Test 1 (2)
A company uses a static budget approach and the previous management accountant calculated the following information: Fixed costs variance $10,000 U; revenues variance $400,000 F; contribution margin variance $60,000 F. What is the total static-budget variance? A) $50,000 F B) $50,000 U C) $230,000 F D) $230,000 U E) $390,000 F
A
A standard cost method is based on A) variable costs only. B) a predetermined average cost per input. C) a predetermined average total input cost per unit of output. D) either a predetermined average cost per input or a predetermined average total input cost per unit of output. E) historical costs.
A
When a journal entry is made to record the direct materials used, a debit to the Direct Materials Efficiency Variance A) indicates the variance is unfavourable. B) indicates the variance is favourable. C) is the difference between the actual Costs of Goods Sold and the budgeted Materials Control accounts. D) is the difference between the debits and credits of all materials related entries. E) also requires a debit to the materials control account.
A
Cost variances should be investigated when A) the results are favourable but within acceptable limits. B) costs incurred must be reduced. C) expected costs of investigation exceed expected benefits. D) the results are unfavourable but within acceptable limits. E) the amounts are immaterial.
B
Management by exception is the practice of concentrating on A) the master budget variances. B) on areas where performance fails to meet expectations. C) favourable variances. D) unfavourable variances. E) exceptional results.
B
Which of the following is part of the benchmarking process? A) standard setting against industry averages B) assess external and internal conditions and match with those of the benchmarked company C) sharing information with other companies D) obtaining a benchmarking license E) setting up bench mark variances
B
________ is a carefully predetermined amount usually expressed on a per-unit basis. A) Variable marketing overhead B) A flexible budget C) A standard D) Fixed factory overhead E) A static budget
C
) The type of budget that is based on one level of output, without adjustment for any operational or financial changes is called A) a balanced budget. B) a cost budget. C) a flexible budget. D) a static budget. E) a standard budget.
D
The sales-volume variance of operating income is a measure of efficiency.
F
The term efficiency variance is the direct cost portion of the flexible-budget variance.
F
When benchmarking, the best levels of performance are typically found in companies that are totally different.
F
) A standard is usually expressed on a per-unit basis and communicates an average amount indicating what should be achieved by any similar process each time period that performance measures are taken.
T
) Flexible budget quantity computations should be focused at the appropriate level of the cost hierarchy.
T
) Managers generally have more control over efficiency variances than rate variances.
T
Benchmarking is the continuous process of measuring products, services, and activities against the best possible levels of performance.
T
Benchmarking key activities can be even more important in not-for-profit/non-profit (NFP) organizations than it is for businesses seeking to make a profit.
T
Depending on the level of the cost hierarchy of an activity, cutting a volume of input to the benefit of one business function may increase costs throughout the entire value chain.
T
Determining the actual quantity of the revenue driver is one step in the development of a flexible budget.
T
If a company has a favourable efficiency variance, it uses less inputs than were budgeted for the output units achieved.
T
A flexible-budget variance can be decomposed into an efficiency variance and a rate variance.
T
A variance is the difference between the actual result and a budgeted amount.
T
A favourable direct materials yield variance results when less direct materials are used than planned.
T
The flexible budget contains A) budgeted amounts for alternative levels of output. B) actual amounts for budgeted output. C) revenue based on budgeted quantity and actual unit price. D) actual costs for planned output. E) the difference between flexible and static budget fixed costs.
A
A flexible budget enables managers to compute a richer set of variances than a static budget does.
T
) Variances and flexible budgets help managers gain insights into why actual results differ from planned performance.
T
) Some financial variances show increases in operating income relative to a budgeted or allocated amount, and others show decreases in operating income. Respectively, these variances are A) budgeted, standard. B) favourable, unfavourable. C) standard, budgeted. D) unfavourable, favourable. E) fixed, variable.
B
) Which of the following is likely to be related to an unfavourable direct materials rate variance? A) Standard costs were determined correctly. B) the negotiating skills of the marketing manager C) unexpected price decreases in direct materials D) Actual direct material purchases were in larger quantities than normal, resulting in receiving volume discounts. E) Materials were purchased based on a competitive bid.
B
A continuous improvement budgeted cost, in terms of variances and standard costs A) is held constant regardless of external factors, thus enabling management to isolate internal variance factors. B) is successively reduced over succeeding time periods. C) ensures that managers will avoid unfavourable materials (or labour) variances that are due to external factors. D) is easier to achieve for older, more established production runs, than for new products. E) is achieved as easily for older, more established production runs, as for for new products.
B
A standard is A) usually expressed on a per unit basis. B) consistently calculated in manufacturing companies. C) always the same as a budgeted amount. D) only set within the company. E) never expressed on a per unit basis.
A
If a company only reached 85% of their production goal, the 85% may be called the company's A) effectiveness rate. B) efficiency rate. C) goal achievement rate. D) standard production rate. E) variance rate.
A
The process in which a company's products or services are measured relative to the best possible levels of performance is known as A) benchmarking. B) measuring the performance gap. C) standard measurement. D) variance measurement. E) budgeting.
A
Which of the following statements about benchmarks is TRUE? A) They may be financial or nonfinancial. B) They are used to compute variances. C) Broad benchmarks have more relevance. D) Obtaining benchmarks has no legal or ethical issues. E) Benchmarks are the main driver of strategic planning.
A
The direct materials mix variance is the A) average of the direct materials mix variances for each input. B) sum of the direct materials mix variances for each input. C) difference between the direct materials mix variances for each input. D) multiple of the direct materials mix variances for each input. E) lesser of the direct materials yield variance and the direct materials efficiency variance.
B
The direct materials mix variance will be favourable when A) the flexible-budget contribution margin is greater than the actual contribution margin. B) the actual direct materials input mix is less expensive than the budgeted direct materials input mix. C) the actual quantity of total inputs used is greater than the flexible budget for total inputs. D) actual unit sales are less than budgeted unit sales. E) the input-efficiency variance is favourable.
B
The input standard cost per completed unit may be calculated by A) multiplying the budgeted number of outputs for one input by the budgeted price per output unit. B) multiplying the budgeted price per input by the budgeted number of inputs for one unit of output. C) dividing the variable price per input by the budgeted number of inputs for one unit of output. D) dividing the budgeted number of outputs for one input by the budgeted price per output unit. E) dividing the budgeted price per input by the budgeted number of inputs for one unit of output.
B
A budget that is adjusted in accordance with changes in actual output is called A) a balanced budget. B) a cost budget. C) a flexible budget. D) a trial balance budget. E) a static budget.
C
A variance is considered to be 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 budget amount. D) the difference between a budgeted amount and a standard amount. E) a standard.
C
) In a journal entry for a standard costing system that records favourable variances, to increase the relevant variance account A) causes a credit to Cost of Goods Sold. B) decreases the Operating Income Account. C) the variance account must be debited. D) the variance account must be credited. E) reduces the contra account.
D
If a purchasing agent is able to negotiate a price lower than that set by the current budget by purchasing direct materials of similar quality A) a reduction in customer service costs will result. B) the effect on the direct materials efficiency variance will be favourable. C) the effect on the direct labour efficiency variance will be favourable. D) the effect on the purchase rate variance will be favourable. E) the effect on the direct materials efficiency variance will be unfavourable.
D
The materials yield variance will be unfavourable when A) the flexible-budget contribution margin is greater than the actual contribution margin. B) the actual direct materials input mix is less expensive than the budgeted direct materials input mix. C) the input-efficiency variance is favourable. D) the actual quantity of total inputs used is greater than the flexible budget for total inputs. E) actual unit sales are less than budgeted unit sales.
D
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) it is important to set standards at industry averages. D) comparisons can highlight areas for improved cost management. E) a broader scope allows for easier comparison.
D
A packaging company produces a variety of cardboard boxes in an automated process. Expected production per month is 160,000 units. The required direct materials costs $0.30 per unit. Variable manufacturing overhead costs are $24,000 per month and are allocated based on units of production. Direct labour is budgeted to be $6,400. The company only produces based on customer orders, so all production is considered sold as it is produced. Revenue for the month will be $240,000. What is the budgeted contribution margin per unit? A) $1.50 per unit B) $1.31 per unit C) $1.16 per unit D) $1.05 per unit E) $1.01 per unit
E
A packaging company produces cardboard boxes in an automated process. The required direct materials costs $0.30 per unit. Fixed manufacturing overhead costs are budgeted at $24,000 per month and are allocated based on units of production. The budgeted contribution margin per unit is $0.85, and administration fixed costs are budgeted at $7,500 per month.What is the flexible-budget amount for operating income for 40,000 and 20,000 units, respectively? A) $26,000; $20,000 B) $36,000; $30,000 C) $40,000; $34,000 D) $44,000; $38,000 E) $2,500; <$14,500>
E
General Insurance Company had a static budgeted operating income of $4.6 million; however, actual income was $3.0 million. What is the static budget variance of operating income? A) $1,000,000 favourable B) $1,000,000 unfavourable C) $1,600,000 favourable D) $3,000,000 favourable E) $1,600,000 unfavourable
E
In a manufacturing area of an organization; poor product design, problems with the quality of materials, and scheduling conflicts could result in A) a favourable materials efficiency variance. B) a favourable labour efficiency variance. C) a favourable materials effectiveness variance. D) an unfavourable materials effectiveness variance. E) an unfavourable materials efficiency variance.
E
More insight into the efficiency variance for direct materials can be gained by subdividing it into the direct materials A) mix and volume variances. B) market-share and market-size variances. C) rate and usage variances. D) price and efficiency variances. E) mix and yield variances.
E
The flexible-budget variance measures A) what the costs and revenues should have been for the budgeted number of outputs. B) the difference between budgeted expenditures and actual expenditures for the budgeted number of outputs. C) the difference between budgeted and actual variable costs. D) [expected expenditures for the actual number of outputs] + [the actual expenditures for the actual number of outputs]. E) [actual cost for the actual level of the revenue or cost driver] - [budget unit amount × the actual level of the revenue or cost driver].
E
The relative amount of inputs used to reach a given level output is a measure of which of the following? A) effectiveness B) selling price C) purchase price D) marketing efforts E) efficiency
E
When a journal entry is made in a standard cost system to record the liability for direct manufacturing labour costs, the difference between the debit to the work-in-process control account and the credit to the payroll payables is A) only the efficiency variance. B) only the rate variance. C) the difference between the actual wage rate and the budgeted rate, times the actual hours. D) the difference between the actual wage rate and the budgeted rate, times the budget hours. E) the total of the price and efficiency labour variances.
E
Which of the following reasons is unlikely to be related to an unfavourable variance for labour costs? A) Labour used was less skilled than usual. B) poor work scheduling C) excessive equipment downtime D) inappropriate standards E) rate variance in direct materials purchased at the standard quality
E
Which of the following statements is TRUE? A) A favourable variance always benefits a company. B) Managers attempt to maintain unfavourable variances. C) Favourable variances are typically not preferred by management. D) Only a flexible budget can be used to determine a variance. E) A favourable variance is not always beneficial for an organization.
E
) Management by exception is the practice of focusing management attention on areas where performance meets expectations.
F
) The direct manufacturing labour rate variance is likely to be favourable if higher-skilled workers are put on a job.
F
) To prepare budgets based on actual data from past periods is preferred since past inefficiencies are excluded.
F
2) The direct materials mix variance is the difference between: 1) the actual cost of direct materials based on the actual total quantity of all direct material inputs used, and 2) the flexible-budget cost of direct materials based on the budgeted total quantity of direct material inputs for the actual output.
F
A cost of a given activity decreases over continuous time periods. This is considered to be a continuous improvement variable cost.
F
A favourable variance can be automatically interpreted as "good news."
F
A flexible budget is a budget that is developed using budgeted revenue or cost amounts and is not adjusted at the end of the budgeted period.
F
A static budget is a budget that can be changed or altered after it is developed.
F
A variance is the difference between the actual cost for the current and previous year.
F
An input-price variance is the difference between actual quantity of input used and the budgeted quantity of input that should have been used, multiplied by the budgeted price.
F
An unfavourable direct materials mix variance results when cheaper direct materials are substituted for more expensive direct materials.
F
An unfavourable variance is conclusive evidence of poor performance.
F
Decreasing demand for a product may create a favourable sales-volume variance
F
If variance analysis is used for performance evaluation, managers are encouraged to meet targets using creativity and resourcefulness.
F
Rate variances are the difference between actual inputs used and budgeted inputs that should have been used, multiplied by the budgeted price.
F
Standards differ from budget amounts because standards change from onetime period to the next.
F
The direct materials yield variance is the difference between: 1) the budgeted cost for the actual mix of the total quantity of direct materials used, and 2) the budgeted cost of the budgeted mix of the actual total quantity of direct materials used.
F
The flexible-budget variance may be the result of inaccurate forecasting of units sold.
F
The flexible-budget variance pertaining to revenues is also called the variance of operating income.
F
) Rate variances are considered to be the difference between the actual price and the budgeted price multiplied by the actual quantity of input goods or services.
T
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.
T
Performance variance analysis can be used in activity-based costing systems.
T
The flexible-budget variance is the difference between the actual results and the flexible-budget amount for the actual levels of the revenue and cost drivers.
T
The most important task in variance analysis is to understand why variances occur, and then to use that knowledge to promote learning and continual improvement.
T
The only difference between the static budget and flexible budget is that the static budget is prepared using planned output.
T
The sales-volume variance is the difference between the flexible-budget amount and the static-budget amount; unit selling prices, unit variable costs, and fixed costs are held constant.
T
The static-budget variance can be subdivided into the flexible-budget variance and the sales-volume variance.
T
The terms, usage variances and efficiency variances mean the same thing.
T
The use of high-quality raw materials is likely to result in a favourable efficiency variance and an unfavourable rate variance.
T
Variances can be expected to vary within some normal limits, so not all variances require further investigation.
T
) Rate variances can be calculated for batch-level costs as well as for output unit-level costs.
t