ch07 - Cost Accounting, 13e (Horngren et al.) Chapter 7 1...

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Unformatted text preview: Cost Accounting, 13e (Horngren et al.) Chapter 7 1 Flexible Budgets, Direct-Cost Variances, and Manageme nt Control 1) The master budget is one type of flexible budget. Answer: FALSE Explanation: The master budget is a Diff: 1 Terms: flexible budget Objective: 1 AACSB: Reflective thinking 2) A flexible budget is calculated at the start of the budget period. Answer: FALSE Explanation: A flexible budget is calculated at the end of the budget period when actual output is known. Diff: 1 Terms: flexible budget Objective: 1 AACSB: Reflective thinking 3) Informati on regarding the causes of variances is provided when the master budget is compared with actual results. Answer: FALSE Explanation: Little information regarding the causes of variances is provided when the master budget is compared with actual results because you are comparing a budget for one level of activity with actual costs for a different level of activity. Diff: 2 Terms: variance Objective: 1 AACSB: Reflective thinking 4) A variance is the difference between the actual cost for the current and previous year. Answer: FALSE Explanation: A variance is the difference between actual results and expected (or budgeted) performance. Diff: 2 Terms: variance Objective: 1 AACSB: Reflective thinking 5) A favorable variance results when budgeted revenues exceed actual revenues. Answer: FALSE Explanation: An unfavorable variance Diff: 2 Terms: favorable variance Objective: 1 AACSB: Reflective thinking 6) Managem exception is the practice of concentrating on areas not operating as anticipated (such as a cost overrun) and placing less ent by attention on areas operating as anticipated. Answer: TRUE Diff: 1 Terms: management by exception Objective: 1 AACSB: Reflective thinking 7) The essence of variance analysis is to capture a departure from what was expected. Answer: TRUE Diff: 1 Terms: variance Objective: 1 AACSB: Reflective thinking 8) A favorable variance should be ignored by management. Answer: FALSE Explanation: Favorable variance investigation may lead to improved production methods, other discoveries for future opportunities, or not be good news at all and adversely affect other variances. Diff: 1 Terms: favorable variance Objective: 1 AACSB: Reflective thinking 9) An unfavorable variance may be due to poor planning rather than due to inefficiency. Answer: TRUE Diff: 2 Terms: unfavorable variance Objective: 1 AACSB: Communication 10) The only difference between the static budget and flexible budget is that the static budget is prepared using planned output. Answer: TRUE Diff: 2 Terms: static budget, flexible budget Objective: 2 AACSB: Reflective thinking 11) The static-budget variance can be subdivided into the flexible-budget variance and the sales-volume variance. Answer: TRUE Diff: 2 Terms: static-budget variance, salesvolume variance, flexible-budget variance Objective: 2 AACSB: Reflective thinking 12) The flexible-budget variance may be the result of inaccurate forecasting of units sold. Answer: FALSE Explanation: The sales-volume Diff: 3 Terms: flexible-budget variance Objective: 2 AACSB: Reflective thinking 13) Decreasin g demand for a product may create a favorable sales-volume variance. Answer: FALSE Explanation: Decreasing demand for a product may create an unfavorable salesvolume variance. Diff: 2 Terms: sales-volume variance Objective: 2 AACSB: Reflective thinking 14) An unfavorable variance is conclusive evidence of poor performance. Answer: FALSE Explanation: An unfavorable variance suggests further investigation, not conclusive evidence of poor performance. Diff: 2 Terms: unfavorable variance Objective: 2 AACSB: Reflective thinking 15) A company would not need to use a flexible budget if it had perfect foresight about actual output units. Answer: TRUE Diff: 2 Terms: flexible budget Objective: 2 AACSB: Reflective thinking 16) The flexible-budget variance pertaining to revenues is often called a selling-price variance. Answer: TRUE Diff: 1 Terms: flexible-budget variance Objective: 2 AACSB: Reflective thinking 17) Cost control is the focus of the sales-volume variance. Answer: FALSE Explanation: The sales-volume variance is not a measure of cost, but rather a measure of actual output units differing from budgeted output units. Diff: 2 Terms: sales-volume variance Objective: 2 AACSB: Reflective thinking 18) The term efficiency variance is the direct-cost portion of the flexible-budget variance. Answer: FALSE Explanation: The flexible-budget variance for direct-cost inputs is subdivided into two detailed variances, the efficiency variance and the price variance. Diff: 1 Terms: flexible-budget variance Objective: 2 AACSB: Reflective thinking 19) Managers generally have more control over efficiency variances than price variances. Answer: TRUE Explanation: Efficiency variances are primarily affected by internal factors, whereas price changes may be influenced by market factors. Diff: 3 Terms: efficiency variance, price variance Objective: 3 AACSB: Reflective thinking 20) To prepare budgets based on actual data from past periods is preferred since past inefficiencies are excluded. Answer: FALSE Explanation: A deficiency of using budgeted input quantity information based on actual quantity data from past periods is that past inefficiencies are included. Diff: 2 Terms: static budget Objective: 3 AACSB: Reflective thinking 21) All budgets are based on standard costs. Answer: FALSE Explanation: Budgets may be based on standard costs, actual amounts from last year, or data from other companies. Diff: 2 Terms: standard cost Objective: 3 AACSB: Reflective thinking 22) A is attainable through efficient operations but allows for normal disruptions such as machine breakdowns and defective standard production. Answer: TRUE Diff: 3 Terms: standard cost Objective: 3 AACSB: Reflective thinking 23) One of using standard times to develop a budget is they are simple to compile, are based solely on the past actual history, and advantage do not require expected future changes to be taken into account. Answer: FALSE Explanation: An advantage of using standard times is they aim to take into account changes expected to occur in the budget period. Diff: 3 Terms: standard Objective: 3 AACSB: Reflective thinking 24) The presumed cause of a material price variance will determine how a company responds. Answer: TRUE Diff: 1 Terms: price variance Objective: 4 AACSB: Reflective thinking 25) The price is the difference between the actual price and the budgeted price of the input, multiplied by the actual quantity of input. variance Answer: TRUE Diff: 1 Terms: price variance Objective: 4 AACSB: Reflective thinking 26) 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 actual price. Answer: FALSE Explanation: 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. Diff: 1 Terms: efficiency variance Objective: 4 AACSB: Reflective thinking 27) The use of high-quality raw materials is likely to result in a favorable efficiency variance and an unfavorable price variance. Answer: TRUE Diff: 2 Terms: efficiency variance, price variance Objective: 4 AACSB: Reflective thinking 28) The direct manufacturing labor price variance is likely to be favorable if higher-skilled workers are put on a job. Answer: FALSE Explanation: The direct manufacturing labor variance is likely to be unfavorable if higherskilled workers are put on a job since they are usually also higher paid. Diff: 2 Terms: price variance Objective: 4 AACSB: Reflective thinking 29) Although computed separately, price variances and efficiency variances should not be analyzed separately from each other. Answer: TRUE Diff: 2 Terms: price variance, efficiency variance Objective: 4 AACSB: Reflective thinking 30) A favorable variance can be automatically interpreted as "good news." Answer: FALSE Explanation: A favorable variance may not be good news at all because it adversely affects other variances that increase total costs. Diff: 1 Terms: favorable variance Objective: 5 AACSB: Reflective thinking 31) Variances often affect each other. Answer: TRUE Diff: 1 Terms: variance Objective: 5 AACSB: Analytical skills 32) If analysis is used for performance evaluation, managers are encouraged to meet targets using creativity and resourcefulness. variance Answer: FALSE Explanation: The most common outcome when variance analysis is used for performance evaluation is that managers seek targets that are easily attainable and avoid targets that require creativity and resourcefulness. Diff: 2 Terms: variance Objective: 5 AACSB: Ethical reasoning 33) When using variance for performance evaluation, managers often focus on effectiveness and efficiency as two of the common attributes used in comparing expected results with actual results. Answer: TRUE Diff: 2 Terms: variance Objective: 5 AACSB: Ethical reasoning 34) For critical items such as product defects, a small variance may prompt investigation. Answer: TRUE Diff: 2 Terms: variance Objective: 5 AACSB: Analytical skills 35) A particular variance generally signals one particular problem. Answer: FALSE Explanation: There are many potential causes of a single variance. Diff: 1 Terms: variance Objective: 5 AACSB: Analytical skills 36) If budgets contain slack, cost variances will tend to be favorable. Answer: TRUE Diff: 2 Terms: favorable variance Objective: 5 AACSB: Analytical skills 37) Continuo us improvement budgeted costs target price reductions and efficiency improvements. Answer: TRUE Diff: 1 Terms: standard cost Objective: 5 AACSB: Analytical skills 38) Improvem ent opportunities are easier to identify when products have been on the market for a considerable period of time. Answer: FALSE Explanation: Improvement opportunities are easier to identify when products are first produced. Diff: 2 Terms: variance Objective: 5 AACSB: Reflective thinking 39) It is best totally on financial performance measures rather than using a combination of financial and nonfinancial performance to rely measures. Answer: FALSE Explanation: It is best to rely on a combination of financial and nonfinancial performance measures. Diff: 2 Terms: variance Objective: 5 AACSB: Reflective thinking 40) From the e of control, the direct materials price variance should be isolated at the time the direct materials are requisitioned for use. perspectiv Answer: FALSE Explanation: From the perspective of control, the direct materials price variance should be isolated at the earliest possible time, which is at the time of purchase, not of use. Diff: 2 Terms: price variance Objective: 5 AACSB: Reflective thinking 41) The goal of variance analysis is for managers to understand why variances arise, to learn, and to improve future performance. Answer: TRUE Diff: 2 Terms: variance Objective: 5 AACSB: Communication 42) Employee in to production floor terminals and other modern technologies greatly facilitate the use of a standard costing system. s logging Answer: TRUE Diff: 1 Terms: standard cost Objective: 5 AACSB: Reflective thinking 43) Performa nce variance analysis can be used in activity-based costing systems. Answer: TRUE Diff: 1 Terms: variance Objective: 6 AACSB: Reflective thinking 44) Price variances can be calculated for batch-level costs as well as for output unit-level costs. Answer: TRUE Diff: 1 Terms: price variance Objective: 6 AACSB: Reflective thinking 45) Benchmar continuous process of measuring products, services, and activities against the best possible levels of performance, either king is the inside or outside the organization. Answer: TRUE Diff: 1 Terms: benchmarking Objective: 7 AACSB: Reflective thinking 46) When benchmarking, the best levels of performance are typically found in companies that are totally different. Answer: FALSE Explanation: When benchmarking, the best levels of performance are typically found in competing companies or in companies having similar processes. Diff: 1 Terms: benchmarking Objective: 7 AACSB: Reflective thinking 47) One problem with benchmarking is ensuring that numbers are comparable. Answer: TRUE Diff: 1 Terms: benchmarking Objective: 7 AACSB: Reflective thinking 48) When king it is best when management accountants simply analyze the costs and allow management to provide the insight as to benchmar why the revenues and costs differ between companies. Answer: FALSE Explanation: When benchmarking, management accountants are more valuable when they analyze the costs and also provide management with insight as to why the revenues and costs differ between companies. Diff: 1 Terms: benchmarking Objective: 7 AACSB: Communication 49) The master budget is: A) a flexible B) budget a static budget C) developed at the end of the period D) based on the actual level of output Answer: B Diff: 1 Terms: static budget Objective: 1 AACSB: Reflective thinking 50) A flexible budget: A) is another name for management by exception B) is developed at the end of the period C) is based on the budgeted level of output D) provides favorable operating results Answer: B Diff: 1 Terms: flexible budget Objective: 1 AACSB: Reflective thinking 51) Managem ent by exception is the practice of concentrating on: A) the master B) budget areas not C) operating as anticipated favorable D) variances unfavorable variances Answer: B Diff: 1 Terms: management by exception Objective: 1 AACSB: Reflective thinking 52) A variance is: A) the gap between an actual result and a benchmark amount B) the required C) number of inputs for one standard output the difference between an actual result and a budgeted amount D) the difference between a budgeted amount and a standard amount Answer: C Diff: 1 Terms: variance Objective: 1 AACSB: Reflective thinking 53) An unfavorable variance indicates that: A) actual costs are less than budgeted costs B) actual revenues exceed budgeted revenues C) the actual D) amount decreased operating income relative to the budgeted amount All of these answers are correct. Answer: C Diff: 2 Terms: unfavorable variance Objective: 1 AACSB: Reflective thinking 54) A favorable variance indicates that: A) budgeted costs are less than actual costs B) actual revenues exceed budgeted revenues C) the actual D) amount decreased operating income relative to the budgeted amount All of these answers are correct. Answer: B Diff: 2 Terms: favorable variance Objective: 1 AACSB: Reflective thinking Answer the following questions using the information below: Abernathy Corporation used the following data to evaluate their current operating system. The company sells items for $10 each and used a budgeted selling price of $10 per unit. Actual 92,000 units $450,800 $ 95,000 Budgeted 90,000 units $432,000 $100,000 Units sold Variable costs Fixed costs 55) What is the static-budget variance of revenues? A) $20,000 B) favorable $20,000 C) unfavorable $2,000 D) favorable $2,000 unfavorable Answer: A Explanation: A) ( Diff: 2 T 1 AACSB: Analytical skills 56) What is the static-budget variance of variable costs? A) $1,200 B) favorable $18,800 C) unfavorable $20,000 D) favorable $1,200 unfavorable Answer: B Explanation: B) $ Diff: 2 T 1 AACSB: Analytical skills 57) What is the static-budget variance of operating income? A) $3,800 B) favorable $3,800 C) unfavorable $6,200 D) favorable $6,200 unfavorable Answer: C Explanation: C) Diff: 2 T 1 AACSB: Analytical skills Answer the following questions using the information below: Bates Corporation used the following data to evaluate their current operating system. The company sells items for $10 each and used a budgeted selling price of $10 per unit. Actual 495,000 units $1,250,000 $ 925,000 Budgeted 500,000 units $1,500,000 $ 900,000 Units sold Variable costs Fixed costs 58) What is the static-budget variance of revenues? A) $50,000 B) favorable $50,000 C) unfavorable $5,000 D) favorable $5,000 unfavorable Answer: B Explanation: B) ( Diff: 2 T 1 AACSB: Analytical skills 59) What is the static-budget variance of variable costs? A) $200,000 B) favorable $50,000 C) unfavorable $250,000 D) favorable $250,000 unfavorable Answer: C Explanation: C) $ Diff: 2 T 1 AACSB: Analytical skills 60) What is the static-budget variance of operating income? A) $175,000 B) favorable $195,000 C) unfavorable $225,000 D) favorable $325,000 unfavorable Answer: A Explanation: A) Diff: 2 T 1 AACSB: Analytical skills Answer the following questions using the information below: Racine Filter Corporation used the following data to evaluate their current operating system. The company sells items for $14.50 each and had used a budgeted selling price of $15 per unit. Actual 206,000 units $965,000 $ 53,000 Budgeted 200,000 units $950,000 $ 50,000 Units sold Variable costs Fixed costs 61) What is the static-budget variance of revenues? A) $90,000 B) favorable $13,000 C) favorable $13,000 D) unfavorable $6,000 favorable Answer: C Explanation: C) ( Diff: 2 T 1 AACSB: Analytical skills 62) What is the static-budget variance of variable costs? A) $13,000 B) favorable $13,000 C) unfavorable $15,000 D) favorable $15,000 unfavorable Answer: D Explanation: D) $ Diff: 2 T 1 AACSB: Analytical skills 63) What is the static-budget variance of operating income? A) $31,000 B) unfavorable $26,000 C) favorable $28,000 D) favorable $28,000 unfavorable Answer: A Explanation: A) Diff: 2 T 1 AACSB: Analytical skills 64) Regier had planned for operating income of $10 million in the master budget but actually achieved operating income of only $7 Company million. A) The staticB) budget variance for operating income is $3 million favorable. The staticC) budget variance for operating income is $3 million unfavorable. The flexibleD) budget variance for operating income is $3 million favorable. The flexiblebudget variance for operating income is $3 million unfavorable. Answer: B Diff: 2 Terms: static-budget variance, flexiblebudget variance Objective: 1 AACSB: Analytical skills 65) The flexible budget contains: A) budgeted B) amounts for actual output budgeted C) amounts for planned output actual costs for actual output D) actual costs for planned output Answer: A Diff: 1 Terms: flexible budget Objective: 2 AACSB: Reflective thinking 66) The following items are the same for the flexible budget and the master budget EXCEPT the same: A) variable cost B) per unit total fixed costs C) units sold D) sales price per unit Answer: C Diff: 2 Terms: flexible budget Objective: 2 AACSB: Reflective thinking 67) The sales- volume variance is due to: A) using a different selling price from that budgeted B) inaccurate C) forecasting of units sold poor production performance D) Both A and B are correct. Answer: B Diff: 2 Terms: sales-volume variance Objective: 2 AACSB: Reflective thinking 68) An unfavorable sales-volume variance could result from: A) decreased B) demand for the product competitors C) taking market share customer D) dissatisfaction with the product All of these answers are correct. Answer: D Diff: 2 Terms: sales-volume variance Objective: 2 AACSB: Reflective thinking 69) If a sales- variance was caused by poor-quality products, then the ________ would be in the best position to explain the variance. volume A) production B) manager sales manager C) purchasing D) manager management accountant Answer: A Diff: 2 Terms: sales-volume variance Objective: 2 AACSB: Reflective thinking 70) The variance that is BEST for measuring operating performance is the: A) static-budget B) variance flexible-budget variance C) sales-volume D) variance selling-price variance Answer: B Diff: 2 Terms: flexible-budget variance Objective: 2 AACSB: Reflective thinking 71) An unfavorable flexible-budget variance for variable costs may be the result of: A) using more B) input quantities than were budgeted paying higher prices for inputs than were budgeted C) selling output at a higher selling price than budgeted D) Both A and B are correct. Answer: D Diff: 3 Terms: flexible-budget variance Objective: 2 AACSB: Reflective thinking 72) An unfavorable variance: A) may suggest B) investigation is needed is conclusive C) evidence of poor performance demands that D) standards be recomputed indicates continuous improvement is needed Answer: A Diff: 2 Terms: unfavorable variance Objective: 2 AACSB: Reflective thinking 73) All of the following are needed to prepare a flexible budget EXCEPT determining the: A) budgeted B) variable cost per output unit budgeted fixed costs C) actual selling D) price per unit actual quantity of output units Answer: C Diff: 3 Terms: flexible budget Objective: 2 AACSB: Reflective thinking 74) The variance that LEAST affects cost control is the: A) flexible-budget variance B) direct-material- price variance C) sales-volume D) variance direct manufacturing labor efficiency variance Answer: C Diff: 2 Terms: sales-volume variance Objective: 2 AACSB: Reflective thinking 75) A flexible-budget variance is $800 favorable for unit-related costs. This indicates that costs were: A) $800 more than the master budget B) $800 less than for the planned level of activity C) $800 more than standard for the achieved level of activity D) $800 less than standard for the achieved level of activity Answer: D Diff: 2 Terms: flexible-budget variance Objective: 2 AACSB: Analytical skills Answer the following questions using the information below: JJ White planned to use $82 of material per unit but actually used $80 of material per unit, and planned to make 1,200 units but actually made 1,000 units. 76) The flexible-budget amount is: A) $80,000 B) $82,000 C) $96,000 D) $98,400 Answer: B Explanation: B) 1 Diff: 2 T 2 AACSB: Analytical skills 77) The flexible-budget variance is: A) $2,000 B) favorable $14,000 C) unfavorable $16,400 D) unfavorable $2,400 favorable Answer: A Explanation: A) ( Diff: 2 T 2 AACSB: Analytical skills 78) The sales- volume variance is: A) $2,000 B) favorable $14,000 C) unfavorable $16,400 D) unfavorable $2,400 favorable Answer: C Explanation: C) ( Diff: 2 T 2 AACSB: Analytical skills 79) Aebi currently produces cardboard boxes in an automated process. Expected production per month is 20,000 units, directCorporati material costs are $0.60 per unit, and manufacturing overhead costs are $9,000 per month. Manufacturing overhead is on allocated based on units of production. What is the flexible budget for 10,000 and 20,000 units, respectively? A) $10,500; B) $16,500 $10,500; C) $21,000 $15,000; D) $21,000 None of these answers are correct. Answer: C Explanation: C) flexible budget Objective: 2 AACSB: Analytical skills Answer the following questions using the information below: McKenna Incorporated planned to use $24 of material per unit but actually used $25 of material per unit, and planned to make 1,000 units but actually made 1,200 units. 80) The flexible-budget amount is: A) $24,000 B) $25,000 C) $28,800 D) $30,000 Answer: C Explanation: C) 1 Diff: 2 T 2 AACSB: Analytical skills 81) The flexible-budget variance is: A) $4,800 B) favorable $1,200 C) unfavorable $5,000 D) unfavorable $6,000 favorable Answer: B Explanation: B) ( Diff: 2 T 2 AACSB: Analytical skills 82) The sales- volume variance is: A) $4,800 B) favorable $1,200 C) unfavorable $5,000 D) unfavorable $6,000 favorable Answer: A Explanation: A) ( Diff: 2 T 2 AACSB: Analytical skills Answer the following questions using the information below: Seldon Incorporated planned to use $37.50 of material per unit but actually used $36.75 of material per unit, and planned to make 900 units but actually made 800 units. 83) The flexible-budget amount is: A) $30,000 B) $33,750 C) $29,400 D) $600 Answer: A Explanation: A) 8 Diff: 2 T 2 AACSB: Analytical skills 84) The flexible-budget variance is: A) $3,750 B) favorable $3,750 C) unfavorable $600 D) unfavorable $600 favorable Answer: D Explanation: D) ( Diff: 2 T 2 AACSB: Analytical skills 85) The sales- volume variance is: A) $3,750 B) favorable $3,750 C) unfavorable $600 D) unfavorable $600 favorable Answer: B Explanation: B) ( Diff: 2 T 2 AACSB: Analytical skills 86) Hemberge on currently produces baseball caps in an automated process. Expected production per month is 20,000 units, direct r material costs are $1.50 per unit, and manufacturing overhead costs are $23,000 per month. Manufacturing overhead is Corporati allocated based on units of production. What is the flexible budget for 10,000 and 20,000 units, respectively? A) $26,500; B) $41,500 $26,500; C) $53,000 $38,000; D) $53,000 None of these answers are correct. Answer: C Explanation: C) flexible budget Objective: 2 AACSB: Analytical skills Answer the following questions using the information below: The actual information pertains to the month of August. As part of the budgeting process, Alloway's Fencing Company developed the following static budget for August. Alloway is in the process of preparing the flexible budget and understanding the results. Actual Results 20,000 $1,000,000 512,000 488,000 458,000 $ 30,000 Flexible Budget $ $ ________ $ $ ________ $ Static Budget 25,000 $1,250,000 600,000 650,000 450,000 $ 200,000 Sales volume (in units) Sales revenues Variable costs Contribution margin Fixed costs Operating profit 87) The flexible budget will report ________ for variable costs. A) $512,000 B) $600,000 C) $480,000 D) $640,000 Answer: C Explanation: C) 2 Diff: 2 T 2 AACSB: Analytical skills 88) The flexible budget will report ________ for the fixed costs. A) $458,000 B) $450,000 C) $360,000 D) $572,500 Answer: B Explanation: B) $ Diff: 2 T 2 AACSB: Analytical skills 89) The flexible-budget variance for variable costs is: A) $32,000 B) unfavorable $120,000 C) unfavorable $32,000 D) favorable $120,000 favorable Answer: A Explanation: A) $ Diff: 2 T 2 AACSB: Analytical skills 90) The PRIMARY reason for low operating profits was: A) the variableB) cost variance increased fixed costs C) a poor D) management accounting system lower sales volume than planned Answer: D Diff: 3 Terms: sales-volume variance Objective: 2 AACSB: Analytical skills Answer the following questions using the information below: The actual information pertains to the third quarter. As part of the budgeting process, the Duck Decoy Department of Wooden Figurines Incorporated had developed the following static budget for the third quarter. Duck Decoy is in the process of preparing the flexible budget and understanding the results. Actual Results 13,000 $257,500 154,000 103,500 50,500 $ 53,000 Flexible Budget $ $ ________ $ $ ________ $ Static Budget 12,000 $250,000 175,000 75,000 49,500 $ 25,500 Sales volume (in units) Sales revenues Variable costs Contribution margin Fixed costs Operating profit 91) The flexible budget will report ________ for variable costs. A) $154,000 B) $189,583 C) $175,000 D) $13,583 Answer: B Explanation: B) 1 Diff: 2 T 2 AACSB: Analytical skills 92) The flexible budget will report ________ for the fixed costs. A) $50,500 B) $49,500 C) Favorable $49,500 D) $1,000 Unfavorable Answer: C Explanation: C) $ Diff: 2 T 2 AACSB: Analytical skills 93) The flexible-budget variance for variable costs is: A) $21,000 B) favorable $13,583 C) unfavorable $35,583 D) unfavorable $35,583 favorable Answer: D Explanation: D) [ Diff: 2 T 2 AACSB: Analytical skills 94) The PRIMARY reason for high actual operating profits was: A) the variableB) cost variance increased fixed costs C) higher sales D) volume than planned lower sales volume than planned Answer: A Diff: 3 Terms: sales-volume variance Objective: 2 AACSB: Analytical skills Answer the following questions using the information below: Peters' Company manufactures tires. Some of the company's data was misplaced. Use the following information to replace the lost data: Actual Flexible Budget Results Variances 225,000 $84,160 $2,000 F (C) $16,560 $35,480 $400 U $1,720 F (D) Sales-Volume Flexible Budget Static Budget Variances 225,000 206,250 (A) $2,800 U (B) $31,720 $18,280 $32,160 $4,680 F 0 (E) $36,400 $18,280 $30,280 Units sold Revenues Variable costs Fixed costs Operating income 95) What amounts are reported for revenues in the flexible-budget (A) and the static-budget (B), respectively? A) $82,160; B) $79,360 $82,160; C) $84,960 $84,960; D) $88,960 $84,960; $83,360 Answer: B Diff: 2 Terms: flexible budget Objective: 2 AACSB: Analytical skills 96) What are the actual variable costs (C)? A) $36,400 B) $32,120 C) $31,320 D) $27,040 Answer: B Diff: 2 Terms: flexible budget Objective: 2 AACSB: Analytical skills 97) What is the total flexible-budget variance (D)? A) $120 B) unfavorable $0 C) $680 favorable D) $3,320 favorable Answer: D Diff: 2 Terms: flexible-budget variance Objective: 2 AACSB: Analytical skills 98) What is the total sales-volume variance (E)? A) $7,480 B) unfavorable $2,800 C) unfavorable $1,880 D) favorable $7,480 favorable Answer: C Diff: 2 Terms: sales-volume variance Objective: 2 AACSB: Analytical skills 99) What is the total static-budget variance? A) $5,200 B) favorable $3,320 C) favorable $1,880 D) unfavorable $1,880 favorable Answer: A Diff: 2 Terms: static-budget variance Objective: 2 AACSB: Analytical skills 100) The flexible-budget variance for direct cost inputs can be further subdivided into a: A) static-budget B) variance and a sales-volume variance sales-volume C) variance and an efficiency variance price variance and an efficiency variance D) static-budget variance and a price variance Answer: C Diff: 1 Terms: flexible-budget variance Objective: 3 AACSB: Analytical skills 101) Budgeted input quantity information may be obtained from: A) actual input B) quantities used last period standards C) developed by your company data from other companies that have similar processes D) All of these answers are correct. Answer: D Diff: 1 Terms: standard input Objective: 3 AACSB: Reflective thinking 102) When actual input data from past periods is used to develop a budget: A) past B) inefficiencies are excluded expected future changes are incorporated C) information is available at a low cost D) audited financial information must be used Answer: C Diff: 2 Terms: standard cost Objective: 3 AACSB: Reflective thinking 103) When standards are used to develop a budget: A) past B) inefficiencies are excluded benchmarking must also be used C) information is available at a low cost D) flexible-budget amounts are difficult to determine Answer: A Diff: 2 Terms: standard cost Objective: 3 AACSB: Reflective thinking 104) The term budget indicates: A) that standards have been used to develop the budget B) that actual input data from past periods have been used to develop the budget C) that engineering studies have been used to develop the budget D) planned amounts for a future accounting period Answer: D Diff: 1 Terms: static budget Objective: 3 AACSB: Reflective thinking 105) A standard input: A) is a carefully B) determined price, cost, or quantity is usually C) expressed on a per unit basis may be D) developed using engineering studies All of these answers are correct. Answer: D Diff: 1 Terms: standard input Objective: 3 AACSB: Reflective thinking 106) Ideal standards: A) assume peak B) operating conditions allow for C) normal machine breakdowns greatly improve employee motivation and performance D) All of these answers are correct.. Answer: A Diff: 1 Terms: standard cost Objective: 3 AACSB: Reflective thinking 107) A favorable price variance for direct materials indicates that: A) a lower price B) than planned was paid for materials a higher price than planned was paid for materials C) less material D) was used during production than planned for actual output more material was used during production than planned for actual output Answer: A Diff: 2 Terms: price variance Objective: 4 AACSB: Reflective thinking 108) A favorable efficiency variance for direct manufacturing labor indicates that: A) a lower wage B) rate than planned was paid for direct labor a higher wage rate than planned was paid for direct labor C) less direct D) manufacturing labor-hours were used during production than planned for actual output more direct manufacturing labor-hours were used during production than planned for actual output Answer: C Diff: 2 Terms: efficiency variance Objective: 4 AACSB: Reflective thinking 109) An unfavorable price variance for direct materials might indicate: A) that the B) purchasing manager purchased in smaller quantities due to a change to just-in-time inventory methods congestion due to scheduling problems C) that the D) purchasing manager skillfully negotiated a better purchase price that the market had an unexpected oversupply of those materials Answer: A Diff: 3 Terms: price variance Objective: 4 AACSB: Reflective thinking 110) A favorable efficiency variance for direct materials might indicate: A) that lowerB) quality materials were purchased an overskilled workforce C) poor design of products or processes D) a lower-priced supplier was used Answer: B Diff: 3 Terms: efficiency variance Objective: 4 AACSB: Analytical skills 111) A favorable price variance for direct manufacturing labor might indicate that: A) employees were paid more than planned B) budgeted price standards are too tight C) underskilled D) employees are being hired an efficient labor force Answer: C Diff: 3 Terms: price variance Objective: 4 AACSB: Analytical skills 112) An unfavorable efficiency variance for direct manufacturing labor might indicate that: A) work was B) efficiently scheduled machines were not properly maintained C) budgeted time standards are too lax D) more higherskilled workers were scheduled than planned Answer: B Diff: 3 Terms: efficiency variance Objective: 4 AACSB: Ethical reasoning Answer the following questions using the information below: Robb Industries, Inc. (RII), developed standard costs for direct material and direct labor. In 2004, RII estimated the following standard costs for one of their major products, the 10-gallon plastic container. Budgeted quantity 0.10 pounds 0.05 hours Budgeted price $30 per pound $15 per hour Direct materials Direct labor During June, RII produced and sold 5,000 containers using 490 pounds of directmaterials at an average cost per pound of $32 and 250 direct manufacturing labor-hours at an average wage of $15.25 per hour. 113) June's direct material flexible-budget variance is: A) $980 B) unfavorable $300 favorable C) $680 D) unfavorable None of these answers are correct. Answer: C Explanation: C) ( Diff: 2 T 4 AACSB: Analytical skills 114) June's direct material price variance is: A) $980 B) unfavorable $300 favorable C) $680 favorable D) None of these answers are correct. Answer: A Explanation: A) 4 Diff: 2 T 4 AACSB: Analytical skills 115) June's direct material efficiency variance is: A) $980 B) unfavorable $300 favorable C) $680 favorable D) None of these answers are correct. Answer: B Explanation: B) $ Diff: 2 T 4 AACSB: Analytical skills 116) June's direct manufacturing labor price variance is: A) $62.50 B) unfavorable $62.50 C) favorable $3,811.75 D) unfavorable None of these answers are correct. Answer: A Explanation: A) 2 Diff: 2 T 4 AACSB: Analytical skills 117) June's direct manufacturing labor efficiency variance is: A) $62.50 B) unfavorable $62.50 C) favorable $3,811.75 D) unfavorable None of these answers are correct. Answer: D Explanation: D) [ Diff: 2 T 4 AACSB: Analytical skills Answer the following questions using the information below: Sawyer Industries, Inc. (SII), developed standard costs for direct material and direct labor. In 2004, SII estimated the following standard costs for one of their major products, the 30-gallon heavy-duty plastic container. Budgeted quantity 0.20 pounds 0.10 hours Budgeted price $25 per pound $15 per hour Direct materials Direct labor During July, SII produced and sold 10,000 containers using 2,200 pounds of direct materials at an average cost per pound of $24 and 1,050 direct manufacturing labor hours at an average wage of $14.75 per hour. 118) July's direct material flexible-budget variance is: A) $2,800 B) unfavorable $2,200 C) favorable $5,000 D) unfavorable None of these answers are correct. Answer: A Explanation: A) ( Diff: 2 T 4 AACSB: Analytical skills 119) July's direct material price variance is: A) $2,800 B) favorable $2,200 C) favorable $5,000 D) unfavorable None of these answers are correct. Answer: B Explanation: B) 2 Diff: 2 T 4 AACSB: Analytical skills 120) July's direct material efficiency variance is: A) $2,800 B) unfavorable $2,200 C) favorable $5,000 D) unfavorable None of these answers are correct. Answer: C Explanation: C) $ Diff: 2 T 4 AACSB: Analytical skills 121) July's direct manufacturing labor flexible-budget variance is: A) $750.00 B) unfavorable $262.50 C) favorable $487.50 D) unfavorable None of these answers are correct. Answer: C Explanation: C) ( Diff: 2 T 4 AACSB: Analytical skills 122) July's direct manufacturing labor price variance is: A) $750.00 B) unfavorable $262.50 C) favorable $487.50 D) favorable None of these answers are correct. Answer: B Explanation: B) 1 Diff: 2 T 4 AACSB: Analytical skills 123) July's direct manufacturing labor efficiency variance is: A) $750.00 B) unfavorable $262.50 C) favorable $487.50 D) favorable None of these answers are correct. Answer: A Explanation: A) [ Diff: 2 T 4 AACSB: Analytical skills Answer the following questions using the information below: Apple Valley Orchards, Inc. (AVO), developed standard costs for direct material and direct labor. In 2008, AVO estimated the following standard costs for one of their most well loved products, the AVO classic Grandma's large apple pie which had a brown sugar coating on the top of the crust as well as including cranberry and mince ingredients in addition to the apples. Budgeted quantity 1.5 pounds 0.25 hours Budgeted price $7.25 per pound $14.00 per hour Direct materials Direct labor During September, AVO produced and sold 1,200 pies using 1,875 pounds of direct materials at an average cost per pound of $7.00 and 280 direct labor hours at an average wage of $14.25 per hour. 124) Septembe r's direct material flexible-budget variance is: A) $100.00 B) unfavorable $100.00 C) favorable $75.00 D) unfavorable None of these answers are correct. Answer: C Explanation: C) ( Diff: 2 T 4 AACSB: Analytical skills 125) Septembe r's direct material price variance is: A) $468.75 B) favorable $468.75 C) unfavorable $75.00 D) unfavorable None of these answers are correct. Answer: A Explanation: A) 1 Diff: 2 T 4 AACSB: Analytical skills 126) Septembe r's direct material efficiency variance is: A) $468.75 B) favorable $468.75 C) unfavorable $543.75 D) favorable $543.75 unfavorable Answer: D Explanation: D) $ Diff: 2 T 4 AACSB: Analytical skills 127) Septembe r's direct labor flexible-budget variance is: A) $210.00 B) favorable $210.00 C) unfavorable $280.00 D) favorable $280.00 unfavorable. Answer: A Explanation: A) ( Diff: 2 T 4 AACSB: Analytical skills 128) Septembe r's direct labor price variance is: A) $210.00 B) unfavorable $210.00 C) favorable $70.00 D) unfavorable $70.00 favorable Answer: C Explanation: C) 2 Diff: 2 T 4 AACSB: Analytical skills 129) Septembe r's direct labor efficiency variance is: A) $280.00 B) favorable $280.00 C) unfavorable $210.00 D) favorable $210.00 unfavorable Answer: A Explanation: A) [ Diff: 2 T 4 AACSB: Analytical skills Answer the following questions using the information below: These questions refer to flexible-budget variance formulas with the following descriptions for the variables: A = Actual; B = Budgeted; P = Price; Q = Quantity. 130) The best label for the formula (AQ - BQ) BP is the: A) efficiency B) variance price variance C) total flexibleD) budget variance spending variance Answer: A Diff: 2 Terms: efficiency variance Objective: 4 AACSB: Analytical skills 131) The best label for the formula (AP - BP) AQ is the: A) efficiency B) variance price variance C) total flexibleD) budget variance spending variance Answer: B Diff: 2 Terms: price variance Objective: 4 AACSB: Analytical skills 132) The best label for the formula [(AP)(AQ) - (BP)(AQ)] is the: A) efficiency B) variance price variance C) total flexibleD) budget variance spending variance Answer: B Diff: 2 Terms: price variance Objective: 4 AACSB: Analytical skills 133) The best label for the formula [(AP)(AQ) - (BP)(BQ)] is the: A) efficiency B) variance. price variance C) total flexibleD) budget variance spending variance Answer: C Diff: 2 Terms: flexible-budget variance Objective: 4 AACSB: Analytical skills Answer the following questions using the information below: Ruben's Camera Shop has prepared the following flexible budget for September and is in the process of interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance. Flexible Budget $20,000 30,000 40,000 Variances Price Efficiency $1,000F $3,000U 500U 1,500F 500U 2,500F Material A Material B Direct manufacturing labor 134) The MOST likely explanation of the above variances for Material A is that: A) a lower price B) than expected was paid for Material A higher-quality raw materials were used than were planned C) the company D) used a higher-priced supplier Material A used during September was $2,000 less than expected Answer: A Diff: 3 Terms: price variance Objective: 4 AACSB: Analytical skills 135) The actual amount spent for Material B was: A) $28,000 B) $29,000 C) $30,000 D) $31,000 Answer: B Explanation: B) $ Diff: 2 T 4 AACSB: Analytical skills 136) The actual amount spent for direct manufacturing labor was: A) $40,000 B) $43,000 C) $42,000 D) $38,000 Answer: D Explanation: D) $ Diff: 2 T 4 AACSB: Analytical skills 137) The MOST likely explanation of the above direct manufacturing labor variances is that: A) the average B) wage rate paid to employees was less than expected employees did not work as efficiently as expected to accomplish the job C) the company D) may have assigned more experienced employees this month than originally planned management problem with budget slack and might be using lax standards for both labor-wage rates and expected efficiency may have a Answer: C Diff: 3 Terms: efficiency variance Objective: 4 AACSB: Analytical skills Answer the following questions using the information below: Hector's Camera Shop has prepared the following flexible budget for September and is in the process of interpreting the variances. F denotes a favorable variance and U denotes an unfavorable variance. Flexible Budget $20,000 30,000 40,000 Variances Price Efficiency $1,000U $1,200F 500F 800U 1,400U 1,000F Material A Material B Material C 138) The actual amount spent for Material A was: A) $18,800 B) $20,200 C) $19,800 D) $21,000 Answer: C Explanation: C) $ Diff: 2 T 4 AACSB: Analytical skills 139) The actual amount spent for Material B was: A) $29,700 B) $30,800 C) $30,500 D) $30,300 Answer: D Explanation: D) $ Diff: 2 T 4 AACSB: Analytical skills 140) The explanation that lower-quality materials were purchased is MOST likely for: A) Material A B) Material B C) Material C D) both Material A and C Answer: B Diff: 3 Terms: efficiency variance Objective: 4 AACSB: Analytical skills 141) A purchasing manager's performance is BEST evaluated using the: A) direct materials price variance B) direct materials flexible-budget variance C) direct D) manufacturing labor flexible-budget variance affect the manager's action has on total costs for the entire company Answer: D Diff: 3 Terms: variance Objective: 5 AACSB: Reflective thinking 142) One of the primary reasons for using cost variances is: A) they diagnose the cause of a problem and what should be done to correct it B) for superiors to communicate expectations to lower-level employees C) to administer D) appropriate disciplinary action for financial control of operating activities and understanding why variances arise Answer: D Diff: 2 Terms: variance Objective: 5 AACSB: Reflective thinking 143) A favorable cost variance of significant magnitude: A) is the result of good planning B) if investigated, may lead to improved production methods C) indicates D) management does not need to be concerned about lax standards does not need to be investigated Answer: B Diff: 3 Terms: favorable variance Objective: 5 AACSB: Reflective thinking 144) The variances that should be investigated by management include: A) only B) unfavorable variances only favorable variances C) all variances, D) both favorable and unfavorable both favorable and unfavorable variances considered significant in amount for the company Answer: D Diff: 1 Terms: variance Objective: 5 AACSB: Reflective thinking 145) Typically, managers have the LEAST control over: A) the direct B) material price variance the direct C) material efficiency variance machine D) maintenance the scheduling of production Answer: A Diff: 2 Terms: price variance Objective: 5 AACSB: Reflective thinking 146) If manufacturing machines are breaking down more than expected, this will contribute to a(n): A) favorable direct manufacturing labor price variance B) unfavorable C) direct manufacturing labor price variance favorable direct manufacturing labor efficiency variance D) unfavorable direct manufacturing labor efficiency variance Answer: D Diff: 2 Terms: efficiency variance Objective: 5 AACSB: Reflective thinking 147) A single variance: A) signals the B) cause of a problem should be C) evaluated in isolation from other variances may be the D) result of many different problems should be used for performance evaluation Answer: C Diff: 2 Terms: variance Objective: 5 AACSB: Reflective thinking 148) Variance analysis should be used: A) to understand why variances arise B) as the sole C) source of information for performance evaluation to punish D) employees that do not meet standards to encourage employees to focus on meeting standards Answer: A Diff: 3 Terms: variance Objective: 5 AACSB: Ethical reasoning 149) Variances should be investigated: A) when they are kept below a certain amount B) when there is a small variance for critical items such as product defects C) even though the cost of investigation exceeds the benefit D) when there is an in-control occurrence Answer: B Diff: 3 Terms: variance Objective: 5 AACSB: Ethical reasoning 150) When continuous improvement budgeted costing is implemented, cost reductions can result from: A) price reductions B) reducing C) materials waste producing D) products faster and more efficiently All of these answers are correct. Answer: D Diff: 2 Terms: variance Objective: 5 AACSB: Reflective thinking 151) Nonfinan cial performance measures: A) are usually used in combination with financial measures for control purposes B) are used to C) evaluate overall cost efficiency allow managers to make informed tradeoffs D) are often the sole basis of a manager's performance evaluations Answer: A Diff: 3 Terms: variance Objective: 5 AACSB: Reflective thinking 152) Unfavora ble direct material price variances are: A) always credits B) always debits C) credited to the Materials Control account D) credited to the Accounts Payable Control account Answer: B Diff: 1 Terms: price variance Objective: 5 AACSB: Reflective thinking 153) Favorable direct manufacturing labor efficiency variances are: A) always credits B) always debits C) debited to the Work-in-Process Control account D) debited to the Wages Payable Control account Answer: A Diff: 1 Terms: efficiency variance Objective: 5 AACSB: Reflective thinking 154) From the perspective of control, the direct materials efficiency variance should be isolated at the time of: A) purchase B) use C) completion of the entire product D) sale of the product Answer: B Diff: 2 Terms: efficiency variance Objective: 5 AACSB: Reflective thinking 155) Standard costing systems are a useful tool when using: A) just-in-time B) systems total quality C) management computerD) integrated manufacturing systems All of these answers are correct. Answer: D Diff: 2 Terms: standard cost Objective: 5 AACSB: Reflective thinking 156) Performa nce variance analysis can be calculated for: A) output unitB) level costs batch-level C) costs productD) sustaining costs All of these answers are correct. Answer: D Diff: 2 Terms: variance Objective: 6 AACSB: Reflective thinking 157) A favorable efficiency variance for material-handling labor-hours per batch could result from: A) inefficient B) production-floor layouts compared to those expected when preparing the budget materialsC) handling labor waiting to pick up materials well-trained and experienced material-handling employees D) lower wages than planned for material-handling labor Answer: C Diff: 2 Terms: efficiency variance Objective: 6 AACSB: Analytical skills 158) The process by which a company's products or services are measured relative to the best possible levels of performance is known as: A) efficiency B) benchmarking C) a standard D) costing system variance analysis Answer: B Diff: 1 Terms: benchmarking Objective: 7 AACSB: Reflective thinking 159) When benchmarking: A) the best levels of performance are usually found in companies that are within different industries B) finding C) appropriate benchmarks is a minor issue comparisons D) can highlight areas for better future cost management Both A and C are correct. Answer: C Diff: 2 Terms: benchmarking Objective: 7 AACSB: Reflective thinking 160) Ensuring benchmark numbers are comparable can be difficult because differences can exist across companies with: A) overall B) company strategy depreciation C) methods inventory D) methods All of these answers are correct. Answer: D Diff: 2 Terms: benchmarking Objective: 7 AACSB: Reflective thinking 161) When benchmarking, management accountants are MOST valuable when they: A) present B) differences in the benchmarking data to management highlight C) differences in the benchmarking data to management provide insight into why costs or revenues differ across companies D) provide complex mathematical analysis Answer: C Diff: 2 Terms: benchmarking Objective: 7 AACSB: Communication 162) The data to prepare a flexible budget for possible sales/production levels of 10,000, 11,000, and 12,000 units. Show the president contribution margin at each activity level. of the company, Sales price $24 per unit Gregory Variable costs: Peters, Manufacturing $12 per unit has come Administrative $ 3 per unit to you for Selling $ 1 per unit help. Use Fixed costs: the Manufacturing $60,000 following Administrative $20,000 Answer: Flexible Budget for Various Levels of Sales/Production Activity Units 10,000 11,000 12,000 Sales $240,000 $264,000 $288,000 Variable costs: Manufacturing 120,000 132,000 144,000 Administrative 30,000 33,000 36,000 Selling 10,000 11,000 12,000 Total variable costs 160,000 176,000 192,000 Contribution margin 80,000 88,000 96,000 Fixed costs: Manufacturing 60,000 60,000 60,000 Administrative 20,000 20,000 Operating income/(loss) $ 8,000 016,000 $ $ Diff: 2 Terms: flexible budget Objective: 2 AACSB: Analytical skills 163) Strauss operating budget is based on sales of 20,000 units at $100 per table. Operating income is anticipated to be $120,000. Table Budgeted variable costs are $64 per unit, while fixed costs total $600,000. Company manufact Actual income for 20X5 was a surprising $354,000 on actual sales of 21,000 units at $104 each. Actual variable costs were ures $60 per unit and fixed costs totaled $570,000. tables for schools. Required: The 20X5 Prepare a variance analysis report with both flexible-budget and sales-volume variances. Answer: Strauss Table Company Variance Analysis SalesActual Flexible Flexible Volume Static Results Variances Budget Variances Budget Units sold 21,000 21,000 20,000 Sales $2,184,000 $84,000 F $2,100,000 $100,000 F $2,000,000 Variable costs 1,260,000 84,000 F 1,344,000 64,000 U 1,280,000 Contribution margin $924,000 $168,000 F $756,000 $36,000 F $720,000 Fixed costs 570,000 30,000 F 600,000 0 600,000 Diff: 2 Terms: static budget, flexible-budget variance, salesvolume variance Objective: 2 AACSB: Analytical skills 164) Nicholas Company Salesmanufact Actual Flexible Flexible Volume urers Results Variances Budget Variances Analysis TVs. Units Sold 112,500 112,500 Some of Revenues $42,080 $1,000 F (A) $1,400 U the Variable Costs (C) $200 U $15,860 $2,340 F company' Fixed Costs $8,280 $860 F $9,140 s data was Operating Income $17,740 (D) $16,080 (E) misplaced . Use the Required: following a. What are the respective flexible-budget revenues (A)? informati b. What are the static-budget revenues (B)? on to c. What are the actual variable costs (C)? replace d. What is the total flexible-budget variance (D)? the lost e. What is the total sales-volume variance (E)? data: f. What is the total static-budget variance? Answer: Static Budget 103,125 (B) $18,200 $9,140 $15,140 a. $42,080 $1,000 = $41,080 b. $41,080 + $1,400 = $42,480 c. $15,860 + $200 = $16,060 d. $17,740 $16,080 = $1,660 favorable e. $2,340 favorable + $1,400 unfavorable = $940 favorable f. $17,740 $15,140 = $2,600 favorable Diff: 2 Terms: flexible/static budget; staticbudget/flexiblebudget/salesvolume variance Objective: 2 AACSB: Analytical skills 165) Madzinga' s Direct materials standard 10 square yards at $5 per yard Draperies Direct manufacturing labor standard 5 hours at $10 manufact ures During the second quarter, the company made 1,500 curtains and used 14,000 square yards of fabric costing $68,600. curtains. Direct labor totaled 7,600 hours for $79,800. A certain window Required: requires a. Compute the direct materials price and efficiency variances for the quarter. the b. Compute the direct manufacturing labor price and efficiency variances for the quarter. following: Answer: a. Direct materials variances: Actual unit cost = $68,600/14,000 square yards = $4.90 per square yard Price variance = 14,000 × ($5.00 - $4.90) = $1,400 favorable Efficiency variance = $5.00 × [14,000 - (1,500 × 10)] = $5,000 favorable b. Direct manufacturing labor variances: Actual labor rate = $79,800/7,600 = $10.50 per hour Price variance = 7,600 × ($10.50 - $10.00) = $3,800 unfavorable Efficiency variance = $10.00 × (7,600 - 7,500) = $1,000 unfavorable Diff: 2 Terms: price variance, efficiency variance Objective: 4 AACSB: Analytical skills 166) Wilson's Winter Woolens manufact ures jackets and other wool clothing. A certain designed ski parka requires the following: Direct materials standard Direct manufacturing labor standard 2 square yards at $13.50 per yard 1.5 hours at $20.00 per hour During the third quarter, the company made 1,500 parkas and used 3,150 square yards of fabric costing $39,375. Direct labor totaled 2,100 hours for $45,150. Required: a. Compute the direct materials price and efficiency variances for the quarter. b. Compute the direct manufacturing labor price and efficiency variances for the quarter. Answer: a. Direct materials variances: Actual unit cost = $39,375/3,150 square yards = $12.50 per square yard Price variance = 3,150 × ($13.50 - $12.50) = $3,150 favorable Efficiency variance = $13.50 × [3,150 - (1,500 × 2)] = $2,025 unfavorable b. Direct manufacturing labor variances: Actual labor rate = $45,150/2,100 = $21.50 per hour Price variance = 2,100 × ($21.50 - $20.00) = $3,150 unfavorable Efficiency variance = $20.00 × (2,100 - (1,500 × 1.5) = $3,000 favorable Diff: 2 Terms: price variance, efficiency variance Objective: 4 AACSB: Analytical skills 167) The were used): following data for Standard cost: $6.00 per pound of urn. the Alma Total actual cost: $5,600. Company Standard cost allowed for units produced was $6,000. pertain to Materials efficiency variance was $120 unfavorable. the productio Direct Manufacturing Labor: n of 1,000 urns Standard cost is 2 urns per hour at $24.00 per hour. during Actual cost per hour was $24.50. August. Labor efficiency variance was $336 favorable. Required: Direct Materials a. What is standard direct material amount per urn? (all b. What is the direct material price variance? materials c. What is the total actual cost of direct manufacturing labor? purchased d. What is the labor price variance for direct manufacturing labor? Answer: a. Standard cost per urn = $6,000/1,000 = $6.00 per urn Standard number of pounds per urn = $6.00/$6.00 = 1.0 pound per urn b. Materials price variance = Total variance - efficiency variance = ($5,600 - $6,000) $120 unfavorable = $520 favorable c. Total standard labor cost of actual hours = ((1,000/2) × $24) - $336 favorable = $11,664 Actual hours = $11,664/24 = 486 hours Total actual costs = 486 × $24.50 = $11,907 d. Labor price variance = $11,907 $11,664 = $243 unfavorable Diff: 3 Terms: price variance, efficiency variance Objective: 4 AACSB: Analytical skills 168) The metal forged tool that comes in contact with the ground. following data for Direct Materials (all materials purchased were used): the Lewgrow Standard cost: $1.00 per handle and $3.50 per metal tool. Garden Total actual cost: $11,350. Supplies Materials flexible-budget efficiency variance was $650 unfavorable. Company pertains Direct Manufacturing Labor: to the productio Standard cost is 5 garden spades per hour at $20.00 per hour. n of 2,500 Actual cost per hour was $21.00. garden Labor efficiency variance was $400 favorable. spades during Required: March. The spade a. What is the standard direct material amount per garden spade? consists b. What is the standard cost allowed for all units produced? of a c. What is the total direct materials flexible-budget variance? wooden d. What is the direct material flexible-budget price variance? handle e. What is the total actual cost of direct manufacturing labor? and a f. What is the labor price variance for direct manufacturing labor? Answer: a. Standard cost per garden spade = $1.00 (handle) + $3.50 (tool) = $4.50 per garden spade b. Standard cost allowed for all units = 2500 x $4.50 = $11,250 per garden spade c. Total materials variance = $11,250 - $11,350 = $100 unfavorable d. Materials price variance = Total variance - efficiency variance = ($11,350 $11,250) - $650 unfavorable = $550 favorable e. Total standard labor cost of actual hours = ((2500/5) × $20) - $400 favorable = $9,600 Actual hours = $9600/20 = 480 hours Total actual costs = 480 × $21 = $10,080 f. Labor price variance = $9,600 $10,080 = $480 unfavorable Diff: 3 Terms: price variance, efficiency variance Objective: 4 AACSB: Analytical skills 169) The costing records were lost in a windstorm. following data for Direct Materials (All materials purchased were used.) the telephone Standard cost per roll: a pounds at $4.00 per pound. company Total actual cost: b pounds costing $9,600. pertain to Standard cost allowed for units produced was $9,000. the Materials price variance: c . productio Materials efficiency variance was $80 unfavorable. n of 450 rolls of Direct Manufacturing Labor telephone wire Standard cost is 3 hours per roll at $8.00 per hour. during Actual cost per hour was $8.25. June. Total actual cost: d . Selected Labor price variance: e . items are Labor efficiency variance was $400 unfavorable. omitted because Required: the Compute the missing elements in the report represented by the lettered items. Answer: a. Standard cost per roll = $9,000/450 = $20.00 Standard number of pounds per roll = $20/$4 = 5 pounds per roll b. Actual pounds = ($9,000 + $80)/$4 = 2,270 pounds c. Materials price variance = $9,600 ($9,000 + $80) = $520 unfavorable d. Total standard labor cost of actual hours = (450 × 3 × $8) + $400 = $11,200 Actual hours = $11,200/$8 = 1,400 Total actual cost = 1,400 × $8.25 = $11,550 e. Labor price variance = $11,550 $11,200 = $350 unfavorable Diff: 3 Terms: standard cost, price variance, efficiency variance Objective: 4 AACSB: Analytical skills 170) Littrell Direct Materials 1.00 Company Direct Labor 0.30 produces Direct Marketing 0.50 chairs and has Actual performance for the company is shown below: determine d the Actual output: (in units) 4,000 following Direct Materials: direct cost Materials costs $30,225 categories Input purchased and used 3,900 and Actual price per input $7.75 budgeted Direct Manufacturing Labor: amounts: Labor costs Labor-hours of input 1,240 Actual price per hour $9.25 Standard Direct Marketing Labor: Inputs Labor costs Standard Labor-hours of input 2,100 Cost Actual price per hour $2.80 Category for 1 output per input $7.50 9.00 3.00 $11,470 $5,880 Required: a. What is the combined total of the flexible-budget variances? b. What is the price variance of the direct materials? c. What is the price variance of the direct manufacturing labor and the direct marketing labor, respectively? d. What is the efficiency variance for direct materials? e. What are the efficiency variances for direct manufacturing labor and direct marketing labor, respectively? Answer: Actual Results Flexible Budget Variances Direct materials $30,225 $30,000 $225 U Direct manufacturing labor 11,470 10,800 670 U Direct marketing labor 5,880 6,000 120 F $47,575 $46,800 $775 U a. b. ($7.75 - $7.50) × (3,900) = $975 unfavorable c. Manufacturing Labor ($9.25 $9.00) × 1,240 = $310 unfavorable Marketing Labor ($2.80 $3.00) × 2,100 = $420 favorable d. [3,900 - (4,000 units × 1.00)] × $7.50 = $750 favorable e. Manufacturing Labor = [1,240 hours - (4,000 × 0.30 hours)] × $9.00 = $360 unfavorable Marketing Labor = [2,100 hours - (4,000 × 0.50 hours)] × $3.00 = $300.00 unfavorable Diff: 3 Terms: standard cost, flexible-budget variance, price variance, efficiency variance Objective: 4 AACSB: Analytical skills 171) Coffey Company maintains a very large direct materials inventory because of critical demands placed upon it for rush orders from large hospitals. Item A contains hard-to-get material Y. Currently, the standard cost of material Y is $2.00 per gram. During February, 22,000 grams were purchased for $2.10 per gram, while only 20,000 grams were used in production. There was no beginning inventory of material Y. Required: a. Determine the direct materials price variance, assuming that all materials costs are the responsibility of the materials purchasing manager. b. Determine the direct materials price variance, assuming that all materials costs are the responsibility of the production manager. c. Discuss the issues involved in determining the price variance at the point of purchase versus the point of consumption. Answer: a. Material price variance = 22,000 × ($2.10 - $2.00) = $2,200 unfavorable b. Material price variance = 20,000 × ($2.10 - $2.00) = $2,000 unfavorable c. Measuring the price variance at the time of materials purchased is desirable in situations where the amount of materials purchased varies substantially from the amount used during the period. Failure to measure the price variance based on materials purchased could result in a substantial delay in determining that a price change occurred. Also, if the purchasing manager is to be held accountable for his/her purchasing activities, it is appropriate to have the materials price variances computed at the time of purchase so the manager can include the variances on his/ her monthly report. This encourages the to be more responsible for the activities under his/her control. It provides a closer relationship between responsibility and authority and becomes a relevant performance measure. Diff: 2 Terms: price variance, efficiency variance Objective: 4, 5 AACSB: Analytical skills 172) During February the Lungren Manufact uring Company' s costing system reported several variances that the production manager was surprised to see. Most of the company's monthly variances are under $125, even though they may be either favorable or unfavorable. The following information is for the manufacture of garden gates, its only product: 1. 2. 3. 4. Direct materials price variance, $800 unfavorable. Direct materials efficiency variance, $1,800 favorable. Direct manufacturing labor price variance, $4,000 favorable. Direct manufacturing labor efficiency variance, $600 unfavorable. Required: a. b. Provide the manager with some ideas as to what may have caused the price variances. What may have caused the efficiency variances? Answer: a. Direct materials' unfavorable price variance may have been caused by: (1) paying a higher price than the standard for the period, (2) changing to a new vendor, or (3) buying higherquality materials. Direct manufacturing labor's favorable price variance may have been caused by: (1) changing the work force by hiring lower-paid employees, (2) changing the mix of skilled and unskilled workers, or (3) not giving pay raises as high as anticipated when the standards were set for the year. b. Direct materials' favorable efficiency variance may have been caused by: (1) employees/machiner y working more efficiency and having less scrap and waste materials, (2) buying better-quality materials, or (3) changing the production process. Direct manufacturing labor's unfavorable efficiency variance may have been caused by: (1) poor working conditions, (2) changes in the (learning something new initially takes longer), (3) different types of direct materials to work with, or (4) poor attitudes on behalf of the workers. Diff: 3 Terms: price variance, efficiency variance Objective: 5 AACSB: Analytical skills 173) Mayberry is at a loss as to the company's performance for the month of June. Company had the Materials Control 150,000 following Direct Materials Price Variance 5,000 journal Accounts Payable Control 145,000 entries recorded Work-in-Process Control 60,000 for the Direct Materials Efficiency Variance 4,000 end of Materials Control 64,000 June. Unfortuna Work-in-Process Control 425,000 tely, the Direct Manufacturing Labor Price Variance 7,500 company' Direct Manufacturing Labor Efficiency Variance 9,000 s only Wages Payable Control 423,500 accountan t quit on Required: July 10 and the a. What kind of performance did the company have for June? Explain each variance. president b. Why is Direct Materials given in two entries? Answer: a. The first entry is for materials purchases. The credit entry indicates a favorable variance. This could be an indicator that the purchasing agent did a good job or he/she bought inferior goods. Production was not as lucky in June. The debit entry for materials efficiency indicates that more materials were used than should have been under the operating plans for the month. For labor, the price was unfavorable, while the efficiency was favorable. This could have been caused by using higher-priced workers who were, in fact, better workers. Of course, there are many other possible causes. b. Recoding variances for direct materials is completed with two separate entries since the price variance is isolated at the point of purchase, while the efficiency variance is isolated at the point of use. Diff: 2 Terms: price variance, efficiency variance, standard cost Objective: 5 AACSB: Analytical skills 174) Waddell for all manufacturing items. For the month of June, the following activities have taken place: Productio ns makes Direct Manufacturing Materials Purchased $300,000 separate Direct Manufacturing Materials Used 250,000 journal Direct Materials Price Variance 10,000 unfavorable entries for (at time of purchase) all cost Direct Materials Efficiency Variance 15,000 favorable accountin Direct Manufacturing Labor Price Variance 6,000 favorable g-related Direct Manufacturing Labor Efficiency Variance 4,000 favorable activities. Direct Manufacturing Labor Payable 170,000 It uses a standard Required: cost system Record the necessary journal entries to close the accounts for the month. Answer: Materials Control 300,000 Direct Manufacturing Materials Price Variance 10,000 Accounts Payable Control 310,000 Work-in-Process Control 265,000 Direct Materials Efficiency Variance 15,000 Materials Control 250,000 Work-in-Process Control 180,000 Direct Manufacturing Labor Price Variance 6,000 Direct Manufacturing Labor Efficiency Variance 4,000 Wages Payable Control 170,000 Diff: 3 Terms: price variance, efficiency variance, standard cost Objective: 5 AACSB: Analytical skills 175) Tyson's shipments. Average storage bin usage for various inventories was estimated to be 200 per day. The costs and cost drivers Hardware were determined to be as follows: uses a flexible Item Fixed Variable Cost driver budget to Product handling $10,000 $1.25 per 100 units develop Storage 3.00 per storage bin planning Utilities 1,000 1.50 per 100 units informati Shipping clerks 1,000 1.00 per shipment on for its Supplies 0.50 per shipment warehous e During the year, the warehouse processed 90,000 units for 600 customer shipments. The workers used 225 storage bins on operations average each day to sort, store, and process goods for shipment. The actual costs for 20X5 were: . For 20X5, the Item Actual costs company Product handling $10,900 anticipate Storage 465 d that it Utilities 2,020 would Shipping clerks 1,400 have Supplies 340 96,000 sales units Required: for 664 a. Prepare a static budget for 20X5 with static-budget variances. customer b. Prepare a flexible budget for 20X5 with flexible-budget variances. Answer: a. Tyson's Hardware Static Budget with Variances 20X5 Static Actual Budget Variances Product handling $10,900 $11,200 $300 F Storage 465 600 135 F Utilities 2,020 2,440 420 F Shipping clerks 1,400 1,664 264 F Supplies 340 332 8 U Total $15,125 $16,236 $1,111 F b. Tyson's Hardware Flexible Budget with Variances 20X5 Flexible Actual Budget Variances Product handling $10,900 $11,125 $225 F Storage 465 675 210 F Utilities 2,020 2,350 330 F Diff: 2 Terms: static budget, flexible budget, static-budget variance, flexiblebudget variance Objective: 6 AACSB: Analytical skills 176) Explain the difference between a static budget and a flexible budget. Explain what is meant by a static budget variance and a flexible budget variance. Answer: A static budget is one based on the level of output planned at the start of the budget period. A flexible budget calculates budgeted revenue and budgeted costs based on the actual output in the budget period. The only difference between the static budget and the flexible budget is that the static budget is prepared for the planned output, whereas the flexible budget is prepared based on the actual output. A static budget variance is the difference between the actual results and the corresponding budgeted amounts in the static budget. A flexible-budget variance is the difference between an actual result and the corresponding flexible-budget amount based on the actual output in the budget period. Diff: 2 Terms: static budget, flexible budget Objective: 1 AACSB: Reflective thinking 177) The discusses three levels of variances, Level 0, Level 1, Level 2, and Level 3. Briefly explain the meaning of each of those textbook levels and provide an example of a variance at each of those levels. Answer: A Level 0 variance is simply the difference between actual operating income and planned operating income in the static budget. A Level 1 variance would be any of the differences between the static budget and the actual results that make up operating income. Examples of such differences could include the following items: Units sold (Static budget actual) Revenues (Static budget actual) Material costs (Static budget actual) Direct manufacturing labor (Static budget actual) Variable manufacturing overhead (Static budget actual) Contribution margin (Static budget actual) Fixed costs (Static budget actual) A Level 2 variance 0 variance (which is the total of the Level 1 variances) into a sales volume variance and a flexible-budget variance. The sales volume variance is the difference between the flexible budget amount and the corresponding static budget amount. The flexible budget variance is an actual result and the corresponding flexible budget amount based on the actual output level in the budget period. Specific examples of Level 2 variances could include any of the items shown in the list of Level 1 variances. A Level 3 variance would include price variances that reflect the difference between the actual input price and a budgeted input price, such as the direct material price variance, the direct labor rate variance, and the variable overhead rate variance. Level 3 variances would also include efficiency variances that reflect the difference between an actual input quantity and a budgeted input quantity. Examples would include variances, labor efficiency variances, and variable overhead efficiency variances. Diff: 3 Terms: variance Objective: 2, 3 AACSB: Reflective thinking 178) Give at least three good reasons why a favorable price variance for direct materials might be reported. Answer: Any three of the following: a. The purchasing manager skillfully negotiated a better purchase price. b. The purchasing manager changed to a lower-priced supplier. c. The purchasing manager purchased in larger quantities resulting in quantity discounts. d. The purchasing manager changed to lower-quality materials. e. An unexpected industry oversupply resulted in decreased prices for materials. f. Budgeted purchase prices were not carefully set. Diff: 3 Terms: price variance Objective: 4 AACSB: Analytical skills 179) Give at least three good reasons why an unfavorable efficiency variance for direct manufacturing labor might be reported. Answer: Any three of the following: a. More lowerskilled workers were scheduled than planned. b. Work was inefficiently scheduled. c. Machines were not properly maintained. d. Budgeted time standards were too tight. Diff: 3 Terms: efficiency variance Objective: 4 AACSB: Analytical skills 180) Describe the purpose of variance analysis. Answer: Variance analysis should help the company learn about what happened and how to perform better and should not be a tool in playing the "blame game." Diff: 2 Terms: variance Objective: 5 AACSB: Reflective thinking 181) Explain how variance analysis is used in conjunction with activity-based costing. Answer: Activity-based costing systems focus on individual activities as the fundamental cost objects. As a result, the cost hierarchy of output unit-level costs, batch-level costs, productsustaining costs, and facility-sustaining costs can benefit from variance analysis.. When an ABC costing system is in place and there is a focus on the detailed level of cost hierarchy, obtaining flexible budgeting information to compare the actuals to the flexible budgeted amount can provide information to assist in the decisionmaking process. Diff: 2 Terms: variance Objective: 6 AACSB: Reflective thinking 182) What is benchmarking, and how is it useful to a company? Answer: Benchmarking is the continuous process of comparing the levels of performance in producing products and services and executing activities against the best levels of performance in competing companies or in companies having similar processes. Companies can examine aspects of their own operations in comparison to similar operations and see if they are operating at a disadvantage. Benchmarking might provide targets and opportunities to cut costs, and might even show where they have a competitive advantage over similar companies. Diff: 2 Terms: benchmarking Objective: 7 AACSB: Reflective thinking ...
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