Accounting 2 test 2

Which of the following costs at a manufacturing company would be treated as a product cost under variable costing?

direct material cost

Guareno Clinic uses client-visits as its measure of activity. During December, the clinic budgeted for 2,500 client-visits, but its actual level of activity was 2,450 client-visits. The clinic has provided the following data concerning the formulas used in its budgeting and its actual results for December: Data used in budgeting: Fixed element per month Variable element per client-visit Revenue - $ 45.20 Personnel expenses $ 34,300 $ 13.30 Medical supplies 1,600 5.40 Occupancy expenses 10,000 1.80 Administrative expenses 3,800 0.20 Total expenses $ 49,700 $ 20.70 Actual results for December: Revenue $ 108,650 Personnel expenses $ 65,755 Medical supplies $ 14,380 Occupancy expenses $ 14,000 Administrative expenses $ 4,210 The spending variance for medical supplies in December would be closest to:

$450 F

Which of the following may appear on a flexible budget performance report?

All of the above may appear on a flexible budget performance report.

How would the following costs be classified (product or period) under variable costing at a retail clothing store? Cost of purchasing clothing Sales commissions A) Product Product B) Product Period C) Period Product D) Period Period

Choice B

Poorly trained workers could have an unfavorable effect on which of the following variances? Labor Rate Variance Materials Quantity Variance A) Yes Yes B) Yes No C) No Yes D) No No

Choice C

In its first year of operations, Bronfren Corporation produced 800,000 sets and sold 780,000 sets of artificial tan lines. What would have happened to net operating income in this first year under the following costing methods if Bronfren had produced 20,000 fewer sets? (Assume that Bronfren has both variable and fixed production costs.) Variable costing Absorption costing A) No effect Increase B) Decrease Increase C) Decrease Decrease D) No effect Decrease

Choice D

Which of the following budgets are prepared before the sales budget? Budgeted Income Statement Direct Labor Budget A) Yes Yes B) Yes No C) No Yes D) No No

Choice D

If demand is insufficient to keep everyone busy and workers are not laid off, a favorable (F) labor efficiency variance often will be a result.

False

If skilled workers with high hourly rates of pay are given duties that require little skill and call for lower hourly rates of pay, this will result in a favorable labor rate variance.

False

If variable manufacturing overhead is applied based on direct labor-hours, it is impossible to have a favorable labor rate variance and unfavorable variable overhead rate variance for the same period.

False

In a production budget, if the number of units in finished goods inventory at the end of the period is less than the number of units in finished goods inventory at the beginning of the period, then the expected number of units sold is less than the number of units to be produced during the period.

False

The labor rate variance measures the difference between the actual hourly rate and the standard hourly rate, multiplied by the standard hours allowed for the actual output.

False

The standard labor rate per hour should not include any employment taxes.

False

Waste on the production line will result in an unfavorable materials price variance.

False

When preparing a direct materials budget, beginning inventory for raw materials should be added to production needs, and desired ending inventory should be subtracted to determine the amount of raw materials to be purchased.

False

There are various budgets within the master budget. One of these budgets is the production budget. Which of the following BEST describes the production budget?

It is calculated based on the sales budget and the desired ending inventory.

Which of the following statements is NOT correct concerning the Cash Budget?

It is not necessary to prepare any other budgets before preparing the Cash Budget.

The general model for calculating a quantity variance is:

Standard price × (Actual quantity of inputs used − Standard quantity allowed for output).

Which of the following statements is NOT correct concerning the Manufacturing Overhead Budget?

The Manufacturing Overhead Budget shows only the variable portion of manufacturing overhead.

In a flexible budget, what will happen to fixed costs as the activity level increases?

The fixed cost per unit will decrease.

An unfavorable activity variance for revenue indicates that activity was less than expected when the static planning budget was developed.

True

Differences between the static planning budget and the flexible budget show what should have happened because the actual level of activity differed from what had been planned.

True

Fixed costs should not be ignored when evaluating how well a manager has controlled costs.

True

If demand is insufficient to keep everyone busy and workers are not laid off, an unfavorable (U) variable overhead efficiency variance often will be a result unless managers build excessive inventories.

True

In the merchandise purchases budget, the required purchases (in units) for a period can be determined by subtracting the beginning merchandise inventory (in units) from the budgeted sales (in units) and desired ending merchandise inventory (in units).

True

The direct labor budget begins with the required production in units from the production budget.

True

The number of units to be produced in a period can be determined by adding the expected sales to the desired ending inventory and then deducting the beginning inventory.

True

The variable overhead efficiency variance does not actually measure how efficiently variable manufacturing overhead resources were used.

True

To help assess how well a manager has controlled costs, actual costs should be compared to what the costs should have been for the actual level of activity.

True

Which of the following is true of a company that uses absorption costing?

Unit product costs can change as a result of changes in the number of units manufactured.

An unfavorable materials quantity variance indicates that:

actual usage of material exceeds the standard material allowed for output.

When using a flexible budget, a decrease in activity within the relevant range:

decreases total costs.

Variable manufacturing overhead is applied to products on the basis of standard direct labor-hours. If the labor efficiency variance is favorable, the variable overhead efficiency variance will be:

favorable.

A budget that is based on the actual activity of a period is known as a:

flexible budget.

When sales exceed production and the company uses the LIFO inventory flow assumption, the net operating income reported under variable costing generally will be:

greater than net operating income reported under absorption costing.

When preparing a direct materials budget, the required purchases of raw materials in units equals:

raw materials needed to meet the production schedule + desired ending inventory of raw materials − beginning inventory of raw materials.

When unit sales are constant, but the number of units produced fluctuates and everything else remains the same, net operating income under variable costing will:

remain constant.

The production department should generally be responsible for materials price variances that resulted from:

rush orders arising from poor scheduling.

The impact on net operating income of a small change in sales for a segment is best predicted by using:

the contribution margin ratio.

The usual starting point for a master budget is:

the sales forecast or sales budget.

A favorable labor rate variance indicates that

the standard rate exceeds the actual rate.

If variable manufacturing overhead is applied on the basis of direct labor-hours and the variable overhead rate variance is favorable, then:

the standard variable overhead rate exceeded the actual rate.

A reason why absorption costing income statements are sometimes difficult to interpret is that:

they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.

Net operating income computed under variable costing would exceed net operating income computed using absorption costing if:

units sold exceed units produced.

Assuming that direct labor is a variable cost, the primary difference between the absorption and variable costing is that:

variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.