Deck 17: Additional Topics in Variance Analysis

Question 1

Some variances are the result of accounting errors and omissions,including timing differences.This would make the information less valuable for operating managers.

Answer 1

True

Question 2

The sales quantity variance is the same as the sales activity variance on a flexible budget performance report.Sales quantity + sales mix = sales activity.

Answer 2

False

Question 3

An increase in an industry's volume and a decrease in a company's market share implies that the company's sales price variance is unfavorable.There is no relation between market size and the price.The relationship is between market size and sales quantity.

Answer 3

False

Question 4

The direct material price variance is based on the quantity of materials purchased when the quantity purchased is different from the quantity used.The price variance is due to the purchasing activity and should be related to units purchased.

Question 5

The variable production cost variances are computed using the units produced instead of the units sold.Production variances are based on units produced.

Question 6

The market share variance is more controllable by the marketing department than the industry volume variance.The industry volume is due to external activities.Market share can be influenced more readily by the marketing staff.

Question 7

The basic variance analysis framework used for manufacturing companies can also be used in service organizations.The emphasis is more on labor and overhead but the same framework is used.

Question 8

The direct labor yield variance is unfavorable when the total hours worked during a period are less than the total standard hours allowed for the actual number of units produced.If less hours are worked it would be a favorable variance.

Question 9

Some variances are the result of standards that are inaccurate or do not reflect the current production process.Variances are only as good as the standards they are based on.

Question 10

Two important characteristics to consider when deciding how many variances to review are how large the variance is and the extent to which the variance can be managed.These are also called impact and controllability.

Question 11

The only variances that should be investigated are those for which the expected benefits of correction exceed the costs of investigating and correcting.This is a basic principle of cost-benefit.

Question 12

The production cost yield variance is conceptually the same as the sales quantity variance.Both measure expected output given a mix of products versus actual output.

Question 13

The industry volume variance is the portion of the sales activity variance due to a change in the company's proportion of sales in the markets in which they operate.This is the market share variance.Industry volume is due to changes in the overall size of the market.

Question 14

Labor variances are more important than material variances in service organizations.Labor is a much greater proportion of the inputs than are materials.

Question 15

If a company sells two products,it is possible for both products to have an unfavorable sales quantity variance.The quantity variance measures the difference between actual sales and budgeted sales.Both products could have sold fewer units than budgeted.

Question 16

If variances are not prorated at the end of the accounting period,they are closed to the Cost of Goods Sold.They are being treated as if they are period costs.

Question 17

The production mix variance measures the impact of substituting one material for another material during the production process.The production mix can be either materials or labor.

Question 18

Professional accounting firms could not compute a labor mix and labor yield variance for their auditors because labor in accounting is not substitutable.The labor is substitutable.

Question 19

If the number of units produced exceeds the number of units sold,the full-absorption operating profit will be lower than variable costing operating profit.Absorption costing operating profit will be greater since fixed production costs are going into inventory rather than into cost of goods sold.

Question 20

If a company sells two products,it is possible for both products to have a favorable sales mix variance.The mix variance measures the impact of substitution-if you sell more of one,you must have sold less of another.

Question 21

The Trey Company experienced a $100,000 shortfall in sales revenues for the year.Top management is quite disturbed about this and has decided to use variance analysis in assigning the responsibility for the decline.Which of the following variances would be most within the control of the marketing department?

A)Sales mix.
B)Market share.
C)Sales quantity.
D)Industry volume.

Question 22

Which of the following income statement items is analyzed using the sales mix and the sales quantity variances?

A)Operating expenses.
B)Cost of goods sold.
C)Gross margin.
D)Contribution margin.

Question 23

A credit balance in the labor yield variance implies:

A)the total units produced was greater than the expected number of units given the total labor hours actually used.
B)the total units produced was less than the expected number of units given the total labor hours actually used.
C)the total units produced was greater than the expected number of units given the total standard hours allowed.
D)the total units produced was less than the expected number of units given the total standard hours alloweD.This would be a favorable variance.

Question 24

The sales activity variance is equal to the sum of the market share variance and the:

A)selling price variance.
B)industry volume variance.
C)sales quantity variance.
D)sales mix variance.

Question 25

Which of the following statements is (are)true? (A)The market share variance is more controllable by the marketing department than the industry volume variance.(B)The industry volume variance is the portion of the sales activity variance due to a change in the company's proportion of sales in the markets in which they operate.

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 26

The labor yield variance is actual total hours at:

A)actual mix times actual labor rates less actual total hours at actual mix times standard labor rates.
B)actual mix times standard labor rates less standard total hours at standard mix times standard labor rates.
C)actual mix times standard labor rates less actual total hours at standard mix times standard labor rates.
D)standard mix times standard labor rates less standard total hours at standard mix times standard labor rates.

Question 27

Using the abbreviations listed below,what is the formula for the industry volume variance? AMS = actual market share
BMS = budgeted market share
BCM = budgeted contribution margin per unit
ACM = actual contribution margin per unit
ATM = actual total market
BTM = budgeted total market

A)(ATM - BTM)(BMS)(ACM)
B)(ATM - BTM)(BMS)(BCM)
C)(AMS - BMS)(ATM)(ACM)
D)(AMS - BMS)(ATM)(BCM)

Question 28

The sales quantity variance would be favorable when a company sells:

A)relatively fewer of the products bearing contribution margins lower than average.
B)relatively more of the products bearing contribution margins higher than average.
C)more total units than budgeted,holding the sales mix constant.
D)less total units than budgeted,holding the sales mix constant.

Question 29

The labor mix variance is actual total hours at:

A)actual mix times actual labor rates less actual total hours at actual mix times standard labor rates.
B)actual mix times standard labor rates less standard total hours at standard mix times standard labor rates.
C)actual mix times standard labor rates less actual total hours at standard mix times standard labor rates.
D)standard mix times standard labor rates less standard total hours at standard mix times standard labor rates.

Question 30

Which of the following statements is (are)true? (A)If variances are prorated at the end of the accounting period,an unfavorable direct materials price variance will,when prorated,increase the value of the Finished Goods Inventory.(B)Insignificant variances are not generally prorated at the end of the accounting period and are closed to the Cost of Goods Sold.

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 31

In a standard cost system,overhead is applied to production on a basis of:

A)the denominator hours chosen for the period.
B)the budgeted hours for the normal production level of activity.
C)the actual hours required to complete the output of the period.
D)the standard hours allowed to complete the output of the perioD.Standard costing uses standard hours,not actual or budgeteD.

Question 32

Using the abbreviations listed below,what is the market share variance? AMS = actual market share
BMS = budgeted market share
BCM = budgeted contribution margin per unit
ACM = actual contribution margin per unit
ATM = actual total market
BTM = budgeted total market

A)(ATM - BTM)(BMS)(ACM)
B)(ATM - BTM)(BMS)(BCM)
C)(AMS - BMS)(ATM)(ACM)
D)(AMS - BMS)(ATM)(BCM)

Question 33

One feature of a standard cost system is that it:

A)makes the record keeping process more complex and difficult.
B)never requires updating if standard costs have been carefully determined.
C)reduces the amount of information available to a manager.
D)simplifies the record keeping process by allowing amounts to be carried at standard cost rather than actual cost in the accounting records.

Question 34

The computation of the material yield variance does not require the:

A)standard material mix.
B)standard material price.
C)standard output units.
D)total material actually useD.
E)total material actually acquired.

Question 35

Which of the following sales variances is further analyzed into the market size and industry volume variances?

A)Quantity.
B)Efficiency.
C)Mix.
D)Activity.

Question 36

What is the correct journal entry to record direct labor when the actual labor mix is favorable and the total standard hours allowed is greater than the total actual hours worked?

A)Option A
B)Option B
C)Option C
D)Option D

Question 37

Which of the following statements is (are)false? (A)All variances should be prorated to inventories and cost of goods sold at the end of the accounting period.(B)If the number of units produced exceeds the number of units sold,the full-absorption operating profit will be lower than variable costing operating profit.

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 38

Standard costs should be based on:

A)perfect performance.
B)an average of past costs.
C)most likely level of performance.
D)reasonably attainable levels of efficiency.

Question 39

If raw materials are carried in the Direct Materials Inventory at standard cost,then it is reasonable to assume that the:

A)price variance is recognized when materials are purchased.
B)price variance is recognized when materials are placed into production.
C)company does not follow generally accepted accounting principles.
D)efficiency variance is recognized when the materials are purchaseD.

Question 40

What is the correct journal entry to record a favorable materials mix variance assuming all material variances are recognized when the direct materials are issued to production?

A)Option A
B)Option B
C)Option C
D)Option D

Question 41

Which of the following factors should not be considered when deciding whether to investigate a variance?

A)Absolute or relative magnitude of the variance.
B)Trend or pattern of the variance over time.
C)Chance that an "out-of-control" situation can be corrected.
D)Cost of investigating the underlying production process.
E)Whether the variance is favorable or unfavorable.

Question 42

The Heavenly Gifts Company,a maker of Holiday novelties,needs your help immediately.The company's accountant resigned without leaving adequate records or explanations for what she did.In reviewing the records,you find the following information for May: You find a copy of the budget which shows that materials were budgeted at $0.60/unit.You know that the materials price variance is recorded at the time of purchase and you find some handwritten notes among the accountant's work papers,which indicate the following: What was the total standard cost of direct materials allowed during May?

A)$8,260.
B)$8,400.
C)$9,440.
D)$9,600.

Question 43

A machine distributor sells two models,basic and deluxe.The following information relates to its master budget. Actual sales were 7,000 basic models and 2,800 deluxe models.The actual sales prices were the same as the budgeted sales prices for both models.What is the sales activity variance for the basic model?

A)$1,280,000.
B)$1,600,000.
C)$11,200,000.
D)$12,800,000.

Question 44

A company makes a product using two materials,one of which is interchangeable with a third material.The standards for producing one 200-pound batch are presented below.The last 200-pound batch was produced using 140 pounds of M and 90 pounds of O.The price of M was $0.03 per pound and the actual price of O was $0.10. What is the materials mix variance?

A)$1.68.
B)$3.00.
C)$1.32.
D)$0.84.

Question 45

A machine distributor sells two models,basic and deluxe.The following information relates to its master budget. Actual sales were 7,000 basic models and 2,800 deluxe models.The actual sales prices were the same as the budgeted sales prices for both models.What is the sales mix variance for the basic model?

A)$256,000.
B)$1,344,000.
C)$1,600,000.
D)$2,520,000.

Question 46

A machine distributor sells two models,basic and deluxe.The following information relates to its master budget. Actual sales were 7,000 basic models and 2,800 deluxe models.The actual sales prices were the same as the budgeted sales prices for both models.What is the sales quantity variance for the basic model?

A)$120,000.
B)$256,000.
C)$1,344,000.
D)$1,600,000.

Question 47

The Kinetic Modification Group (KMG)produces a gasoline additive,Gas Gain.This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process.Careful controls are required during the production process to insure that the proper mix of input chemicals is achieved and that evaporation is controlled.Loss of output and efficiency may result if the controls are not effective.The standard cost of producing a 500-liter batch of Gas Gain is $135.The standard materials mix and related standard cost of each chemical used in a 500-liter batch are: The quantities of chemicals purchased and used during the current production period are shown in the schedule below.A total of 140 batches of Gas Gain were manufactured during the current production period.The controller of KMG has determined its costs and chemical usage variations at the end of the production period. If KMG recognizes all variances at the earliest possible moment,what is the total material price variance?

A)$160.
B)$540.
C)$890.
D)$1,270.

Question 48

The Heavenly Gifts Company,a maker of Holiday novelties,needs your help immediately.The company's accountant resigned without leaving adequate records or explanations for what she did.In reviewing the records,you find the following information for May: You find a copy of the budget which shows that materials were budgeted at $0.60/unit.You know that the materials price variance is recorded at the time of purchase and you find some handwritten notes among the accountant's work papers,which indicate the following: What was the total standard cost of direct materials purchased during May?

A)$9,150.
B)$11,800.
C)$12,000.
D)$12,200.

Question 49

The next year's budget for Green,Inc. ,a multi-product company,is given below: At the end of the year,the total fixed costs and the variable costs per unit were exactly as budgeted,but the following units per product line were sold.Green analyzes the effects its sales variances have on the profitability of the company. What is the total sales mix variance?

A)$12,478.00.
B)$20,815.00.
C)$33,915.00.
D)$40,553.50.

Question 50

A machine distributor sells two models,basic and deluxe.The following information relates to its master budget. Actual sales were 7,000 basic models and 2,800 deluxe models.The actual sales prices were the same as the budgeted sales prices for both models.What is the sales quantity variance for the deluxe model?

A)$120,000.
B)$256,000.
C)$1,344,000.
D)$1,600,000.

Question 51

A machine distributor sells two models,basic and deluxe.The following information relates to its master budget. Actual sales were 7,000 basic models and 2,800 deluxe models.The actual sales prices were the same as the budgeted sales prices for both models.What is the sales mix variance for the deluxe model based?

A)$1,176,000.
B)$1,344,000.
C)$2,400,000.
D)$2,520,000.

Question 52

A machine distributor sells two models,basic and deluxe.The following information relates to its master budget. Actual sales were 7,000 basic models and 2,800 deluxe models.The actual sales prices were the same as the budgeted sales prices for both models.What is the sales activity variance for the deluxe model?

A)$400,000.
B)$800,000.
C)$1,600,000.
D)$2,400,000.

Question 53

The XYZ Company had the following expectations for the year: What is XYZ's market share variance?

A)$37,296.88.
B)$40,906.25.
C)$35,700.00.
D)$32,550.00.

Question 54

The Heavenly Gifts Company,a maker of Holiday novelties,needs your help immediately.The company's accountant resigned without leaving adequate records or explanations for what she did.In reviewing the records,you find the following information for May: You find a copy of the budget which shows that materials were budgeted at $0.60/unit.You know that the materials price variance is recorded at the time of purchase and you find some handwritten notes among the accountant's work papers,which indicate the following: What was the total actual cost of the direct materials purchased during May?

A)$9,000.
B)$11,800.
C)$12,000.
D)$12,200.

Question 55

The Genes Company makes a product,Z,from two materials: X and Y.The standard prices and quantities are as follows: In May,21,000 units of Z were produced by Genes Company,with the following actual prices and quantities of materials used: What is the total direct materials mix variance for May?

A)$12,000.
B)$24,000.
C)$36,000.
D)$60,000.

Question 56

The next year's budget for Green,Inc. ,a multi-product company,is given below: At the end of the year,the total fixed costs and the variable costs per unit were exactly as budgeted,but the following units per product line were sold.Green analyzes the effects its sales variances have on the profitability of the company. What is the total sales price variance?

A)$22,203.50.
B)$28,442.50.
C)$50,646.50.
D)$79,088.50.

Question 57

The Wilbur Company gathered the following information for the year. What is the total sales mix variance?

A)$705,600.
B)$403,200.
C)$302,400.
D)$100,800.

Question 58

There are several reasons why actual results differ from standards.Which of the following does not represent a reason why a variance might occur?

A)Inaccurate information from the accounting system.
B)Increasing the accuracy of a variance report by decreasing its timeliness.
C)Standards which do not reflect the current economic conditions.
D)Operating conditions that are consistently inefficient.

Question 59

The Genes Company makes a product,Z,from two materials: X and Y.The standard prices and quantities are as follows: In May,21,000 units of Z were produced by Genes Company,with the following actual prices and quantities of materials used: What is the total direct material yield variance for May?

A)$45,000.
B)$81,000.
C)$109,800.
D)$117,000.

Question 60

The Kinetic Modification Group (KMG)produces a gasoline additive,Gas Gain.This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process.Careful controls are required during the production process to insure that the proper mix of input chemicals is achieved and that evaporation is controlled.Loss of output and efficiency may result if the controls are not effective.The standard cost of producing a 500-liter batch of Gas Gain is $135.The standard materials mix and related standard cost of each chemical used in a 500-liter batch are: The quantities of chemicals purchased and used during the current production period are shown in the schedule below.A total of 140 batches of Gas Gain were manufactured during the current production period.The controller of KMG has determined its costs and chemical usage variations at the end of the production period. What is the total materials yield variance?

A)$388.50.
B)$294.50.
C)$280.00.
D)$94.50.

Question 61

A manufacturer of industrial equipment has a standard costing system based on standard direct labor-hours (DLHs)as the measure of activity.Data from the company's flexible budget for manufacturing overhead are given below: The following data pertain to operations for the most recent period: What is the predetermined overhead rate to the nearest cent?

A)$16.97.
B)$17.25.
C)$16.59.
D)$17.65.

Question 62

Folsom Fashions sells a line of women's dresses.Folsom's performance report for November is shown below: (CMA adapted) The company uses a flexible budget to analyze its performance and to measure the effect on operating income of the various factors affecting the difference between budgeted and actual operating income. What additional information is needed for Folsom to calculate the dollar impact of a change in market share on operating income for November? (CMA adapted)

A)Folsom's budgeted market share and the budgeted total market size.
B)Folsom's budgeted market share,the budgeted total market size,and average market selling price.
C)Folsom's budgeted market share and the actual total market size.
D)Folsom's actual market share and the actual total market size.

Question 63

The budget for a given cost during a given period was $80,000.The actual cost for the period was $72,000.Considering these facts,the plant manager has done a better-than-expected job in controlling the cost if: (CPA adapted)

A)the cost is variable and actual production was 90% of budgeted production.
B)the cost is variable and actual production equals budgeted production.
C)the cost is variable and actual production was 80% of budgeted production.
D)the cost is a discretionary fixed cost and actual production equals budgeted production.

Question 64

Compound K47E is used to make Goforth Corporation's major product.The standard cost of compound K47E is $24.50 per ounce and the standard quantity is 6.1 ounces per unit of output.In the most recent month,5,030 ounces of the compound were used to make 700 units of the output.When recording the use of materials in production,Raw Materials would be:

A)credited for $123,235.
B)debited for $123,235.
C)debited for $104,615.
D)credited for $104,615.

Question 65

When the actual amount of a raw material used in production is greater than the standard amount allowed for the actual output,the journal entry would include:

A)debit to Raw Materials;credit to Materials Quantity Variance.
B)debit to Work-In-Process;credit to Materials Quantity Variance.
C)debit to Raw Materials;debit to Materials Quantity Variance.
D)debit to Work-In-Process;debit to Materials Quantity Variance.

Question 66

The exhibit below reflects a summary of performance for a single item of a retail store's inventory for the month ended April 30: (CIA adapted) The sales volume variance is:

A)$10,000 favorable.
B)$10,000 unfavorable.
C)$11,000 favorable.
D)$12,000 unfavorable.

Question 67

Compound Q11H is a raw material used to make Grater Corporation's major product.The standard cost of compound Q11H is $23.00 per ounce and the standard quantity is 3.8 ounces per unit of output.Data concerning the compound for October appear below: The raw material was purchased on account.The debit to the Raw Materials account for October would total:

A)$52,900.
B)$52,440.
C)$48,760.
D)$53,130.

Question 68

Folsom Fashions sells a line of women's dresses.Folsom's performance report for November is shown below: (CMA adapted) The company uses a flexible budget to analyze its performance and to measure the effect on operating income of the various factors affecting the difference between budgeted and actual operating income. The sales price variance for November is:

A)$30,000 unfavorable.
B)$18,000 unfavorable.
C)$20,000 unfavorable.
D)$15,000 unfavorable.

Question 69

A manufacturer of industrial equipment has a standard costing system based on standard direct labor-hours (DLHs)as the measure of activity.Data from the company's flexible budget for manufacturing overhead are given below: The following data pertain to operations for the most recent period: How much overhead was applied to products during the period to the nearest dollar?

A)$44,712.
B)$44,125.
C)$43,125.
D)$44,850.

Question 70

Sample Inc.has the following information: What was the standard direct labor rate?

A)$3.50.
B)$3.80.
C)$4.00.
D)$5.80.

Question 71

A company makes a product using two materials,one of which is interchangeable with a third material.The standards for producing one 200-pound batch are presented below.The last 200-pound batch was produced using 140 pounds of M and 90 pounds of O.The price of M was $0.03 per pound and the actual price of O was $0.10. What is the materials yield variance?

A)$1.12.
B)$1.68.
C)$3.00.
D)$1.32.

Question 72

Compound Q11H is a raw material used to make Grater Corporation's major product.The standard cost of compound Q11H is $23.00 per ounce and the standard quantity is 3.8 ounces per unit of output.Data concerning the compound for October appear below: The raw material was purchased on account.The Materials Quantity Variance for October would be recorded as a:

A)credit of $3,680.
B)debit of $4,140.
C)credit of $4,140.
D)debit of $3,680.

Question 73

Compound Q11H is a raw material used to make Grater Corporation's major product.The standard cost of compound Q11H is $23.00 per ounce and the standard quantity is 3.8 ounces per unit of output.Data concerning the compound for October appear below: The raw material was purchased on account.The credit to the Raw Materials account for October would total:

A)$52,440.
B)$48,760.
C)$52,900.
D)$53,130.

Question 74

Compound Q11H is a raw material used to make Grater Corporation's major product.The standard cost of compound Q11H is $23.00 per ounce and the standard quantity is 3.8 ounces per unit of output.Data concerning the compound for October appear below: The raw material was purchased on account.The Materials Price Variance for October would be recorded as a:

A)debit of $230.
B)credit of $212.
C)debit of $212.
D)credit of $230.

Question 75

For a company that produces more than one product,the sales volume variance can be divided into which two of the following additional variances? (CMA adapted)

A)Sales price variance and flexible budget variance.
B)Sales mix variance and sales price variance.
C)Sales efficiency variance and sales price variance.
D)Sales quantity variance and sales mix variance.

Question 76

Durrant Corporation has provided the following data concerning its most important raw material,compound O96H: When recording the use of materials in production,Raw Materials would be:

A)debited for $55,930.
B)debited for $54,264.
C)credited for $55,930.
D)credited for $54,264.

Question 77

Folsom Fashions sells a line of women's dresses.Folsom's performance report for November is shown below: (CMA adapted) The company uses a flexible budget to analyze its performance and to measure the effect on operating income of the various factors affecting the difference between budgeted and actual operating income. The effect of the sales quantity variance on the contribution margin for November is:

A)$30,000 unfavorable.
B)$18,000 unfavorable.
C)$20,000 unfavorable.
D)$15,000 unfavorable.

Question 78

Sample Inc.has the following information: What was Sample's actual direct labor rate?

A)$3.60.
B)$3.70.
C)$3.80.
D)$3.90.