Deck 16: Fundamentals of Variance Analysis

Question 1

If the budgeted activity level is greater than the actual activity level,then the total budgeted costs of the master budget will be greater than the total budgeted costs of the flexible budget.The master budget is based on the budgeted activity level,while the flexible budget is based on the actual activity level.

Answer 1

True

Question 2

Variance analysis for fixed production costs is virtually the same as for variable production costs.There are no efficiency variances for fixed production costs.

Answer 2

False

Question 3

The sales price variance is the actual selling price per unit times the difference between budgeted number of units and the actual number of units sold.Sales price variance is the difference between actual and budgeted selling price times the actual number sold.

Answer 3

False

Question 4

In general,and holding all other things constant,an unfavorable variance decreases operating profits.Just as a favorable variance increases profits,an unfavorable variance decreases profits.

Question 5

In essence,the terms "master budget" and "operating budget" mean the same thing and can be used interchangeably.The operating budget is part of the master budget,along with financial budgets.

Question 6

The standard cost for a unit of output is the standard price per unit of input times the standard number of inputs per one unit of output.This is the definition of standard cost.

Question 7

It is possible to have a favorable direct material price variance and an unfavorable direct material efficiency variance.Purchasing a lower quality material will yield a favorable price variance (since it is less costly)but may result in an unfavorable efficiency because of higher than expected waste due to poor quality.

Question 8

A favorable variance is not necessarily good,and an unfavorable variance is not necessarily bad.A favorable or unfavorable variance in one period may have long term impacts in the opposite direction.

Question 9

The difference between operating profits in the master budget and operating profits in the flexible budget is called a sales price variance.This is a sales activity variance.

Question 10

Variances are the difference between actual results and budgeted results.This is a definition of a variance.

Question 11

The production volume variance is the difference between fixed costs on the flexible budget and the fixed costs on the master budget.The production volume variance is the difference between the fixed costs on the flexible budget and the fixed overhead applied to production.

Question 12

Both the actual material used and the standard quantity allowed for material is based on the actual output attained.Standard quantity allowed = standard per unit × actual output.

Question 13

The materials price variance is computed by multiplying the difference between the actual price and the standard price by the actual quantity of materials used in production.The materials price variance is computed by multiplying the difference between the actual and standard price by the actual quantity of materials purchased.

Question 14

Production cost variances are input variances,while sales activity variances are output variances.Costs are based on inputs,revenues are based on outputs.

Question 15

The sales activity variance is the result of a difference between budgeted units sold and actual units sold.This is the definition of the sales activity variance.

Question 16

The flexible and master budget amounts are the same for fixed marketing and administrative costs.Fixed costs do not change with changes in activity level within the relevant range.

Question 17

The budget (or spending)variance for fixed production costs is the difference between the actual fixed costs and the budgeted fixed costs on the master budget.This is the definition of the budget/spending variance.

Question 18

The direct labor efficiency variance can be the result of poor supervision or poor scheduling by divisional managers.Poor scheduling may cause wasted time.

Question 19

The terms "master budget" and "flexible budget" mean the same thing and can be used interchangeably.A master budget and a static budget mean the same thing.

Question 20

A flexible budget adjusts the static budget to reflect the actual activity level achieved during the period.This is a basic principle of a flexible budget.

Question 21

Which of the following statements is (are)true regarding the sales activity variance? (A)The sales activity variance is the actual selling price per unit times the difference between the budgeted units and actual units.(B)If the sales activity variance for sales revenue is unfavorable,then the contribution margin sales activity variance will be unfavorable.

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

Question 22

The basic difference between a master budget and a flexible budget is that a:

A)flexible budget considers only variable costs but a master budget considers all costs.
B)flexible budget allows management latitude in meeting goals whereas a master budget is based upon a fixed standard.
C)master budget is for an entire production facility but a flexible budget is applicable to single departments only.
D)master budget is based on one specific level of production and a flexible budget can be prepared for any production level within a relevant range.

Question 23

The most fundamental variance analysis compares:

A)standard material prices with actual material prices.
B)standard direct labor rates with actual direct labor rates.
C)budgeted sales revenue with actual sales revenue.
D)budgeted operating income with actual operating income.

Question 24

Which of the following statements is (are)true? (A)A favorable variance is not necessarily good,and an unfavorable variance is not necessarily bad.(B)The master budget includes operating budgets (e.g. ,production budget)and financial budgets (e.g. ,cash budget).

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

Question 25

When using a flexible budget,what will happen to variable costs on a per-unit basis as production increases within the relevant range?

A)Decrease.
B)Increase.
C)Remain unchanged.
D)Fixed costs are not considered in flexible budgeting.

Question 26

The sales price variance is the difference between the actual sales revenues and the:

A)budgeted selling price multiplied by the budgeted number of units sold.
B)budgeted selling price multiplied by the actual number of units sold.
C)actual selling price multiplied by the budgeted number of units sold.
D)actual selling price multiplied by the actual number of units solD.The sales price variance is derived from the difference between the actual revenue and budgeted selling price multiplied by the actual number of units solD.

Question 27

The purpose of the flexible budget is to:

A)allow management some latitude in meeting goals.
B)eliminate cyclical fluctuations in production reports by ignoring variable costs.
C)compare actual and budgeted results at virtually any level of production.
D)reduce the total time in preparing the annual budget.

Question 28

The difference between operating profits in the master budget and operating profits in the flexible budget is called:

A)sales activity variance.
B)flexible budget variance.
C)production volume variance.
D)total operating profit variance.

Question 29

The slope of the flexible budget-line is the:

A)selling price per unit.
B)variable cost per unit.
C)fixed cost per unit.
D)contribution margin per unit.

Question 30

Which of the following statements regarding variances is (are)false? (A)In general and holding all other things constant,an unfavorable variance decreases operating profits.(B)A favorable variance is not always good,and an unfavorable variance is not always bad.

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

Question 31

Which department is customarily held responsible for an unfavorable materials quantity variance?

A)Quality control.
B)Purchasing.
C)Engineering.
D)Production.

Question 32

When are the following direct materials variances ideally reported?

A)Option a
B)Option b
C)Option c
D)Option d

Question 33

A variance can best be described as:

A)benchmarks common to other firms in the same industry.
B)differences between planned results and actual results.
C)useful for performance evaluations but not making decisions.
D)generally accepted accounting principles when standards are useD.Variances are internal to a company and are useful for decision making as well as performance evaluation.The statement is a basic explanation of a variance.

Question 34

If the total materials variance for a given operation is favorable,why must this variance be further evaluated as to price and usage?

A)There is no need to further evaluate the total materials variance if it is favorable.
B)Generally accepted accounting principles require that all variances be analyzed in three stages.
C)All variances must appear in the annual report to equity owners for proper disclosure.
D)A further evaluation lets management evaluate the activities of the purchasing and production functions.

Question 35

The intercept of the flexible budget-line is total:

A)sales.
B)variable costs.
C)fixed costs.
D)contribution margin.

Question 36

In general,the terms favorable and unfavorable are used to describe the effect of a variance on:

A)net income.
B)sales revenue.
C)production costs.
D)operating expenses.

Question 37

In the general model,a price variance is calculated as:

A)(AP × AQ)- (AP × SQ)
B)(AP × SQ)- (SP × SQ)
C)(AP × AQ)- (SP × AQ)
D)(AP × AQ)- (SP × SQ)

Question 38

Which of the following variances will always be favorable when actual sales exceeds budgeted sales?

A)Variable cost.
B)Fixed cost.
C)Sales activity.
D)Operating profit.

Question 39

An operating budget would not include a:

A)cash budget.
B)sales budget.
C)labor budget.
D)production budget.

Question 40

In the general model,an efficiency variance is calculated as:

A)(SP × AQ)- (SP × SQ)
B)(AP × SQ)- (SP × SQ)
C)(AP × AQ)- (SP × SQ)
D)(AP × AQ)- (SP × AQ)

Question 41

What is the flexible budget contribution margin?

A)$39,000.
B)$45,000.
C)$52,000.
D)$58,000.

Question 42

Which variance will be unfavorable due to employees working more hours than allowed for the actual number of units produced?

A)Price (rate).
B)Efficiency.
C)Sales activity.
D)Production volume.

Question 43

The production volume variance is computed by the difference between the:

A)actual fixed overhead and applied fixed overhead.
B)actual fixed overhead and budget at actual level of activity reached.
C)actual fixed overhead and budget at denominator level of activity planned.
D)budget at actual levels of activity reached and fixed overhead applieD.Production volume = budget - applieD.

Question 44

Which of the following direct labor variances uses the standard hours allowed for the actual number of units produced?

A)Option a
B)Option b
C)Option c
D)Option d

Question 45

What is the actual sales revenue?

A)$156,000.
B)$169,000.
C)$180,000.
D)$191,000.

Question 46

Which of the following is not an alternative name for the production volume variance?

A)Capacity variance.
B)Idle capacity variance.
C)Denominator variance.
D)Fixed overhead efficiency variance.

Question 47

Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost.Arrow has established the following standards for the prime costs of one unit of product. During November,Arrow purchased 160,000 pounds of direct materials at a total cost of $304,000.The total factory wages for November were $42,000,90% of which were for direct labor.Arrow manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours.What is the direct materials efficiency (quantity)variance for November?

A)$14,250.
B)$14,400.
C)$16,000.
D)$17,100.

Question 48

What is the master budget contribution margin?

A)$52,000.
B)$47,500.
C)$45,000.
D)$39,000.

Question 49

The production volume variance must be computed when a company uses:

A)activity-based costing.
B)process costing.
C)job-order costing.
D)full-absorption costing.

Question 50

A debit balance in the labor-efficiency variance account indicates that:

A)standard hours exceed actual hours.
B)actual hours exceed standard hours.
C)standard rate and standard hours exceed actual rate and actual hours.
D)actual rate and actual hours exceed standard rate and standard hours.

Question 51

The variable overhead price variance is due to:

A)price items only.
B)efficiency items only.
C)both price and efficiency items.
D)neither price or efficiency items.

Question 52

Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost.Arrow has established the following standards for the prime costs of one unit of product. During November,Arrow purchased 160,000 pounds of direct materials at a total cost of $304,000.The total factory wages for November were $42,000,90% of which were for direct labor.Arrow manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours.What is the direct materials price variance for November?

A)$14,250.
B)$14,400.
C)$16,000.
D)$17,100.

Question 53

The Redrock Company uses flexible budgeting for cost control.Redrock produced 10,800 units of product during October,incurring indirect material costs of $13,000.Its master budget for the reflected indirect material costs of $180,000 at a production volume of 144,000 units.What was the flexible budget variance for the indirect material costs in October?

A)$1,100 favorable.
B)$1,100 unfavorable.
C)$2,000 favorable.
D)$2,000 unfavorable.
E)$500 favorable.

Question 54

What is the sales revenue in the flexible budget?

A)$139,000.
B)$156,000.
C)$169,000.
D)$180,000.

Question 55

Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost.Arrow has established the following standards for the prime costs of one unit of product. During November,Arrow purchased 160,000 pounds of direct materials at a total cost of $304,000.The total factory wages for November were $42,000,90% of which were for direct labor.Arrow manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours.What is the direct labor price (rate)variance for November?

A)$1,800.
B)$1,900.
C)$2,000.
D)$2,090.
E)$2,200.

Question 56

In general,the direct labor efficiency variance is the responsibility of the:

A)purchasing agent.
B)company president.
C)production manager.
D)industrial engineering.

Question 57

Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable labor efficiency variance?

A)The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid experienced individuals.
B)The mix of workers assigned to the particular job was heavily weighted towards the use of new relatively low paid unskilled workers.
C)Because of the production schedule,workers from other production areas were assigned to assist this particular process.
D)Defective materials caused more labor to be used in order to produce a standard unit.

Question 58

What is the master budget sales revenue?

A)$124,000.
B)$148,000.
C)$156,000.
D)$180,000.

Question 59

What is the activity variance for the variable manufacturing costs?

A)$4,000.
B)$14,000.
C)$24,000.
D)$34,000.

Question 60

Which of these variances is least significant for cost control?

A)Labor price variance.
B)Material quantity variance.
C)Fixed overhead price variance.
D)Production volume variance.

Question 61

What is the production volume variance for May?

A)$2,000.
B)$3,000.
C)$6,000.
D)$8,000.
E)$9,000.

Question 62

In analyzing company operations,the controller of the Jason Corporation found a $250,000 favorable flexible budget revenue variance.The variance was calculated by comparing the actual results with the flexible budget.This variance can be wholly explained by: (CMA adapted)

A)the total flexible budget variance.
B)the total static budget variance.
C)changes in unit selling prices.
D)changes in the number of units solD.Since the flexible budget is based on actual output,the variation could only come from the selling price.

Question 63

A standard cost system may be used in: (CPA adapted)

A)job-order costing but not process costing.
B)either joB.order costing or process costing.
C)process costing but not job-order costing.
D)neither process costing nor job-order costing.

Question 64

What is the fixed overhead spending (budget)variance for May?

A)$1,000 unfavorable.
B)$3,000 unfavorable.
C)$2,000 unfavorable.
D)$2,000 favorable.

Question 65

What is the production volume variance?

A)$200.
B)$400.
C)$300.
D)$240.

Question 66

Information for Nighttime Company's direct labor cost for February is as follows: What were the standard direct labor hours for February?

A)70,000.
B)69,000.
C)72,000.
D)71,400.

Question 67

Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost.Arrow has established the following standards for the prime costs of one unit of product. During November,Arrow purchased 160,000 pounds of direct materials at a total cost of $304,000.The total factory wages for November were $42,000,90% of which were for direct labor.Arrow manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours.What is the direct labor efficiency variance for November?

A)$1,800.
B)$1,900.
C)$2,000.
D)$2,090.

Question 68

The following information summarizes the standard cost for producing one metal tennis racket frame.In addition,the variances for one month's production are given.Assume that all inventory accounts have zero balances at the beginning of the month. What was the actual quantity of materials used during the month?

A)2,156.
B)2,100.
C)2,225.
D)1,975.

Question 69

The following information summarizes the standard cost for producing one metal tennis racket frame.In addition,the variances for one month's production are given.Assume that all inventory accounts have zero balances at the beginning of the month. What were the actual direct labor hours worked during the month?

A)5,000.
B)4,800.
C)4,200.
D)4,000.

Question 70

What is the fixed overhead spending (budget)variance?

A)$200.
B)$400.
C)$300.
D)$240.

Question 71

Data on Goodman Company's direct-labor costs are given below: What was Goodman's standard direct-labor rate?

A)$3.54.
B)$3.80.
C)$4.00.
D)$5.80.

Question 72

When a manager is concerned with monitoring total cost,total revenue,and net profit conditioned upon the level of productivity,an accountant should normally recommend: (CPA adapted)

A)Option a
B)Option b
C)Option c
D)Option d

Question 73

The following information summarizes the standard cost for producing one metal tennis racket frame.In addition,the variances for one month's production are given.Assume that all inventory accounts have zero balances at the beginning of the month. What was the actual price paid for the direct material during the month,assuming all materials purchased were put into production?

A)$4.34.
B)$4.22.
C)$4.11.
D)$4.00.

Question 74

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

A)2,500 hours.
B)2,400 hours.
C)2,250 hours.
D)1,800 hours.

Question 75

Dickey Company had total underapplied overhead of $15,000.Additional information is as follows: What is the actual total overhead for the period?

A)$50,000.
B)$45,000.
C)$80,000.
D)$87,000.

Question 76

Given the following information in standard costing: What is the total direct labor cost variance?

A)$3,160 favorable.
B)$3,160 unfavorable.
C)$2,360 favorable.
D)$2,360 unfavorable.

Question 77

Data on Goodman Company's direct-labor costs are given below: What was Goodman's actual direct-labor rate?

A)$3.60.
B)$3.80.
C)$4.00.
D)$5.80.

Question 78

The Landry Company has developed standards for labor.During June,75 units were scheduled and 100 were produced.Data related to labor are: What is the labor rate variance for June?

A)$30 unfavorable.
B)$31 favorable.
C)$31 unfavorable.
D)$30 favorable.

Question 79

The following data pertains to the direct materials cost for the month of October: What is the direct materials efficiency (quantity)variance?

A)$950 favorable.
B)$950 unfavorable.
C)$1,000 favorable.
D)$1,000 unfavorable.

Question 80

Information on Barber Company's direct labor costs for the month of January is as follows: What is Barber's direct labor price (rate)variance?

A)$17,250.
B)$20,700.
C)$18,750.
D)$21,000.