flexible-budget amounts are difficult to determine.

They are not based on realized benchmarks and can be unrealistic

A master budget is ________. A) a budget which starts from a zero base B) based on the level of expected output at the start of the budget period C) developed at the end of a period D) a type of flexible budget once actual results are known

based on the level of expected output at the start of the budget period

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

benchmarking

The flexible budget contains ________. A) budgeted amounts for actual output B) static budget amounts for planned output C) actual costs for actual output D) actual costs for planned output

budgeted amounts for actual output

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

competitors taking market share

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

effectiveness

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

in which a firm's performance levels are compared against the best levels of performance in competing companies or in companies having similar processes

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

is developed at the end of the period

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

standard input allowed for one output unit by standard price per input unit

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

using more input quantities than were budgeted

Cost variances should be investigated ________. A) when they are considered within the "in-control" range as determined by management B) when the variance is more than a certain percentage of budgeted costs, as determined by management C) even though the cost of investigation exceeds the benefit as determined by management D) when the variance is less than a certain percentage of budgeted costs, as determined by management

when the variance is more than a certain percentage of budgeted costs, as determined by management

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

work is scheduled efficiently

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

work is scheduled inefficiently

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.

It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.

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.

It can lead to different other variances.

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

a decrease in the price of materials due to an oversupply of materials

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 the budgeted amount D) budgeted contribution margin is more than the actual amount

actual revenues exceed budgeted revenues

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

actual units sold

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 competitors D) a standard input quantity in a company and its main competitors

an actual input quantity and a budgeted input quantity

Nonfinancial performance measures ________. A) are usually used in combination with financial measures for control purposes B) are rarely used to evaluate overall efficiency C) allow managers to make informed tradeoffs D) are often the sole basis of a manager's performance evaluations

are usually used in combination with financial measures for control purposes

Management by exception is a practice whereby managers focus more closely on ________. A) variances in the larger departments B) areas not operating as anticipated and less closely on areas that are operating as anticipated C) activity-based budgeting D) unfavorable variances

areas not operating as anticipated and less closely on areas that are operating as anticipated

Which variance is calculated using the formula (AQ - BQ) BP is the ________. A) efficiency variance B) price variance C) total flexible-budget variance D) spending variance

efficiency variance

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

fixed costs are kept at the same level of static budget

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

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

The emphasis on variance analysis and its use in performance evaluation must be such that: A) managers focus on setting easy to attain targets B) larger unfavorable variances should result in negative consequences for personnel held accountable C) management should set targets that challenge but are reasonably achievable and require creativity and resourcefulness by personnel held accountable D) Management should stretch resources to meet goals even if continuous improvement and quality suffers

management should set targets that challenge but are reasonably achievable and require creativity and resourcefulness by personnel held accountable

The term for understanding why actual performance deviates from planned performance is. A) variance calculation B) organizational learning C) favorable variance D) continuous improvement

organizational learning

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

percentage of products started and completed without requiring any rework

A purchasing manager's performance is best evaluated using information such as A) usage efficiency and direct materials price variance B) direct materials flexible-budget variance C) direct manufacturing labor flexible-budget variance D) price and terms bargaining effectiveness, achievement of quality goals, and direct materials price variance

price and terms bargaining effectiveness, achievement of quality goals, and direct materials price variance

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

price variance and an efficiency variance

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

production manager

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

provide insight into why costs or revenues differ across companies

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

quality problems leading to customer dissatisfaction

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

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

the degree to which a predetermined objective or target is met

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 difference 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 could be 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

the purchasing manager bargaining effectively with suppliers

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

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

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

to understand why variances arise and to improve future performance

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

total expected fixed costs

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

total flexible-budget variance