Deck 10: Standard Costs and Performance Reports

Question 1

A responsibility accounting system is a system that assigns responsibility for various accounting functions.

Answer 1

False

Question 2

A revenue center is a organizational unit whose manager is responsible for the amount of revenues generated by the unit.

Answer 2

True

Question 3

An investment center manager would be responsible only for revenues, costs, and profits.

Answer 3

False

Question 4

A static budget is a budget prepared before the beginning of the budget period based on expected level of operations; whereas, a flexible budget is prepared after the fact based on actual operations.

Question 5

If the actual level of activity for a period is greater than the level budgeted before the period began, a performance report of operating costs based on a flexible budget will likely show more favorable than unfavorable variances.

Question 6

A standard cost of a product is the amount that it should cost to produce a given product as determined by the International Cost Standards organization.

Question 7

Unfavorable materials quantity variances may be partially explained by favorable materials price variances.

Question 8

A labor efficiency variance results from the inefficient use of labor quantity to produce a given amount of product or service.

Question 9

A variable overhead efficiency variance can be caused by using more than the allowed quantity of the various components of variable overhead.

Question 10

The net sales volume variance is a measure of the difference between actual and budgeted sales volume times the budgeted contribution margin.

Question 11

It is not possible to reconcile the differences between actual and budgeted net income for an entire organization with multiple responsibility centers.

Question 12

Both investment center and cost center managers are responsible for managing:

A) Revenues
B) Net income
C) Costs
D) Contribution margins

Question 13

Which of the following is not an example of a responsibility center?

A) A cost center
B) A revenue center
C) An activity center
D) An investment center

Question 14

The manager of an investment center is responsible for all of the following except:

A) Decisions regarding corporate overhead
B) Decisions regarding revenues
C) Decisions to invest in assets
D) Decision regarding costs

Question 15

In what way does a cost center differ from either an investment center or a profit center?

A) Cost centers are a much less common component of current business organizations, given the increased emphasis on value chain analysis.
B) A cost center is always smaller than either an investment center or a profit center.
C) A cost center recognizes neither revenues nor computes income.
D) Both A and B are correct.

Question 16

Which of the following facets of performance reporting is most likely to lead employees to distrust the entire budgeting and performance evaluation system?

A) Tight standards
B) Well-defined standards
C) Budget participation
D) Static qualifiers

Question 17

Structuring performance reports and addressing them to individuals as group members of an organization in a manner that emphasizes factors that can be controlled by them is accomplished by using which of the following?

A) Absorption costing
B) Value chain analysis
C) Responsibility accounting
D) Relational concepts

Question 18

When using responsibility accounting, noncontrollable costs should be excluded from which reports?

A) Discretionary cost reports
B) Performance reports
C) Financial statements
D) Tax filings

Question 19

The approach toward management that considers the absence of significant differences between planned and actual results as an indication that everything is proceeding as planned is known as:

A) The control principal
B) The Peter principal
C) Budget constraints
D) Management by exception

Question 20

Standard costs:

A) Indicate what it should cost to produce one unit of a product under efficient operating conditions
B) Should be used in planning and controlling all costs
C) Should be developed from average historical costs
D) Are determined by regulators

Question 21

A flexible budget variance for a manufacturing cost is computed as the difference between:

A) Flexible budget costs and static budget costs
B) Actual costs and flexible budget costs
C) Departmental costs and cost center costs
D) Flexible budget costs and original budget costs

Question 22

Budgets based on the actual level of output, rather than the output originally budgeted, are called:

A) Activity budgets
B) Flexible budgets
C) Operating budgets
D) Static budgets

Question 23

By using time and motion studies, it is possible to determine how long it takes to perform an activity. This information is often used to formulate:

A) Standard allowances for labor hours
B) Standard labor prices
C) Standard allowances for materials
D) Standard material prices

Question 24

Assume that the standard cost to make one unit of product includes 12 units of raw materials at a price of $2 per unit. In Aug, 17,000 units of raw materials were purchased for $50,800, and 12,300 units of raw materials were used to produce 1,000 units of finished product.
What is the materials quantity variance?

A) $ 600 (U)
B) $1,800 (U)
C) $ 600 (F)
D) $1,200 (U)

Question 25

Assume that the standard cost to make one finished unit includes 1 hour of direct labor at $4 per hour. During March, 11,000 direct labor-hours were worked, 5,250 units of product were manufactured, and total direct labor cost was $40,000.
What is the labor rate variance for April?

A) $2,000 (U)
B) $2,000 (F)
C) $4,000 (U)
D) $4,000 (F)

Question 26

The difference between an actual cost number and the related standard cost number is:

A) A discretionary cost
B) An inflation adjustment
C) A standard cost variance
D) Budget overrun

Question 27

The objective of standard cost variance analysis is:

A) To identify standard cost variances and to explain the reasons for their occurrences
B) To explore the reason or reasons for variation in sales prices of products offered in the company's main line of business
C) To identify the standard deviation in budgeted numbers over a period of time
D) To purge cost data of the effects of inflation

Question 28

Which of the following descriptions best defines the materials quantity variance?

A) The difference between the static budget cost of materials used and the actual cost of materials
B) The difference between the actual cost of materials and the flexible budget cost of materials
C) The difference between the standard cost of actual materials used and the flexible budget cost for materials
D) The variation in number of units produced and available capacity

Question 29

Which of these factors is not a possible cause for a favorable materials price variance?

A) Quantity discounts
B) Purchasing higher quality materials than required
C) Purchasing from a distress seller
D) Purchasing a discontinued item

Question 30

Which of the following factors describes a possible cause for an unfavorable materials price variance?

A) Last minute purchases
B) Vendors flooding the marketplace with their products
C) Purchasing low quality materials
D) Making a long-term commitment with one vendor for a specific raw material

Question 31

Which factor listed below is a cause for favorable materials quantity variances?

A) Higher machine usage hours than anticipated
B) Lower worker efficiency than anticipated
C) Securing a more favorable price on materials than anticipated
D) Using higher quality materials than required in the standard cost system

Question 32

Which factor listed below is a possible cause for unfavorable materials quantity variances?

A) Producing output at 60% capacity rather than at 50%
B) Hiring cheap labor
C) Using higher quality, but more costly materials than budgeted
D) Buying a new machine on which to produce the products

Question 33

If the actual labor rate exceeds the standard labor rate and if the actual labor-hours exceed the number of hours allowed, the total labor flexible budget variance will be:

A) Favorable
B) Unfavorable
C) Equal to labor rate variance
D) Unable to be determined

Question 34

A materials price variance is computed as the difference between:

A) Actual materials cost and standard materials cost of standard inputs
B) Standard materials cost of actual inputs and standard materials costs of standard inputs
C) Standard materials cost of standard inputs and actual materials cost incurred
D) Actual materials cost and standard materials cost of actual inputs

Question 35

Who of the following individuals is most likely responsible for an unfavorable materials price variance?

A) The production supervisor
B) The supervisor of the accounting department
C) The personnel director
D) The purchasing manager

Question 36

The management of Green Energy Manufacturing is analyzing variable overhead variances for the fiscal period just ended. The flexible budget called for $176,000 in variable overhead but actual variable overhead was $100,000. In computing the overhead variances, Green's management discovered that it had used 40,000 pounds of direct material, rather than the budgeted amount of 44,000 pounds. (Pounds of direct material is the single overhead driver of variable overhead). The standard variable overhead rate per pound of direct material is $2.00.
What is Green's variable overhead efficiency variance?

A) $16,000 (F)
B) $ 8,000 (F)
C) $24,000 (U)
D) $ 8,000 (U)

Question 37

The management of Green Energy Manufacturing is analyzing variable overhead variances for the fiscal period just ended. The flexible budget called for $176,000 in variable overhead but actual variable overhead was $100,000. In computing the overhead variances, Green's management discovered that it had used 40,000 pounds of direct material, rather than the budgeted amount of 44,000 pounds. (Pounds of direct material is the single overhead driver of variable overhead). The standard variable overhead rate per pound of direct material is $2.00.
What is Green's variable overhead spending variance?

A) $20,000 (U)
B) $80,000 (U)
C) $36,000 (U)
D) $20,000 (F)

Question 38

The variable overhead efficiency variance measures:

A) The overall effectiveness of the production supervisor's performance
B) The degree to which variable overhead has varied over a period of time
C) The degree of efficiency in using variable overhead items such as indirect materials
D) The amount of variable overhead that should have been saved or incurred due to the efficient or inefficient use of the activity base

Question 39

Lance Production Company has the following information:
Standard factory overhead rates are based on a normal monthly volume of 5,000 units (1 standard direct labor-hour per unit).
What is Lance's variable overhead efficiency variance?

A) $ 6,000 (U)
B) $ 4,000 (F)
C) $-0-
D) $3,000 (F)

Question 40

The difference between the standard variable overhead cost for the actual inputs of the measurement base and the flexible budget cost allowed for variable overhead based on outputs is known as the:

A) Variable overhead spending variance
B) Variable overhead efficiency variance
C) Fixed overhead budget variance
D) Fixed overhead volume variance

Question 41

The variance that measures the amount of variable overhead that should have been saved (or incurred) because of the efficient (or inefficient) use of the measurement base is the:

A) Variable overhead spending variance
B) Variable overhead efficiency variance
C) Fixed overhead budget variance
D) Fixed overhead volume variance

Question 42

The total fixed overhead flexible budget variance is equal to the:

A) Sum of the budget and volume variances for fixed overhead
B) Sum of the spending and quantity variances for fixed overhead
C) Budget variance for fixed overhead
D) Difference between actual fixed overhead and the amount applied to production

Question 43

Net sales volume variance will not be favorable:

A) When actual units sold is greater than budgeted sales volume
B) When actual units sold is less than budgeted sales volume
C) When the sales volume variance is favorable
D) Under any of the above conditions

Question 44

Which of the following costs would not be considered an order getting-cost?

A) The cost of advertising
B) The cost of prospect lists
C) The cost of packaging
D) The cost of entertainment of clients

Question 45

Which of the following costs would not be considered an order filling costs?

A) The cost of storing items
B) The cost of packaging
C) The salesperson's commission
D) The cost of shipping

Question 46

Hansen Division operates as a revenue center. Data for this year are as follows:
What is the total revenue variance?

A) $180,000 (U)
B) $360,000 (F)
C) $ 90,000 (F)
D) $180,000 (F)

Question 47

Firebrick Company's budgeted sales were 10,000 units at $200 per unit. Actual sales were 2,250 units at $210 per unit.
Firebrick's sales price variance was:

A) $ 34,000 (U)
B) $ 22,500 (F)
C) $ 90,000 (F)
D) $ 45,000 (F)

Question 48

Which of the following items must be known to calculate the standard fixed overhead rate per unit?

A) The actual level of activity for actual production
B) The standard level of activity for normal production
C) The actual direct materials used
D) The budgeted standard level of activity

Question 49

The total fixed overhead flexible budget variance is equal to the:

A) Sum of the budget and volume variances for fixed overhead
B) Sum of the spending and quantity variances for fixed overhead
C) Budget variance for fixed overhead
D) Difference between actual fixed overhead and the amount applied to production

Question 50

Which of the following variances is sometimes referred to as the capacity variance?

A) Total fixed overhead flexible budget variance
B) Fixed overhead volume variance
C) Total variable overhead flexible budget variance
D) Fixed overhead budget variance

Question 51

The management of Brickstone Industries is analyzing fixed manufacturing overhead variances for the fiscal period just ended. It notices that the total fixed manufacturing overhead variance was $240,000 Unfavorable and that the fixed overhead budget variance was $100,000 Favorable. However, Brickstone's accountants had failed to calculate the fixed overhead volume variance. The standard fixed overhead rate was $10 per machine hour.
What is Brickstone's fixed overhead volume variance?

A) $140,000 (F)
B) $340,000 (F)
C) $200,000 (U)
D) $340,000 (U)

Question 52

The management of Lorraine Enterprises is analyzing fixed manufacturing overhead variances for the fiscal period just ended. It notices that the total fixed manufacturing overhead variance was $360,000 Unfavorable and that the fixed overhead budget variance was $140,000 Favorable. However, Lorraine's accountants had failed to calculate the fixed overhead volume variance. The standard fixed overhead rate was $20 per machine hour and Lorraine had allowed for 18,000 machine hours.
What is the amount of Lorraine's budgeted cost for fixed manufacturing overhead?

A) $180,000
B) $860,000
C) $430,000
D) $340,000

Question 53

The management of XYZ Company is analyzing fixed manufacturing overhead variances for the fiscal period just ended. For the period, XYZ had budgeted $400,000 in total fixed manufacturing overhead but had actually incurred $500,000. Also, the standard fixed overhead rate was $10 per machine hour and XYZ had allowed for 25,000 machine hours.
What is XYZ's fixed overhead volume variance?

A) $200,000 (F)
B) $300,000 (U)
C) $200,000 (U)
D) $150,000 (U)

Question 54

The management of Brown & Company is analyzing fixed manufacturing overhead variances for the fiscal period just ended. For the period, Brown & Company had budgeted $800,000 in fixed manufacturing overhead but had actually incurred $580,000. Also, the standard fixed overhead rate was $20 per machine hour and Brown & Company had allowed for 50,000 machine hours.
What is Brown & Company's fixed overhead budget variance?

A) $ 220,000 (F)
B) $ 220,000 (U)
C) $ 600,000 (F)
D) $ 440,000 (F)

Question 55

The volume variance is caused by:

A) The difference between the activity allowed for the actual output and the budgeted activity used in computing the fixed overhead rate
B) The difference between total budgeted fixed overhead and total standard fixed overhead assigned to production
C) The difference between the activity allowed for the actual output and the total standard fixed overhead assigned to production
D) The difference between the standard fixed overhead rate and the actual fixed overhead rate

Question 56

For planning and control purposes, fixed overhead is not included in the standard cost per unit because:

A) It is incurred based on the number of units produced.
B) The number of units produced does not vary from period to period.
C) It can best be controlled on a lump-sum basis.
D) It is a fixed cost for more than one item.

Question 57

Blue Lite manufactures decorative weather vanes that have a standard materials cost of two pounds of raw materials at $2 per pound. During November 500 pounds of raw materials costing $4 per pound were used in making 450 weather vanes.
The materials price and quantity variance are:

A) Material Price Variance 1,000 F, Material Quantity variance 800 F
B) Material Price Variance 1,000 U, Material Quantity variance 800 F
C) Material Price Variance 500 F, Material Quantity variance 400 U
D) Material Price Variance 500 U, Material Quantity variance 400 F

Question 58

Connell manufactures specialty electronic circuitry through a unique photo-electronic process. One of the primary products, Model GT40, has a standard labor time of 0.5 hour and a standard labor rate of $7.00 per hour. During March, the following activities pertaining to direct labor for GT40 were recorded:
The Labor rate variance and Labor efficiency variance are:

A) Labor rate variance $2,000 U, Labor efficiency variance $3,500 F
B) Labor rate variance $1,000 F, Labor efficiency variance $3,500 F
C) Labor rate variance $2,000 F, Labor efficiency variance $1,000 F
D) Labor rate variance $2,000 F, Labor efficiency variance $3,500 U

Question 59

The best cost driver that Johnson has for variable factory overhead in the assembly department is machine hours. During July, the company budgeted 360 machine hours and $3,240 for its Oklahoma plant's assembly department. The actual variable overhead incurred was $3,435, which was related to 375 machine hours.
The variable overhead spending variance and variable overhead efficiency variance are:

A) Variable overhead spending variance $60 U, Variable overhead efficiency variance $135 U
B) Variable overhead spending variance $30 U, Variable overhead efficiency variance $135 U
C) Variable overhead spending variance $135 U, Variable overhead efficiency variance $30 U
D) Variable overhead spending variance $60 F, Variable overhead efficiency variance $135 U

Question 60

Jacksonville uses a standard cost system for each of its refineries. For the Louisiana refinery, the monthly fixed overhead budget is $8,000 for a planned output of 5,000 barrels. For September, the actual fixed cost was $8,750 for 5,100 barrels.
The fixed overhead budget variance is:

A) $ 800 U
B) $ 750 U
C) $ 875 F
D) $1,500 F

Question 61

Jacksonville uses a standard cost system for each of its refineries. For the Louisiana refinery, the monthly fixed overhead budget is $8,000 for a planned output of 5,000 barrels. For September, the actual fixed cost was $8,750 for 5,100 barrels.
If fixed overhead is applied on a per-barrel basis, the fixed overhead volume variance is:

A) $8,000 F
B) $8,160 U
C) $ 160 F
D) $ 160 U

Question 62

Illinois Instruments sells handheld communication devices for $75 during August as a back-to-school special. The normal selling price is $125. The standard variable cost for each device is $95. Sales for August had been budgeted for 400 units nationwide; however, due to the slowdown in the economy, sales were only 300.
The sales price variance and sales volume variance are:

A) Sales price variance $15,000 F, Sales volume variance $12,500 F
B) Sales price variance $15,000 U, Sales volume variance $12,500 U
C) Sales price variance $12,500 F, Sales volume variance $15,000 F
D) Sales price variance $12,500 U, Sales volume variance $15,000 U

Question 63

Old Stone Company management is analyzing the company's standard cost variances for direct materials for the most recent period. The following information was available from company records.
There were no increases or decreases in inventories during the period. Calculate the materials quantity variance for the period.

Question 64

Next Generation Company management is analyzing the company's standard cost variances for direct materials for the most recent period. The following information was available from company records.
There were no increases or decreases in inventories during the period. Calculate the materials price variance for the period.

Question 65

CRS Engineering Company uses a standard cost system. The following information pertains to 2017:
Calculate CRS's labor efficiency variance.

Question 66

The management of Kaplan Enterprises is analyzing variable overhead variances for the fiscal period just ended. During the period, Kaplan's management used 5,000 hours of direct labor. It had budgeted to use 8,000 hours of direct labor. Hours of direct labor is the single overhead driver of variable overhead. Variable overhead consists of two items. Indirect labor was budgeted as $2.00 per hour of direct labor. Indirect materials was budgeted as $1.00 per hour of direct labor. Actual variable overhead was $30,000.
Calculate Kaplan's variable overhead efficiency variance.

Question 67

The management of Kaplan Enterprises is analyzing variable overhead variances for the fiscal period just ended. During the period, Kaplan's management used 5,000 hours of direct labor. It had budgeted to use 8,000 hours of direct labor. Hours of direct labor is the single overhead driver of variable overhead. Variable overhead consists of two items. Indirect labor was budgeted as $2.00 per hour of direct labor. Indirect materials was budgeted as $1.00 per hour of direct labor. Actual variable overhead was $30,000.
Calculate Kaplan's variable overhead spending variance.

Question 68

Cameron Company's budgeted sales were 4,000 units at $30 per unit. During 2017 it had actual sales of 3,800 units at $33 per unit. Budgeted variable costs were $15 per unit.
Calculate Cameron's sales volume variance.

Question 69

The following budgeted and actual volume and cost data are for July of this year:
a. Prepare a static budget analysis of production costs for July of this year.
b. Prepare a flexible budget analysis of production costs for July of this year.

Question 70

Xing Pahang Products had the following variances for the year 2017:
These variances were based on a standard of 12,000 total labor hours allowed (to produce 2,000 actual units) and a standard of $10 per hour of labor.
How many total hours did it actually take Xing Pahang employees to make 2,000 units?

Question 71

Al Fabricating Company uses a standard cost system. The following information pertains to 2017:
Calculate Al's standard labor rate for 2017.

Question 72

The management of Sawmill Industries is analyzing variable overhead variances for the fiscal period just ended. It notices that the total flexible budget variable overhead variance was $120,000 Favorable and that the variable overhead spending variance was $260,000 Favorable. However, Sawmill's accountants had failed to calculate the variable overhead efficiency variance. Management examined the budget and discovered that the flexible budget had allowed for $600,000 variable overhead. It also discovered that actual usage of direct materials (the single variable overhead cost driver) was 100,000 pounds.
Calculate Sawmill's variable overhead efficiency variance.

Question 73

Instant Manufacturing Company has the following information for this year. Standard factory overhead based on normal monthly activity of 40,000 direct labor-hours for 40,000 units is:
Actual costs for 38,000 labor-hours were $196,000, of which $76,000 was fixed. Actual production was 38,400 units.
Calculate the following variances:
a. Variable overhead spending
b. Variable overhead efficiency
c. Fixed overhead budget

Question 74

Jasmin Company's budgeted sales were 2,000 units at $50 per unit. During 2017 it had actual sales of 1,800 units at $55 per unit. Budgeted variable costs were $30 per unit.
Calculate Jasmin's net sales volume variance.

Question 75

Prince Company uses standard costs to control materials costs. The standards call for 3 pounds of materials for each finished unit produced. The standard cost per pound of materials is $2.00. During May, 5,000 finished units were manufactured, 10,000 pounds of materials were used. The price paid for materials was $2.25 per pound. There were no beginning or ending materials inventories.
Required:
a. Determine the flexible budget materials cost for the manufacture of 5,000 finished units.
b. Determine the actual materials cost incurred for the manufacture of 5,000 finished units, and compute the total (flexible budget) materials variance.
c. How much of the difference between the answers to requirements (a) and (b) was related to the price paid for the purchase of materials?
d. How much of the difference between the answers to requirements (a) and (b) was related to the quantity of materials used?

Question 76

The Red Company manufactures decorative scarecrows that have a standard cost of $1.75 per pound for direct materials used in the manufacturing process. During October, 15,000 pounds of materials were purchased for $2.00 per pound, and 12,000 pounds were actually used in making 5,000 scarecrows. There were no beginning inventories.
Required:
a. Determine the materials price variance assuming that materials costs are the responsibility of the materials purchasing manager.
b. Determine the materials price variance assuming that materials costs are the responsibility of the production manager.
c. Determine the material quantity variance if the standard materials for each scarecrow are 3 pounds.
d. Discuss the issues involved in determining the price variance at the point of purchase versus the point of consumption.

Question 77

Charlene Company has set labor costs at $24 per unit of output, based on 3 hours allowed to produce each finished unit. Last month, 1,500 direct labor hours were used, and 750 units of output were manufactured at a total cost of $36,000.
Required:
a. Determine the labor rate variance.
b. Determine the labor efficiency variance.
c. If the company used fewer direct labor hours than those reflected in the standards, which variance would be affected? Explain.

Question 78

Liquid Company manufactures a single product that has a standard materials cost of $20 (2 units of raw materials at $10 per unit), standard direct labor cost of $18 (1 hour per unit), and standard variable overhead cost of $8 (based on direct labor-hours). Fixed overhead is budgeted at $34,000 per month.
The following data pertain to operations for May of this year:
Required:
a. Compute the following variances (show calculations):
1. Materials quantity variance
2. Labor rate variance
3. Labor efficiency variance
4. Variable overhead spending variance
5. Variable overhead efficiency variance
6. Fixed overhead budget variance
b. Give one possible explanation for each of the six variances computed in requirement (a).

Question 79

Early in September of this year, Frank Company's long-time supplier, the Lloyd Company, was closed unexpectedly because of a labor strike. Frank was forced to seek a backup supply source. After considerable delay, raw materials were obtained, but they were of significantly lower quality than those Lloyd provided, and they were more expensive because of special handling required to rush the orders. The delay created an unusual increase in idle time during the month; and once production resumed, the poor quality raw materials produced reductions in labor and machine productivity and increases in materials waste. Noticing a decline in employee morale, the plant manager decided to provide a company-sponsored employee picnic at the end of the month. By the beginning of October, Lloyd Company employees were back to work and Frank's operations were back to normal.
Required:
Identify factors from the problem that would likely cause the Frank Company to experience unfavorable variances. Indicate which of the following variance(s) was most likely affected by the factors identified in your answer.
.Materials price variance
.Materials quantity variance
.Labor efficiency variance
.Variable overhead spending variance
.Variable overhead efficiency variance
.Fixed overhead budget variance

Question 80

The following budgeted and actual contribution statement is for a component sold by Jana, Inc. for July of this year:
Required:
a. Compute the sales price variance, the net sales volume variance, and the operating cost variance for July.
b. How would you evaluate the performance of Jana, Inc.'s manager?