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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 pay...
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