Chapter 11 ACCT (CMA Questions)
Zazoo, Inc. specializes in reviewing and editing technical magazine articles. Zazoo sets the following standards for evaluating the performance of the professional staff:----Zazoo's labor efficiency variance for the year is
$100,000 unfavorable.
At the beginning of the year, a company budgeted to sell 600,000 units at a price of $12 per unit. It actually sold 585,000 units at a price of $12.50 per unit. The sales-volume variance is
$180,000 unfavorable.
A company manufactures one product and has a standard cost system. In April the company had the following experience:---The direct materials efficiency variance for April is
$240,000 favorable.
A company uses flexible budgeting for the control of costs. The company's annual master budget includes $324,000 for fixed production supervisory salaries at a volume of 180,000 units. Supervisory salaries are expected to be incurred uniformly throughout the year. During the month of September, 15,750 units were produced, and production supervisory salaries incurred were $28,000. A performance report for September would reflect a budget variance of
$1,000 unfavorable
A company uses a standard cost system. On January 1 of the current year, the company budgeted fixed manufacturing overhead cost of $600,000 and production at 200,000 units. During the year, the firm produced 190,000 units and incurred fixed manufacturing overhead of $595,000. The production volume variance for the year was
$30,000 unfavorable.
Flexible budgets
Accommodate changes in activity levels.
A flexible budget is appropriate for
Control of direct labor and direct materials but not fixed factory overhead. Ans
A plan that is created using budgeted revenue and costs but is based on the actual units of output is known as a
Flexible budget.
A retirement home provides accommodations for up to 200 residents on its 4-acre retirement community. The manager was disappointed to see that last month's actual results were quite different from the budget for March. The retirement home charged $2,000 per resident as planned. Expenses are categorized by the four departments that run the community home: Housekeeping, Maintenance, Dietary, and Nursing. The manager is not sure what went wrong and is concerned she will need to lay off employees if this happens again in April. March's budget and actual results are shown below.---Using flexible budgeting, which one of the following statements is correct?
Housekeeping and Maintenance departments have unfavorable variances.
Which of the following is least likely to cause an unfavorable materials quantity (usage) variance?
Labor that possesses skills equal to those required by the standards.
When comparing performance report information for top management with that for lower-level management,
Lower-level management reports are likely to contain more quantitative data and less financial data.
Which one of the following variances is most controllable by the production control supervisor?
Materials usage variance.
Which one of the following statements is correct concerning a flexible budget cost formula? Variable costs are stated
Per unit and fixed costs are stated in total.
A company has an unfavorable materials efficiency (usage) variance for a particular month. Which one of the following is least likely to be the cause of this variance?
Poor performance of the shipping employees.
Under a standard cost system, the materials price variances are usually the responsibility of the
Purchasing manager.
Which department is typically responsible for a materials price variance?
Purchasing.
The purpose of identifying manufacturing variances and assigning their responsibility to a person/department should be to
Use the knowledge about the variances to promote learning and continuous improvement in the manufacturing operations.
Which of the following factors should not be considered when deciding whether to investigate a variance?
Whether the variance is favorable or unfavorable.
The controller for Durham Skates is reviewing the production cost report for July. An analysis of direct materials costs reflects an unfavorable flexible budget variance of $25. The plant manager believes this is excellent performance on a flexible budget for 5,000 units of direct materials. However, the production supervisor is not pleased with this result because she claims to have saved $1,200 in materials cost on actual production using 4,900 units of direct materials. The standard materials cost is $12 per unit. Actual materials used for the month amounted to $60,025. If Durham's direct materials variance is investigated further, it will reflect a price variance of
$1,225 unfavorable.
Blaster, Inc., a manufacturer of portable radios, purchases the components from subcontractors to use to assemble into a complete radio. Each radio requires three units each of Part XBEZ52, which has a standard cost of $1.45 per unit. During May, Blaster experienced the following with respect to Part XBEZ52:---During May, Blaster incurred a materials efficiency variance of
$1,450 unfavorable.
A company isolates its raw material price variance in order to provide the earliest possible information to the manager responsible for the variance. The budgeted amount of material usage for the year was computed as follows:---The raw material price variance for the year was
$10,000 unfavorable.
A company recently purchased 108,000 units of raw material for $583,200. Three units of raw materials are budgeted for use in each finished good manufactured, with the raw material standard set at $16.50 for each completed product. The company manufactured 32,700 finished units during the period just ended and used 99,200 units of raw material. If management is concerned about the timely reporting of variances in an effort to improve cost control and bottom-line performance, the materials purchase price variance should be reported as
$10,800 favorable.
ChemKing uses a standard costing system in the manufacture of its single product. The 35,000 units of direct materials in inventory were purchased for $105,000, and two units of direct materials are required to produce one unit of final product. In November, the company produced 12,000 units of product. The standard allowed for materials was $60,000, and the unfavorable quantity variance was $2,500. ChemKing's direct materials price variance for the units used in November was
$12,500 unfavorable
The controller for Durham Skates is reviewing the production cost report for July. An analysis of direct materials costs reflects an unfavorable flexible budget variance of $25. The plant manager believes this is excellent performance on a flexible budget for 5,000 units of direct materials. However, the production supervisor is not pleased with this result because she claims to have saved $1,200 in materials cost on actual production using 4,900 units of direct materials. The standard materials cost is $12 per unit. Actual materials used for the month amounted to $60,025. Durham's actual average cost per unit for materials was
$12.25
A company uses flexible budgeting for cost control. The company produced 10,800 units of product during October, incurring indirect materials costs of $13,000. Its master budget for the year reflected indirect materials costs of $180,000 at a production volume of 144,000 units. A flexible budget for October production would reflect indirect materials costs of
$13,500
A company uses a standard cost system. The standard for each finished unit of product allows for 3 pounds of plastic at $0.72 per pound. During December, the company bought 4,500 pounds of plastic at $0.75 per pound, and used 4,100 pounds in the production of 1,300 finished units of product. What is the materials purchase price variance for the month of December?
$135 unfavorable.
Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow has established the following standards for the prime costs of one unit of product.---Arrow's direct materials usage (quantity) variance for November is
$17,100 favorable.
At the beginning of the year, a company prepared the following monthly budget for direct materials. Units produced and sold 10,000 15,000 Direct material $15,000 $22,500 At the end of the month, the company's records showed that 12,000 units were produced and sold and $20,000 was spent for direct materials. Each unit of output requires one unit of direct material. The flexible budget variance for direct materials is
$2,000 unfavorable.
A manufacturer of radios purchases components from subcontractors for assembly into complete radios. Each radio requires three units each of Part X, which has a standard cost of $2.90 per unit. During June, the company had the following experience with respect to Part X: ----During June, the company incurred a materials efficiency variance of
$2,900 unfavorable.
ChemKing uses a standard costing system in the manufacture of its single product. The 35,000 units of direct materials in inventory were purchased for $105,000, and two units of direct materials are required to produce one unit of final product. In November, the company produced 12,000 units of product. The standard allowed for materials was $60,000, and the unfavorable quantity variance was $2,500.---- ChemKing's standard price for one unit of direct materials is
$2.50
The company's master budget shows straight-line depreciation on factory equipment of $258,000. The master budget was prepared at an annual production volume of 103,200 units of product. This production volume is expected to occur uniformly throughout the year. During September, the company produced 8,170 units of product, and the accounts reflected actual depreciation on factory machinery of $20,500. The company controls manufacturing costs with a flexible budget. The flexible budget amount for depreciation on factory machinery for September would be
$21,500
Based on past experience, a company has developed the following budget formula for estimating its shipping expenses. The company's shipments average 12 lbs. per shipment: Shipping costs=$16,000 + ($0.50 × lbs. shipped) The planned activity and actual activity regarding orders and shipments for the current month are given in the following schedule: --The actual shipping costs for the month amounted to $21,000. The appropriate monthly flexible budget allowance for shipping costs for the purpose of performance evaluation would be
$22,150
Jackson Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Jackson has established the following standards for the prime costs of one unit of product:----
$25,000 unfavorable.
A manufacturer of radios purchases components from subcontractors for assembly into complete radios. Each radio requires three units each of Part X, which has a standard cost of $2.90 per unit. During June, the company had the following experience with respect to Part X:--Assuming that budgeted and actual radio production was the same, the amount that will be shown on a static budget for Part X usage during the month of June is
$26,100
A company established a standard direct material cost of $20 per finished unit for its main product. The standard is calculated using direct materials of 4 pounds and a standard rate of $5 per pound. For the month of March, the company expected to produce 32,000 units. During the month, the company purchased and used 130,000 pounds of material and produced 31,000 finished units. The actual price paid per pound was $5.40. What was the material quantity variance for the month of March?
$30,000 unfavorable.
A company's master budget indicated that 50,000 units of finished goods should be produced using 25,000 feet of materials at $4 per foot. The company actually produced 48,000 units of finished goods, purchased 27,000 feet of materials at $4.25 per foot, and used 25,000 feet of materials in production. The direct material efficiency variance is
$4,000 unfavorable.
A company established its annual direct material budget to produce 300,000 units as follows. 150,000 pounds of material at $0.75 per pound = $112,500 Throughout the year, the company produced 310,000 units of finished goods using 0.48 pounds per unit at a cost of $0.76 per pound. The direct material efficiency variance is
$4,650 favorable.
A company uses a standard-costing system in relation to its manufacture of scarves. Each finished scarf contains 1.5 yards of direct materials. However, a 25% direct materials spoilage, which is calculated based on input quantities, occurs during the manufacturing process. The cost of the direct materials is $2.00 per yard. The standard direct materials cost per unit of finished product is
$4.00
The corporation expected to sell 150,000 board games during the month of November, and the corporation's master budget contained the following data related to the sale and production of these games:--Actual sales during November were 180,000 games. Using a flexible budget, the corporation expects the operating income for the month of November to be
$420,000
A company's master budget projected the following information: Sales (25,000 units) $250,000 Manufacturing costs (1/3 fixed) 120,000 Other operating costs (all fixed) 100,000 If the company actually sold 27,500 units, the operating income when using a flexible budget would be
$47,000
A manufacturing firm planned to manufacture and sell 100,000 units of product during the year at a variable cost per unit of $4.00 and a fixed cost per unit of $2.00. The firm fell short of its goal and only manufactured 80,000 units at a total incurred cost of $515,000. The firm's manufacturing cost variance was
$5,000 favorable.
Data regarding Mill Company's direct materials costs is as follows: Actual unit cost $2.00 Standard unit cost 2.20 Actual quantity purchased and used 28,000 units Standard units of materials per unit of finished goods 3 units Actual output of finished goods 9,000 units What is the direct materials price variance?
$5,600 favorable.
Jackson Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Jackson has established the following standards for the prime costs of one unit of product:----Jackson's direct labor usage (efficiency) variance for May is
$6,000 unfavorable.
Blaster, Inc., a manufacturer of portable radios, purchases the components from subcontractors to use to assemble into a complete radio. Each radio requires three units each of Part XBEZ52, which has a standard cost of $1.45 per unit. During May, Blaster experienced the following with respect to Part XBEZ52:--During May, Blaster incurred a purchase price variance of
$600 unfavorable.
Jackson Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Jackson has established the following standards for the prime costs of one unit of product:
$7,200 favorable.
A company planned to sell 100 canoes for the month of April at an average sales price of $600. Midway through the month, the company had sold 65 canoes and forecasted total sales of 130 canoes at an average price of $595. The actual sales for April were 120 canoes at an average sales price of $590. What is the flexible budget amount for canoe sales revenue for April?
$72,000
A company manufactures one product and has a standard cost system. In April the company had the following experience:---The direct materials price variance for April is
$760,000 unfavorable.
Jackson Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Jackson has established the following standards for the prime costs of one unit of product:----Jackson's direct labor price (rate) variance for May is
$8,400 favorable.
A furniture maker has recently finished operations for the current year and is in the process of planning next year's production budget. In the current year, it had a budgeted production volume of 1,000 tables to be sold at a price of $200 each. Each table had a budgeted requirement of 5 pounds of direct materials, and the direct materials had an estimated cost of $80/lb. However, upon the close of the current year, it was discovered that each table required only 4.5 pounds of direct materials, and the direct materials had an actual cost of $100/lb. Assuming that the company produces and sells 1,000 tables for $200 per table, what is the flexible budget variance for the current year?
$90,000 unfavorable.
ChemKing uses a standard costing system in the manufacture of its single product. The 35,000 units of direct materials in inventory were purchased for $105,000, and two units of direct materials are required to produce one unit of final product. In November, the company produced 12,000 units of product. The standard allowed for materials was $60,000, and the unfavorable quantity variance was $2,500. ChemKing's units of direct materials used to produce November output totaled
25,000 units.
A company began business on January 1 of the current year. The firm's standard cost system allows for 4 yards of fabric at $1.55 per yard for each finished unit of product. During the year, the company produced 20,000 units of finished product and sold 18,000 units. Although there was no work-in-process inventory at the end of the year, there were 2,100 yards of fabric included in the ending raw materials inventory. If the materials quantity variance was $1,240 unfavorable, how many yards of fabric did the company buy during the year?
82,900 yards.
Which one of the following statements regarding the difference between a flexible budget and a static budget is true?
A flexible budget provides cost allowances for different levels of activity, whereas a static budget provides costs for one level of activity.
During the month of May, a company experienced a significant unfavorable material efficiency variance in the production of its single product at one of the company's plants. Which one of the following reasons would be least likely to explain why the unfavorable variance arose?
Actual production was lower than planned production.
A company uses a standard cost system. During the past year, the variances from standard were significant. The company is considering whether to allocate the variances among the appropriate inventory accounts and cost of goods sold or to allocate all of the variances directly to cost of goods sold. Under which one of the following situations would reported net income be largest?
All of the variances are favorable and are written off directly to cost of goods sold.
In which of the following variances is the standard unit cost used in the calculations?
Both the direct materials usage variance and the direct materials price variance.
When preparing a performance report for a cost center using flexible budgeting techniques, the planned cost column should be based on the
Budget adjusted to the actual level of activity for the period being reported.
An advantage of using a flexible budget compared to a static budget is that, in a flexible budget,
Budgeted costs for a given output level can be compared with actual costs for the same level of output.
A company has a raw material price variance that is unfavorable. An analysis of this variance indicates that the company's only available supplier of one of its raw materials unexpectedly raised the price of the material. The action management should take regarding this situation should be to
Change the raw material price standard.
Use of a standard cost system can include all of the following advantages except that it
Emphasizes qualitative characteristics.
A standard cost system is often used in variance analysis because standard costs
Exclude past inefficiencies and take into account expected future changes.
The monthly sales volume of a corporation varies from 7,000 units to 9,800 units over the course of a year. Management is currently studying anticipated selling expenses along with the related cash resources that will be needed. Which of the following types of budgets (1) should be used in planning and (2) will provide the best feedback in performance reports for comparing planned expenditures with actual amounts?
Flexible Flexible
The difference between the actual amounts and the flexible budget amounts for the actual output achieved is the
Flexible budget variance.
Comparing actual results with a budget based on achieved volume is possible with the use of a
Flexible budget.
Due to an unexpected road construction project, traffic passing by a restaurant has significantly increased. As a result, restaurant volume has similarly increased well beyond the level expected. Which type of budget would be most appropriate in helping the restaurant manager plan for restaurant labor costs?
Flexible budget.
The use of standard costs in the budgeting process signifies that an organization has most likely implemented a
Flexible budget.
A manufacturing firm has certain peak seasons, the summer season and the last two weeks of February. During these periods of increased output, the firm leases additional production equipment and hires additional temporary employees. Which one of the following budget techniques would best fit this firm's needs?
Flexible budgeting because it allows for adjustments to the budget based on actual activity levels.
A company is focused on continuous improvement and wants to ensure that its budgeting process supports this goal. The company has already eliminated much of the waste from activities during previous budget periods and now wants to concentrate on value-added activities and improving relationships with suppliers and customers. Which of the following is the least beneficial budget solution for this company?
Flexible budgeting.
A firm has begun using budgeting to evaluate performance. Budgets were prepared for the current year based on anticipated sales of 40,000 units. Actual sales totaled 45,000. What type of budgeting methodology should the firm use to evaluate performance this year?
Flexible budgeting.
An organization's revenues and variable costs vary significantly with seasonal weather conditions. This variability has frustrated management's attempts to evaluate the organization's actual results against budgeted performance because there are often large variances in revenues. Which one of the following budgeting methods is most likely to assist management in planning and assessment of results?
Flexible budgeting.
Within a performance monitoring system, which of the following is the least valid reason for calculating variances between actual performance and budgeted performance?
Identifying the manager who is responsible for not achieving desired results. An
When items are transferred from stores to production, an accountant debits work-in-process and credits materials accounts. During production, a materials quantity variance may occur. The materials quantity variance is debited for an unfavorable variance and credited for a favorable variance. The intent of variance entries is to provide
Information for use in controlling the cost of production.
A major disadvantage of a static budget is that
It is made for only one level of activity.
In a responsibility accounting system, a feedback report that focuses on the difference between budgeted amounts and actual amounts is an example of
Management by exception.
The controller of a company holds a monthly meeting where any department that has a 10% unfavorable variance to budget must explain the variance and develop a plan to remedy the situation. This is an example of
Management by exception.
Which of the following management practices involves concentrating on areas that deserve attention and placing less attention on areas operating as expected?
Management by exception.
When compared to static budgets, flexible budgets
Offer managers a more realistic comparison of budget and actual revenue and cost items under their control.
Which one of the following statements about management by exception is least likely to be correct?
Positive variances need not be investigated.
Nash Glassworks Company has budgeted fixed manufacturing overhead of $100,000 per month. The company uses absorption costing for both external and internal financial reporting purposes. Budgeted overhead rates for cost allocations for the month of April using alternative unit output denominator levels are shown in the next column.---The choice of a production volume level as a denominator in the computation of fixed overhead rates can significantly affect reported net income. Which one of the following statements is true for Nash Glassworks Company if its beginning inventory is zero, production exceeded sales, and variances are adjustments to cost of goods sold? The choice of
Practical capacity as the denominator level will result in a lower net income amount than if master-budget capacity is chosen.
A static budget
Presents the plan for only one level of activity and does not adjust to changes in the level of activity.
Under a standard cost system, the materials efficiency variances are the responsibility of
Production and industrial engineering.
In a standard cost system, the investigation of an unfavorable materials usage variance should begin with the
Production manager or the purchasing manager.
A purchasing manager was able to acquire a large quantity of direct materials from a new supplier at a discounted price. The inventory supervisor is concerned because the warehouse has become crowded and some things had to be rearranged. The vice president of production is concerned about the quality of the discounted materials. However, the Engineering Department tested the new materials and indicated that they are of acceptable quality. At the end of the month, the corporation experienced a favorable direct materials usage variance, a favorable direct labor usage variance, and a favorable direct materials price variance. The usage variances were solely the result of a higher yield from the new material. The favorable direct materials price variance is considered the responsibility of the
Purchasing manager
A corporation's Marketing Department recently accepted a rush order for a nonstock item from a valued customer. The Marketing Department filed the necessary paperwork with the Production Department, which complained greatly about the lack of time to do the job the right way. Nevertheless, the Production Department accepted the manufacturing commitment and filed the required paperwork with the Purchasing Department for the needed raw materials. A purchasing clerk temporarily misplaced the paperwork. By the time the paperwork was found, it was too late to order from the company's regular supplier. A new supplier was located, and that vendor quoted a very attractive price. The materials arrived and were rushed into production, bypassing the normal inspection processes (as directed by the Production Department supervisor) to make up for lost time. Unfortunately, the goods were of low quality and created considerable difficulty for the assembly-line personnel. Which of the following best indicates the responsibility for the materials usage variance in this situation?
Purchasing, Marketing, and Production.
The benefits of management by exception reporting include all of the following except a reduction in
Reliance on advance planning.
A controller has prepared a flexible budget for the year just ended, adjusting the original static budget for the unexpected large increase in the volume of sales. The costs are mostly variable. The controller is pleased to note that both actual revenues and actual costs approximated amounts shown on the flexible budget. If actual revenues and actual costs are compared with amounts shown on the original (static) budget, what variances would arise?
Revenue variances would be favorable and cost variances would be unfavorable.
Price variances and efficiency variances can be key to the performance measurement within a company. In evaluating the performance within a company, a materials efficiency variance can be caused by all of the following except the
Sales volume of the product.
Which one of the following will allow a better use of standard costs and variance analysis to help improve managerial decision-making?
Set standards with the help of line personnel directly involved in the process.
A difference between standard costs used for cost control and the budgeted costs of the same manufacturing effort can exist because
Standard costs represent what costs should be, whereas budgeted costs are expected actual costs.
A company planned to produce 3,000 units of its single product, Titactium, during November. The standard specifications for one unit of Titactium include 6 pounds of materials at $.30 per pound. Actual production in November was 3,100 units of Titactium. The accountant computed a favorable direct materials purchase price variance of $380 and an unfavorable direct materials quantity variance of $120. Based on these variances, one could conclude that
The actual cost of materials was less than the standard cost.
A manufacturer planned to produce 5,000 units of its single product during November. The standard specifications for one unit include ten pounds of materials at $.50 per pound. Actual production in November was 5,200 units. The accountant computed a favorable materials purchase price variance of $580 and an unfavorable materials quantity variance of $320. Based on these variances, one could conclude that
The actual cost of materials was less than the standard cost.
The financial statements have just arrived showing a $3,000 loss on the new stadium job that was budgeted to show a $6,000 profit. Actual and budget information relating to the materials for the job are as follows.
The price variance was favorable by $300.
A favorable materials price variance coupled with an unfavorable materials usage variance most likely results from
The purchase of lower than standard quality materials.
The vice president of finance (VP) has been asked to design a new budgeting system. The VP has changed to a monthly budgeting system by dividing the company's annual budget by 12. The VP then prepared monthly budgets for each department and asked the managers to submit monthly reports comparing actual to budget. A sample monthly report for Department A is shown below.--This monthly budget has been imposed from the top and will create behavior problems. All of the following are causes of such problems except
The use of a flexible budget rather than a fixed budget.
Which one of the following is the least likely reason that variances are computed within a performance monitoring system?
To verify the accuracy of standards.
The static budget for the month of May was for 9,000 units with direct materials at $15 per unit. Direct labor was budgeted at 45 minutes per unit for a total of $81,000. Actual output for the month was 8,500 units with $127,500 in direct materials and $77,775 in direct labor expense. The direct labor standard of 45 minutes was maintained throughout the month. Variance analysis of the performance for the month of May shows a(n)
Unfavorable direct labor price variance of $1,275.
An unfavorable direct labor efficiency variance could be caused by a(n)
Unfavorable direct materials usage variance.
To maintain competitive prices, control of costs is critical. Management has considered moving production overseas, but so far they are committed to remaining in the U.S. Management has decided to permit their employees to participate in setting up a new standard cost system. Management likely expects the new standard cost system, along with the employee input, to provide all of the following benefits except that
Unfavorable variances are more likely to occur.
Under a standard cost system, direct labor price variances are usually not attributable to
Union contracts approved before the budgeting cycle.
A corporation has established per-unit standards for material and labor for its production department based on 900 units of normal production capacity as shown below.---The production supervisor has received a memorandum from his boss stating that he did not meet the established standards for material prices and quantity, and corrective action should be taken. The production manager is very unhappy about the situation and is preparing to reply to the memorandum explaining the reasons for his dissatisfaction. All of the following are valid reasons for the production manager's dissatisfaction except that the
Variance calculations fail to properly reflect that actual production exceeded normal production capacity
The inventory control supervisor at a corporation reported that a large quantity of a part purchased for a special order that was never completed remains in stock. The order was not completed because the customer defaulted on the order. The part is not used in any of the corporation's regular products. After consulting with the corporation's engineers, the vice president of production approved the substitution of the purchased part for a regular part in a new product. The corporation's engineers indicated that the purchased part could be substituted providing it was modified. The units manufactured using the substituted part required additional direct labor hours resulting in an unfavorable direct labor efficiency variance in the Production Department. The unfavorable direct labor efficiency variance resulting from the substitution of the purchased part in inventory is best assigned to the
Vice president of production.
