Ch 24 quiz a

The correct answer for each question is indicated by a

1 CORRECT

Which of the following is true regarding budget reports? They may contain information that compares actual results to planned A) activities. They are motivated by a need to both monitor performance and control B) activities. They can be viewed as progress reports or report cards on management's C) performance in achieving established objectives. D) All of the above.

None of the above. E) Feedback: All of the answers are true. They may contain information that compares actual results to planned activities. They are motivated by a need to both monitor performance and control activities. They can be viewed as progress reports or report cards on management's performance in achieving established objectives. C1
2 CORRECT

Which of the following statements is true with respect to the budgetary control process? A) B) C) It involves at least four distinct steps. It is not an important process in a business organization. It has nothing to do with comparing actual results to planned objectives.

Accounting personnel should not be involved with this phase of the D) budget. All of the above. E) Feedback: The budgetary control process involves at least four steps including (1) develop the budget from planned objectives, (2) compare actual results from budgeted amounts and analyze any differences, (3) take corrective and strategic actions, and (4) establish new planned objectives and prepare a new budget. Which of the following statements is/are not true? C1
3 CORRECT

Which of the following is a true statement regarding the purpose of flexible budgets? Flexible budgets are also known as static budgets.

A) B) Flexible budgets are also known as variable budgets.

They are budgets that are developed at the start of the year and never C) adjusted. D) They are of no use in comparing or evaluating actual results.

All of the above. E) Feedback: Flexible budgets are also known as variable budgets. They are useful for evaluation because they reflect budgeted revenues and expenses based on the actual level of activity. A1
4 INCORRECT

The Sydne Manufacturing Company prepared a fixed budget of 160,000 direct labor hours, with planned overhead costs of $800,000 for variable overhead and $240,000 for fixed overhead. Preparing a flexible budget at 100% capacity of 200,000 labor hours, what would be the variable and fixed costs at 100% capacity? A) B) C) D) $800,000 and $300,000 $800,000 and $240,000 $1,000,000 and $300,000 $1,000,000 and $240,000

None of the above E) Feedback: At 160,000 direct labor hours the variable cost is $5 per hour (800,000/160,000), the same amount per hour as at 100,000 hours. The fixed costs will remain unchanged from 160,000 hours to 200,000 hours. Fixed costs at 100% capacity are $240,000. Variable costs at 100% capacity are $1,000,000 (200,000 x $5). P1
5 CORRECT

Standard costs contain which of the following characteristics? They are preset costs for delivering a product or service under normal A) conditions. They are established by personnel, engineering, and accounting studies B) based on past experience and other data. Management can use these cots to assess the reasonableness of actual C) consts incurred. They are useful for management.

D) All of the above E) Feedback: All of the statements describe characteristics of standard costs. C1
6 INCORRECT

Which of the following would be reasons to consider changing a standard cost? A worker was out ill and it took the rest of the team longer to make the A) product. B) The cost of one raw material went up due to a temporary shortage.

A new raw material has been added to an existing product to increase the C) quality of the finished good. D) An unusual batch of materials were spoiled in the last production run.

None of the above E) Feedback: Standards are set to allow comparisons and also to eliminate inefficiencies and waste. Changes in the process or resources needed to carry out the process may require that a standard be changed; not temporary or unusual circumstances that occurred. The correct answer is C. C1
7 INCORRECT

Budgeted materials are 24,000 units at $5 per unit for 6,000 units of finished product. Actual materials usage was 24,900 units at $4.80 for the 6,000 units of finished product. What was the total direct materials variance? A) B) C) D) $480, unfavorable $480, favorable $4,800, unfavorable $4,800, favorable

None of the above E) Feedback: The total direct materials variance is the actual units multiplied by the actual price minus the standard units multiplied by the standard price. The total direct materials variance is (24,900 x $4.80) (24,000 x $5) = $480, favorable. P2
8 INCORRECT

Which formula does not compute the amount of the materials price variance? (Actual price - Standard price) x Actual quantity used

A) B) C) D) (Standard price - Actual price) x Actual quantity used (Actual quantity - Standard quantity) x Standard price (Actual quantity x Actual price) (Actual quantity x Standard price)

None of the above E) Feedback: The price variance is the difference between the actual price per unit (AP) and the standard price per unit (SP) multiplied by the actual quantity of materials used (AQ) or (AP - SP) x AQ. Variations of the formula are (SP AP) x AQ and (AQ x AP) (AQ x SP). P2
9 CORRECT

The actual materials price (AP) was $4.20, the actual quantity (AQ) of material was 26,700 units, and the total materials price variance (PV) was $3,204, unfavorable. What was the standard materials price? A) B) C) D) $4.08 $4.32 $3.96 $4.44

Cannot be determined from the information provided E) Feedback: The price variance was unfavorable; therefore the actual price (AP) exceeded the standard price (SP). The unit price variance is the total materials price variance divided by the actual quantity used, or $3,204/26,700 = $.12. The standard price was $4.08 ($4.20 - $.12). P2
10 INCORRECT

Leland Manufacturing produced 3,700 units of finished product, using 15,000 pounds of raw material. Sixteen thousand pounds were purchased for $158,400. The material standards for the product are 4 pounds at $10 per pound. How much is the materials quantity variance and materials price variance, respectively? A) B) C) $2,000 favorable; $1,500, favorable $2,000 unfavorable; $1,500, favorable $2,000 favorable; $1,500, unfavorable

D)

$2,000 unfavorable; $1,500, unfavorable

Cannot be determined from the information given E) Feedback: The actual price is $158,400/16,000 = $9,.90. The standard quantity is 3,700 units x 4 pounds per unit = 14,800. The materials quantity variance is (AQ SQ) x SP, or (15,000 14,800) x $10 = $2,000 unfavorable. The materials price variance is (AP - SP) x AQ or (9.90 10.00) x 15,000 = $1,500 favorable. P2
11 CORRECT

Which of the following is correct with regard to using the actual price to compute the two materials variances?

A) B) C) D)

A. B. C. D.

E. E) Feedback: The materials price variance can be computed by (AP - SP) x AQ = Price variance; actual price is used. The materials quantity variance can be computed by (AQ - SQ) x SP = Quantity variance; the actual price is not used. P2
12 INCORRECT

The standard units were 29,100, the standard price was $5.73, and the materials quantity variance was $1,719 unfavorable. What were the actual units used? A) B) C) D) 29,000 29,100 28,800 29,400

Cannot be determined from the information provided E) Feedback: When the quantity variance is unfavorable, the actual units exceed standard units. The unit quantity variance is computed as the quantity variance divided by the standard price per unit, or $1,719/$5.73, or 300. The actual units used were 29,400, the standard units of 29,100 plus the variance of 300 units. P2
13 INCORRECT

Which of the following is correct with regard to using the actual quantity used to compute the two materials variances?

hich of the following is correct with regard to using the actual price to compute the two materials variances?

A) B) C) D)

A. B. C. D.

E. E) Feedback: The actual quantity used is used in both variances. The materials price variance can be computed as (AP - SP) x AQ. The materials quantity variance can as computed by (AQ - SQ) x SP. P2
14 INCORRECT

Which of the following is not one of the steps in effective management of variance analysis? A) B) C) Identifying questions and their explanations Preparing standard cost performance reports Taking corrective and strategic actions

D)

Computing and analyzing variances

All of the above E) Feedback: These are the four steps in effective management of variance analysis. C2
15 CORRECT

Which of the following is correct with regard to the actual labor rate used to compute labor variances?

A) B) C) D)

A. B. C. D.

E. E) Feedback: The labor rate variance can be computed as: (AR - SR) x AH; actual labor rate is used. The labor efficiency variance can be computed as: (AH - SH) x SR; actual labor rate is not used. P2
16 INCORRECT

Which formula may be used to compute the labor rate variance? A) B) C) D) (Actual hours - Standard hours) x Actual rate (Actual rate - Standard rate) x Actual hours (Actual hours - Standard rate) x Actual hours (Actual rate - Standard rate) x Standard hours

None of the above E) Feedback: The labor rate variance is the difference between the actual labor rate and the standard labor rate multiplied by the actual labor hours used: (AR - SR) x AH. P2
17

INCORRECT

The standard cost of one unit of product includes 2 hours of direct labor at $15.00 per hour. The company's labor rate variance was $275, favorable. The efficiency variance was $105, unfavorable. Three-hundred and eighty units were produced. What were the actual labor hours? A) B) C) D) 774 hours 753 hours 760 hours 767 hours

Cannot be determined from the information given E) Feedback: An unfavorable efficiency variance means more hours were used than were allowed (standard hours) for the level achieved. Seven hours more than the standard were used ($105.00/$15.00). The standard hours allowed were 760 hours (2 x 380); actual hours used were 767 (760 + 7). P2
18 INCORRECT

Which of the following is correct with regard to using the actual hours used to compute labor variances?

A) B) C) D)

A B C D

E E) Feedback: The actual hours used are used in both variances. The labor rate variance can be computed as: (AR - SR) x AH; actual hours are used. The labor efficiency variance can be computed as: (AH - SH) x SR; actual hours are used. P2
19 INCORRECT

The standard hourly rate was $4.10. Standard hours for the level of

production are 4,000. The actual rate was $4.27. The labor rate variance was $654.50, unfavorable. What were the actual labor hours? A) B) C) D) 3,700 4,150 3,850 4,000

Cannot be determined from the information provided E) Feedback: (AR - SR) x AH = rate variance; therefore, the total variance ($654.50) when divided by the hourly difference ($4.27 - $4.10) will equal the actual hours. Actual hours: $654.50/$.17 = 3,850. Proof: ($4.27 - $4.10) x 3,850 = $654.50. P2
20 CORRECT

The Big Company's expected volume is 18,000 units at 4,500 hours of labor. The fixed overhead rate is $3 per hour at 18,000 units. Actual fixed overhead was $13,000 for 16,000 units of production. Which of the following is correct about the fixed overhead variances? A) Spending variance, $500 favorable; volume variance, $1,500 unfavorable

Spending variance, $1,500 favorable; volume variance, $1,000 B) unfavorable Spending variance, $500 unfavorable; volume variance, $1,500 C) unfavorable D) Spending variance, $500 unfavorable; volume variance, $1,500 favorable

None of the above E) Feedback: Standard units produced per labor hour is 4 (18,000/4,500). The standard hours allowed were 4,000 (16,000/4). The spending variance is actual, fixed overhead (13,000) minus the budgeted overhead (4,500 x $3 or $13,500) or $500 favorable. The volume variance is budgeted fixed overhead minus the applied fixed overhead [$13,500 - (4,000 x $3), or $13,500 $12,000]. P3
21 INCORRECT

The Big Company's expected volume was 18,000 units at 4,500 hours of labor. The variable overhead rate is $5 per hour. Actual variable overhead was $20,500 for 16,000 units of production at 4,250 hours of labor. Which of the following is correct about the variable overhead variances? Spending variance, $750 unfavorable; efficiency variance, $1,000

A) unfavorable Spending variance, $1,000 favorable; efficiency variance, $1,250 B) unfavorable Spending variance, $750 favorable; efficiency variance, $1,250 C) unfavorable Spending variance, $750 unfavorable; efficiency variance, $1,250 D) favorable None of the above E) Feedback: Standard units produced per labor hour is 4 (18,000/4,500). The standard hours were 4,000 (16,000/4). The spending variance equals variable overhead minus actual hours multiplied by the standard variable rate ($20,500 - (4,250 x $5)) = $750, favorable. The efficiency variance equals the actual hours multiplied by the standard variable rate minus applied overhead (4,250 x $5) - (4,000 x $5) = $1,250, unfavorable. P3
22 INCORRECT

The overhead variances for Big Company were: Variable overhead spending variance $3600 favorable

Variable overhead efficiency variance $6,000 unfavorable Fixed overhead spending variance Fixed overhead volume variance $10,000 favorable $24,000 favorable

What was the overhead controllable variance? A) B) C) D) $31,600 favorable $13,600 favorable $24,000 favorable $4,000 unfavorable

$7,600 favorable E) Feedback: The controllable variance is the sum of the spending variances plus the efficiency variance. $3,600 + $10,000 - $6,000 = $7,600, favorable controllable variance. The volume variance is not considered a controllable variance. P3
23 CORRECT

In setting overhead standards, which of the following points are valid? Variable costs per unit remain constant, but fixed costs per unit decline A) with increases in sales volume.

B) C) D)

Variable and fixed costs per unit remain constant. Variable and fixed costs per unit both increase as production increases All of the above.

None of the above. E) Feedback: Variable costs per unit remain constant, but fixed costs per unit decline with increases in sales volume. This means that the average total overhead cost per unit declines with increases in volume. (This also explains why large warehouse type stores can sell their goods much cheaper than smaller stores.) P3
24 INCORRECT

Under a standard costing system, when are the overhead variances recorded? A) When goods are transferred from work in process to the next department

When the factory overhead is applied to the Goods in Process Inventory B) account C) D) When the factory labor is recorded When the units are transferred to the Finished Goods Inventory account

When the materials quantity variance is recorded E) Feedback: The overhead variances are recorded when factory overhead is applied at the standard, predetermined overhead rate to the Goods in Process Inventory account. P4
25 CORRECT

Under a standard cost system, the materials quantity variance was recorded at $1,970 unfavorable, the materials price variance was recorded at $3,740 favorable, and the Goods in Process was debited for $51,690. Ninety-six thousand units were completed. What was the per unit price of the actual materials used? A) B) C) D) $0.52 each $0.53 each $0.54 each $0.51 each

None of the above E) Feedback: The unit cost of materials: (Debit to Goods in Process + Debit to Materials Quantity Variance - Credit to Materials Price Variance)/96,000, or ($51,690 + $1,970 - $3,740)/96,000. Per unit cost: $49,920/96,000 = $0.52. P4
26 INCORRECT

Jan-Lee Outlets recorded sales of 7,200 units at $11 per unit. The flexible budget for 7,200 units shows sales at $79,440. The fixed budget shows sales at $79,950. What is the sales price variance? A) B) C) D) $510, favorable $240, unfavorable $240, favorable $510, unfavorable

None of the above E) Feedback: The sales price variance equals actual sales minus the flexible budget sales, or $79,200 - $79,440 = $240, unfavorable. The sales volume variance equals flexible budget sales minus the fixed budget sales or $79,440 - $79,950 = $510, unfavorable. A2
27 CORRECT

Which of the following is a characteristic of management by exception? Management by exception means that managers focus attention on the A) most significant variances and give less attention to areas where performance is reasonably close to the standard. B) The practice allows managers to concentrate on the irregular situations.

The practice can be extremely helpful when directed at controllable C) items. D) All of the above.

None of the above. E) Feedback: All of the above are characteristics of management by exception. C3