Fundamentals of Cost Accounting 4th Edition: Chapter 16 (Pforsich)

Actual

Actual costs and revenues based on actual activity

A debit balance in the labor-efficiency variance account indicates that: A. standard hours exceed actual hours. B. actual hours exceed standard hours. C. standard rate and standard hours exceed actual rate and actual hours. D. actual rate and actual hours exceed standard rate and standard hours.

B. actual hours exceed standard hours.

The sales price variance is the difference between the actual sales revenues and the: A. budgeted selling price multiplied by the budgeted number of units sold. B. budgeted selling price multiplied by the actual number of units sold. C. actual selling price multiplied by the budgeted number of units sold. D. actual selling price multiplied by the actual number of units sold.

B. budgeted selling price multiplied by the actual number of units sold.

A variance can best be described as: A. benchmarks common to other firms in the same industry. B. differences between planned results and actual results. C. useful for performance evaluations but not making decisions. D. generally accepted accounting principles when standards are used.

B. differences between planned results and actual results.

When using a flexible budget, what will happen to variable costs on a per-unit basis as production increases within the relevant range? A. Decrease. B. Increase. C. Remain unchanged. D. Fixed costs are not considered in flexible budgeting.

C. Remain unchanged.

Which of the following variances will always be favorable when actual sales exceeds budgeted sales? A. Variable cost. B. Fixed cost. C. Sales activity. D. Operating profit. E. Contribution margin.

C. Sales activity.

The most fundamental variance analysis compares: A. standard material prices with actual material prices. B. standard direct labor rates with actual direct labor rates. C. budgeted sales revenue with actual sales revenue. D. budgeted operating income with actual operating income.

D. budgeted operating income with actual operating income.

Sales Activity Variance

Difference between operating profit in master budget and flex budget

Which of the following statements regarding variances is (are) false? (A) In general and holding all other things constant, an unfavorable variance decreases operating profits. (B) A favorable variance is not always good, and an unfavorable variance is not always bad.

Neither False, Both True

Fixed Cost Variance

No efficiency variance. Difference between actual fixed and fixed costs in flex budget

Profit Variance Analysis

Outlines causes of differences between budgeted profits and actual profits. Production, marketing/admin, sales price, sales activity

Three primary sources of variance

Price, efficiency and activity

When are the following direct materials variances ideally reported?

Quantity: Time of Use, Price: Purchase Date

Which of the following direct labor variances uses the standard hours allowed for the actual number of units produced?

Rate: No Efficiency: Yes

A favorable variance is not necessarily good, and an unfavorable variance is not necessarily bad

TRUE

A flexible budget adjusts the static budget to reflect the actual activity level achieved during the period.

TRUE

Both the actual material used and the standard quantity allowed for material is based on the actual output attained.

TRUE

In the general model, an efficiency variance is calculated as: A. (SP × AQ) - (SP × SQ) B. (AP × SQ) - (SP × SQ) C. (AP × AQ) - (SP × SQ) D. (AP × AQ) - (SP × AQ)

A. (SP × AQ) - (SP × SQ)

An operating budget would not include a: A. cash budget. B. sales budget. C. labor budget. D. production budget. E. operating expense budget.

A. cash budget.

If overhead is applied to production using direct labor hours and the direct labor efficiency variance is favorable, then the variable overhead efficiency variance is: A. favorable. B. unfavorable. C. either favorable or unfavorable. D. neither favorable nor unfavorable.

A. favorable.

In general, the terms favorable and unfavorable are used to describe the effect of a variance on: A. net income. B. sales revenue. C. production costs. D. operating expenses. E. balance sheet.

A. net income.

The difference between operating profits in the master budget and operating profits in the flexible budget is called: A. sales activity variance. B. flexible budget variance. C. production volume variance. D. total operating profit variance.

A. sales activity variance.

Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable labor efficiency variance? A.The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid experienced individuals. B The mix of workers assigned to the particular job was heavily weighted towards the use of new . relatively low paid unskilled workers. C. Because of the production schedule, workers from other production areas were assigned to assist this particular process. D. Defective materials caused more labor to be used in order to produce a standard unit.

A.The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid experienced individuals.

Flex Budget

Appropriate for any level of activity

Which of the following statements is (are) true regarding the sales activity variance? (A) The sales activity variance is the actual selling price per unit times the difference between the budgeted units and actual units. (B) If the sales activity variance for sales revenue is unfavorable, then the contribution margin sales activity variance will be unfavorable.

B is True

Which variance will be unfavorable due to employees working more hours than allowed for the actual number of units produced? A. Price (rate). B. Efficiency. C. Sales activity. D. Production volume.

B. Efficiency.

If materials are carried in the direct materials inventory account at standard cost, then it is reasonable to assume that the: A. raw materials inventory account is understated. B. price variance is recognized when materials are purchased. C. company does not follow generally accepted accounting principles. D. price variance is recognized when materials are placed into production.

B. price variance is recognized when materials are purchased.

The slope of the flexible budget-line is the: A. selling price per unit. B. variable cost per unit. C. fixed cost per unit. D. contribution margin per unit. E. operating profit per unit.

B. variable cost per unit.

Which of the following statements is (are) true? (A) A favorable variance is not necessarily good, and an unfavorable variance is not necessarily bad. (B) The master budget includes operating budgets (e.g., production budget) and financial budgets (e.g., cash budget).

BOTH ARE TRUE

Master Budget

Budgeted Costs and revenues based on budgeted activity

Budgets and Performance Eval

Budgets provide view of anticipated operations and enables management to measure performance

In the general model, a price variance is calculated as: A. (AP × AQ) - (AP × SQ) B. (AP × SQ) - (SP × SQ) C. (AP × AQ) - (SP × AQ) D. (AP × AQ) - (SP × SQ)

C. (AP × AQ) - (SP × AQ)

The variable overhead price variance is due to: A. price items only. B. efficiency items only. C. both price and efficiency items. D. neither price or efficiency items.

C. both price and efficiency items.

The purpose of the flexible budget is to: A. allow management some latitude in meeting goals. B. eliminate cyclical fluctuations in production reports by ignoring variable costs. C. compare actual and budgeted results at virtually any level of production. D. reduce the total time in preparing the annual budget.

C. compare actual and budgeted results at virtually any level of production.

The intercept of the flexible budget-line is total: A. sales. B. variable costs. C. fixed costs. D. contribution margin. E. assets.

C. fixed costs.

In general, the direct labor efficiency variance is the responsibility of the: A. purchasing agent. B. company president. C. production manager. D. industrial engineering. E. marketing department.

C. production manager.

Flex Budget

Cost and revenues that would have been budgeted if actual activity had been budgeted

Advantages of contribution margin format based on variable costing compared to traditional format based on full absorption

Costing format for actual costs with expected. Absorption, manufacturing fixed costs are allocated on a per unit basis.

The basic difference between a master budget and a flexible budget is that a: A. flexible budget considers only variable costs but a master budget considers all costs. B. flexible budget allows management latitude in meeting goals whereas a master budget is based upon a fixed standard. C. master budget is for an entire production facility but a flexible budget is applicable to single departments only. D master budget is based on one specific level of production and a flexible budget can be prepared for . any production level within a relevant range.

D master budget is based on one specific level of production and a flexible budget can be prepared for . any production level within a relevant range.

If the total materials variance for a given operation is favorable, why must this variance be further evaluated as to price and usage? A. There is no need to further evaluate the total materials variance if it is favorable. B. Generally accepted accounting principles require that all variances be analyzed in three stages. C. All variances must appear in the annual report to equity owners for proper disclosure. D. A further evaluation lets management evaluate the activities of the purchasing and production functions.

D. A further evaluation lets management evaluate the activities of the purchasing and production functions.

Which of the following is not an alternative name for the production volume variance? A. Capacity variance. B. Idle capacity variance. C. Denominator variance. D. Fixed overhead efficiency variance.

D. Fixed overhead efficiency variance.

Which of these variances is least significant for cost control? A. Labor price variance. B. Material quantity variance. C. Fixed overhead price variance. D. Production volume variance. E. Labor efficiency variance.

D. Production volume variance.

Which department is customarily held responsible for an unfavorable materials quantity variance? A. Quality control. B. Purchasing. C. Engineering. D. Production.

D. Production.

The production volume variance is computed by the difference between the: A. actual fixed overhead and applied fixed overhead. B. actual fixed overhead and budget at actual level of activity reached. C. actual fixed overhead and budget at denominator level of activity planned. D. budget at actual levels of activity reached and fixed overhead applied.

D. budget at actual levels of activity reached and fixed overhead applied.

Variable Cost Variance

Divides total variance between actual and standard into price and efficiency components

The production volume variance must be computed when a company uses: A. activity-based costing. B. process costing. C. job-order costing. D. full-absorption costing. E. variable costing.

E. variable costing.

In essence, the terms "master budget" and "operating budget" mean the same thing and can be used interchangeably.

FALSE

The difference between operating profits in the master budget and operating profits in the flexible budget is called a sales price variance.

FALSE

The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials used in production

FALSE

The production volume variance is the difference between fixed costs on the flexible budget and the fixed costs on the master budget.

FALSE

The sales price variance is the actual selling price per unit times the difference between budgeted number of units and the actual number of units sold.

FALSE

The terms "master budget" and "flexible budget" mean the same thing and can be used interchangeably

FALSE

Variance analysis for fixed production costs is virtually the same as for variable production costs

FALSE

If the budgeted activity level is greater than the actual activity level, then the total budgeted costs of the master budget will be greater than the total budgeted costs of the flexible budget

TRUE

In general, and holding all other things constant, an unfavorable variance decreases operating profits

TRUE

It is possible to have a favorable direct material price variance and an unfavorable direct material efficiency variance

TRUE

Production cost variances are input variances, while sales activity variances are output variances

TRUE

The budget (or spending) variance for fixed production costs is the difference between the actual fixed costs and the budgeted fixed costs on the master budget

TRUE

The direct labor efficiency variance can be the result of poor supervision or poor scheduling by divisional managers

TRUE

The flexible and master budget amounts are the same for fixed marketing and administrative costs

TRUE

The sales activity variance is the result of a difference between budgeted units sold and actual units sold.

TRUE

The standard cost for a unit of output is the standard price per unit of input times the standard number of inputs per one unit of output.

TRUE

Variances are the difference between actual results and budgeted results

TRUE

Record Costs in standard costing system

WIP recorded at standard costs, variance accounts collect difference in actual vs standard

Master budget

based on predicted level of activity, flex is based on actual

Variance

difference between a budget, or standard, and an actual result

Flex Budget

variable costs and revenues are expected to differ from the budget if the actual activity (for example, actual sales volume) differs from what was budgeted