Chapter 16 Practice

35. 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.

23. 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.

74. Blue Company produces Trivets. Based on its master budget, the company should produce 1,000 Trivets each month, working 2,500 direct labor hours. During May, only 900 Trivets were produced. The company worked 2,400 direct labor hours. The standard hours allowed for May production would be A. 2,500 hours. B. 2,400 hours. C. 2,250 hours. D. 1,800 hours.

C. 2,250 hours.

21. 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). A. Only A is true. B. Only B is true. C. Both A and B are true. D. Neither A nor B is true.

C. Both A and B are true.

32. 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.

24. 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.

38. When are the following direct materials variances ideally reported? Quantity Price a. Purchase date Purchase date b. Time of use Time of use c. Purchase date Time of use d. Time of use Purchase date A. a B. b C. c D. d

D. d

40. 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 x AQ) - (SP x SQ)

What were the standard direct labor hours for February? A. 70,000 B. 69,000 C. 72,000 D. 71,400

A. 70,000

42. 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.

97. The fixed factory overhead application rate is a function of a predetermined activity level. If standard hours allowed for good output equal this predetermined activity level for a given period, the volume variance will be (CPA adapted) A. Zero. B. Favorable. C. Unfavorable. D. Either favorable or unfavorable, depending on the budgeted overhead.

A. Zero.

90. When a manager is concerned with monitoring total cost, total revenue, and net profit conditioned upon the level of productivity, an accountant should normally recommend (CPA adapted) A. a B. b C. c D. d

A. a

22. 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.

46. 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 not unfavorable.

A. favorable.

25. 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.

33. 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.

86. What is the fixed overhead spending (budget) variance for May? A. $1,000 unfavorable B. $3,000 unfavorable C. $2,000 unfavorable D. $2,000 favorable E. $3,000 favorable

B. $3,000 unfavorable

What is the total direct labor cost variance? A. $3,160, favorable B. $3,160, unfavorable C. $2,360, favorable D. $2,360, unfavorable

B. $3,160, unfavorable

What is the labor rate variance for June? A. $30 unfavorable B. $31 favorable C. $31 unfavorable D. $30 favorable

B. $31 favorable

43. 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

39. 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 x AQ) - (SP x AQ)

99. Which of the following organizational policies is most likely to result in undesirable managerial behavior? (CMA adapted) A. Patel Chemicals sponsors television coverage of cricket matches between national teams representing India and Pakistan. The expenses of such media sponsorship are not allocated to its various divisions. B. Joe Walk, the chief executive officer of Eagle Rock Brewery, wrote a memorandum to his executives stating, "Operating plans are contracts and they should be met without fail." C. The budgeting process at Madsen Manufacturing starts with operating managers providing goals for their respective departments. D. Fullbright Lighting holds quarterly meetings of departmental managers to consider possible changes in the budgeted targets due to changing conditions. E. At Fargo Transportation, managers are expected to provide explanations for variances from the budget in their departments.

B. Joe Walk, the chief executive officer of Eagle Rock Brewery, wrote a memorandum to his executives stating, "Operating plans are contracts and they should be met without fail."

34. 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. A. Only A is true. B. Only B is true. C. Neither A and B is true. D. Both A and B are true.

B. Only B is true.

51. 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.

89. A standard cost system may be used in (CPA adapted) A. job-order costing but not process costing. B. either job-order costing or process costing. C. process costing but not job-order costing. D. neither process costing nor job-order costing.

B. either job-order costing or process costing.

52. 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.

30. 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.

45. 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.

91. In analyzing company operations, the controller of the Jason Corporation found a $250,000 favorable flexible budget revenue variance. The variance was calculated by comparing the actual results with the flexible budget. This variance can be wholly explained by (CMA adapted) A. the total flexible budget variance. B. the total static budget variance. C. changes in unit selling prices. D. changes in the number of units sold.

C. changes in unit selling prices.

28. 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.

31. 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.

44. 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.

27. 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

What is the direct materials efficiency (quantity) variance? A. $950 favorable B. $950 unfavorable C. $1,000 favorable D. $1,000 unfavorable E. $50 unfavorable

D. $1,000 unfavorable

100. 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 (CMA adapted) A. $20,680 B. $20,920 C. $20,800 D. $22,150

D. $22,150

What is the actual total overhead for the period? A. $50,000 B. $45,000 C. $80,000 D. $87,000

D. $87,000

96. Tub Company uses a standard cost system. The following information pertains to direct labor for product B for the month of October: What were the actual hours worked for the month of October? A. 1,800 B. 1,810 C. 2,190 D. 2,200

D. 2,200

36. 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.

98. Which one of the following variances is of least significance from a behavioral control perspective? (CMA adapted) A. Unfavorable materials quantity variance amounting to 20% of the quantity allowed for the output attained. B. Unfavorable labor efficiency variance amounting to 10% more than the budgeted hours for the output attained. C. Favorable materials price variance obtained by purchasing raw materials from a new vendor. D. Fixed factory overhead volume variance resulting from management's decision midway through the fiscal year to reduce its budgeted output by 20%.

D. Fixed factory overhead volume variance resulting from management's decision midway through the fiscal year to reduce its budgeted output by 20%.

94. Excess direct labor wages resulting from overtime premium will be disclosed in which type of variance? (CPA adapted) A. Yield. B. Quantity. C. Labor efficiency. D. Labor rate.

D. Labor rate.

26. 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. A. Only A is false. B. Only B is false. C. Both A and B are false. D. Neither A nor B is false.

D. Neither A nor B is false.

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

D. Production.

93. A favorable materials price variance coupled with an unfavorable materials usage variance would most likely result from (CMA adapted) A. Machine efficiency problems. B. Product mix production changes. C. Labor efficiency problems. D. The purchase of lower-than-standard-quality materials.

D. The purchase of lower-than-standard-quality materials.

95. The budget for the month of May was for 9,000 units at a direct materials cost of $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 obtained throughout the month. Variance analysis of the performance for the month of May would show a(n) (CMA adapted) A. Favorable materials efficiency (quantity) variance of $7,500. B. Favorable direct labor efficiency variance of $1,275. C. Unfavorable direct labor efficiency variance of $1,275. D. Unfavorable direct labor price (rate) variance of $1,275.

D. Unfavorable direct labor price (rate) variance of $1,275.

47. 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.

41. Which of the following direct labor variances uses the standard hours allowed for the actual number of units produced? Rate Efficiency a. Yes Yes b. No No c. Yes No d. No Yes A. a B. b C. c D. d

D. d

92. The standard unit cost is used in the calculation of which of the following variance? (CPA adapted) A. a B. b C. c D. d

D. d

48. 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

49. 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.

D. full-absorption costing.

29. 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.

50. 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

53. The Redrock Company uses flexible budgeting for cost control. Redrock produced 10,800 units of product during October, incurring indirect material costs of $13,000. Its master budget for the reflected indirect material costs of $180,000 at a production volume of 144,000 units. What was the flexible budget variance for the indirect material costs in October? A. $1,100 favorable B. $1,100 unfavorable C. $2,000 favorable D. $2,000 unfavorable E. $500 favorable

E. $500 favorable

87. What is the production volume variance for May? A. $2,000 B. $3,000 C. $6,000 D. $8,000 E. $9,000

E. $9,000