Deck 6: Performance Evaluation: Variance Analysis

Question 1

A flexible budget is a budget based on the budgeted sales volume at the beginning of the period.

Answer 1

False

Question 2

The flexible budget variance is influenced most heavily by forces external to the operating process.

Answer 2

False

Question 3

An unfavorable variance is a variance that decreases operating income relative to the budgeted amount.

Answer 3

True

Question 4

The flexible budget variance is the difference between the static budgeted amounts and the flexible budgeted amounts.

Question 5

The master budget is an example of a flexible budget.

Question 6

The direct materials price variance is calculated using the standard quantity of direct materials purchased,the actual price paid for the direct materials,and the standard price for the direct materials purchased.

Question 7

A material variance is one that is large enough to make a difference in the outcome of a decision.

Question 8

All differences between the flexible budget and actual performance must result from operations,rather than from differences in sales volume.

Question 9

The major factor in the amount of material used in production is the quality of the material.

Question 10

A variance is labeled as "favorable" or "unfavorable" indicating their effect on managers' bonuses.

Question 11

The difference between actual sales volume and budgeted sales volume has nothing to do with the price and quantity variance.

Question 12

The direct materials quantity variance is the part of the direct materials flexible budget variance that is caused by using more or less material than the standard quantity allowed for actual production.

Question 13

A variance is the difference between actual results and budgeted,or expected results.

Question 14

Because the production managers are the ones to negotiate the purchase price,they are typically held accountable for the direct materials price variance.

Question 15

The sales volume variance is the difference between the flexible budget and the static budget.

Question 16

Management by exception focuses on all variances,regardless of size or importance.

Question 17

A favorable variance is a variance that increases the flexible budget amount relative to the static budgeted amount.

Question 18

The flexible budget variance reflects how efficiently the company operated in producing a given level of sales.

Question 19

Since a flexible budget is based on actual sales volume,it cannot be prepared until after the end of the period.

Question 20

When the budget being used is a static budget,the difference between actual results and budgeted results is referred to as "budget slack".

Question 21

Most companies monitor their performance

A)monthly.
B)weekly.
C)daily.
D)All of these answer choices are correct.

Question 22

An unfavorable variance is a variance that

A)increases cash relative to the budgeted amount.
B)decreases cash relative to the budgeted amount.
C)increases operating income relative to the budgeted amount.
D)decreases operating income relative to the budgeted amount.

Question 23

When a variable overhead spending variance is identified,managers will want to talk with the purchasing manager about the purchase and/or use of variable overhead items.

Question 24

Variances are labeled as

A)avoidable or unavoidable.
B)favorable or unfavorable.
C)positive or negative.
D)committed or discretionary.

Question 25

The flexible budget variance for direct labor is separated into two components: a direct labor rate variance and a direct labor quantity variance.

Question 26

A static budget is one that

A)is based on the actual sales volume achieved during the period.
B)is developed for a single level of expected output.
C)is one component of the operating budget.
D)is always used to compare with the actual results.

Question 27

The direct labor efficiency variance is that part of the direct labor flexible budget variance that is caused by using more or less direct labor than the standard allows.

Question 28

An unfavorable spending variance may be caused by using variable overhead items inefficiently.

Question 29

The variable overhead spending variance is the difference between the actual cost of variable overhead items and the amount of variable overhead cost that is expected to be incurred at the budgeted level of activity base experienced.

Question 30

Investigating the cause of a variance is a part of a manager's responsibility under which of the following management functions?

A)Planning
B)Controlling
C)Evaluating
D)Decision-making

Question 31

When the budget being used is a static budget,the difference between actual results and budgeted results is referred to as a

A)static swing.
B)variable discrepancy.
C)static budget variance.
D)static budget fluctuation.

Question 32

The direct labor rate variance is part of the direct labor flexible budget variance that arises when the actual wage rate differs from the standard wage rate.

Question 33

The difference between actual results and budgeted,or expected,results is referred to as

A)a variance.
B)a production flaw.
C)an unfavorable outcome.
D)a favorable outcome.

Question 34

The master budget is an example of a

A)static budget.
B)flexible budget.
C)pro-forma budget.
D)summary budget.

Question 35

Variances have very important meanings,even before their causes are identified.

Question 36

The fixed overhead spending variance is the difference between actual fixed overhead cost and budgeted fixed overhead cost.

Question 37

If a company's workforce consists of a number of new hires,then their lack of training could lead to an unfavorable direct labor efficiency variance.

Question 38

When a variable overhead efficiency variance is identified,managers will want to talk with the production manager to evaluate the use of the activity base.

Question 39

To identify a variance without indicating whether it is favorable F or unfavorable U does not indicate

A)the impact of the variance on operating income.
B)the amount of the variance.
C)whether the amount relates to price or quantity.
D)whether the amount relates to rate of efficiency.

Question 40

A favorable variance is a variance that

A)increases cash relative to the budgeted amount.
B)decreases cash relative to the budgeted amount.
C)increases operating income relative to the budgeted amount.
D)decreases operating income relative to the budgeted amount.

Question 41

The flexible budget variance is the difference between

A)the static budget and the flexible budget.
B)the flexible budget and actual results.
C)the actual quantity and budgeted quantity.
D)the actual price and the standard price.

Question 42

Assume the static budget sales revenue is $69,000 and the flexible budget sales revenue is $70,000.If the actual sales price is $6 and the budgeted sales price is $6.50,what is the sales volume variance?

A)$1,000 favorable
B)$1,000 unfavorable
C)$6,000 favorable
D)$6,500 unfavorable

Question 43

The flexible budget variance reflects

A)how efficiently the company operated in producing a given level of sales.
B)how effectively the company reached its strategic goals.
C)a different volume of products than that specified in the static budget.
D)only favorable variances.

Question 44

Materiality can be measured in terms of

A)absolute dollars.
B)relative percentages.
C)both absolute dollars and relative percentages.
D)neither absolute dollars or relative percentages.

Question 45

The difference between the static budget sales revenue and the flexible budget sales revenue is referred to as the

A)flexible budget variance.
B)static budget variance.
C)sales price variance.
D)sales volume variance.

Question 46

Which of the following is a factor that managers might use in deciding whether to investigate a variance?

A)Materiality
B)The existence of a trend
C)Whether combining several accounts with large offsetting variances results in a small variance
D)All of these answer choices are correct

Question 47

Kevin Jarvis is the controller of Bitterroot Industries.Kevin prepared the following budgeted income statement at various levels of sales.After careful review of the budgeted income statements,and after discussions with the sales and production managers,the CEO determines that the best alternative is to base the budget on a sales volume of 30,000

A)$28,000 favorable
B)$28,000 unfavorable
C)$6,000 unfavorable
D)$34,000 favorable

Question 48

The sales volume variance does not help managers understand

A)the effects of price changes on actual results.
B)operational efficiency on actual results.
C)either the effects of price changes on actual results or the operational efficiency on actual results.
D)the impact of greater actual sales over budgeted sales.

Question 49

Kevin Jarvis is the controller of Bitterroot Industries.Kevin prepared the following budgeted income statement at various levels of sales.After careful review of the budgeted income statements,and after discussions with the sales and production managers,the CEO determines that the best alternative is to base the budget on a sales volume of 30,000

A)$28,000 favorable
B)$28,000 unfavorable
C)$6,000 favorable
D)$34,000 unfavorable

Question 50

Kevin Jarvis is the controller of Bitterroot Industries.Kevin prepared the following budgeted income statement at various levels of sales.After careful review of the budgeted income statements,and after discussions with the sales and production managers,the CEO determines that the best alternative is to base the budget on a sales volume of 30,000

A)$28,000 favorable
B)$28,000 unfavorable
C)$6,000 unfavorable
D)$30,000 favorable

Question 51

Flexible budgets are used as a tool for

A)control.
B)evaluation.
C)planning.
D)All of these answer choices are correct.

Question 52

The sales volume variance reflects

A)how efficiently the company operated in producing a given level of sales.
B)how effectively the company reached its strategic goals.
C)a different volume of products than that specified in the static budget.
D)only favorable variances.

Question 53

Kevin Jarvis is the controller of Bitterroot Industries.Kevin prepared the following budgeted income statement at various levels of sales.After careful review of the budgeted income statements,and after discussions with the sales and production managers,the CEO determines that the best alternative is to base the budget on a sales volume of 30,000

A)$14,000 favorable
B)$14,000 unfavorable
C)$16,000 favorable
D)$30,000 unfavorable

Question 54

The sales volume variance is the difference between

A)the static budget and the flexible budget.
B)the flexible budget and actual results.
C)the actual quantity and budgeted quantity.
D)the actual price and the standard price.

Question 55

The sales volume variance is influenced most heavily by actions of the

A)budget committee.
B)operations personnel.
C)sales and marketing personnel.
D)executives of the company.

Question 56

Which of the following variances would not be investigated by a manager following the management by exception principle?

A)A 10% favorable variance in raw materials price
B)A 10% unfavorable variance in direct labor rates
C)A 10% unfavorable variance in payroll tax expense
D)An unfavorable variance that has increased by 5% in each of the last five months

Question 57

All differences between the flexible budget and actual performance must result from

A)sales.
B)operations.
C)differences in quantities.
D)differences in costs.

Question 58

The flexible budget variance is influenced most heavily by actions of the

A)budget committee.
B)operations personnel.
C)sales personnel.
D)executives of the company.

Question 59

Kevin Jarvis is the controller of Bitterroot Industries.Kevin prepared the following budgeted income statement at various levels of sales.After careful review of the budgeted income statements,and after discussions with the sales and production managers,the CEO determines that the best alternative is to base the budget on a sales volume of 30,000

A)$5,600 favorable
B)$5,600 unfavorable
C)$30,400 favorable
D)$34,000 unfavorable

Question 60

Assume the actual sales volume is 69,000

A)$6,500 unfavorable
B)$6,500 favorable
C)$6,000 unfavorable
D)$6,000 favorable

Question 61

The direct materials quantity variance is part of the direct materials flexible budget variance that is caused by

A)wsing more or less material than the standard quantity allowed for actual production.
B)applying too much overhead to production.
C)having too much inventory in the storeroom.
D)paying more or less than the standard cost per

Question 62

Backyard Creations purchased 7,000 feet of copper tubing at a price of $2.70 per foot and used 7,200 feet during the period.The standard price of the copper tubing was $2.50 per foot.What is Backyard Creations' direct materials price variance for the period?

A)$1,400 favorable
B)$1,400 unfavorable
C)$540 favorable
D)$540 unfavorable

Question 63

Which of the following is a possible reason why actual prices might differ from standard prices,resulting in a direct materials price variance?

A)The company may receive a discount for materials that are purchased in large quantities.
B)The company may receive a reduced price from a new vendor to generate business.
C)The vendors may change their prices as a result of changes in the market.
D)All of these answer choices are correct.

Question 64

Which of the following employees is typically held accountable for the direct materials price variance?

A)Controller
B)Purchasing Manager
C)Production Manager
D)Engineering Department Manager

Question 65

The flexible budget variance for materials has which of the following two components?

A)Direct material price variance and direct material quantity variance
B)Direct material price variance and indirect material price variance
C)Direct material quantity variance and indirect materials quantity variance
D)Direct material rate variance and direct material quality variance

Question 66

The direct materials price variance is calculated using which of the three amounts?

A)Actual quantity purchased,standard quantity purchased,actual price paid
B)Actual quantity purchased,standard quantity purchased,standard price paid
C)Standard quantity purchased,actual price paid,standard price paid
D)Actual quantity purchased,actual price paid,standard price paid

Question 67

The algebraic equation for the direct materials price variance is

A)Direct materials price variance = AQ_purch x AP - SP
B)Direct materials price variance = SQ_purch x AP - SP
C)Direct materials price variance = SP x AQ_purch - SQ_purch
D)Direct materials price variance = AP x AQ_purch - SQ_purch

Question 68

If the actual price of direct materials is $200 and the standard price of the direct materials is $180,

A)there will be no direct materials quantity variance.
B)the direct materials quantity variance will be unfavorable.
C)the direct materials price variance will be favorable.
D)the direct materials price variance will be unfavorable.

Question 69

Which of the following is a factor in the amount of material used in production,resulting in a direct materials quantity variance?

A)The quality of the material.
B)The skill level of the production workers.
C)The supervision provided by the production manager.
D)All of these answer choices are correct.

Question 70

If the direct materials purchased is $200 per

A)the direct materials quantity variance will be favorable.
B)the direct materials quantity variance will be unfavorable.
C)the direct materials price variance will be favorable.
D)there will be no direct materials price variance.

Question 71

The algebraic equation for the direct materials quantity variance is

A)direct materials quantity variance = AQ_used x AP - SP
B)direct materials quantity variance = SQ_used x AP - SP
C)direct materials quantity variance = SP x AQ_used - SQ
D)direct materials quantity variance = AP x AQ_used - SQ

Question 72

Johnston Manufacturing Company purchased 14,000 switches to make 6,000

A)$500 favorable
B)$600 favorable
C)$625 favorable
D)$700 favorable

Question 73

The difference between actual sales volume and budgeted sales volume has an effect on

A)price variance.
B)quantity variance.
C)both the price and the quantity variance.
D)neither the price nor the quantity variance.

Question 74

If the actual price of direct materials purchased is $200 per

A)the direct materials quantity variance will be favorable
B)the direct materials quantity variance will be unfavorable
C)the direct materials price variance will be favorable
D)the direct materials price variance will be $0.

Question 75

Which of the following employees is typically held accountable for the direct material quantity variance?

A)Controller
B)Purchasing Manager
C)Production Manager
D)Engineering Department Manager

Question 76

Why is the direct materials price variance based on the quantity of materials purchased,but the direct materials quantity variance on the quantity of materials used?

A)Managers need to isolate variances and take corrective action as soon as possible.
B)Production managers are only interested in the quantity purchased.
C)It is a simpler process to calculate the quantity variance on what is purchased.
D)Managers are required by GAAP to isolate the price variance at the latest point possible.

Question 77

Backyard Creations purchased 7,200 feet of copper tubing at a price of $2.60 per foot and used 7,500 feet during the period.The standard price of the copper tubing was $2.70 per foot.What is Backyard Creations' direct materials price variance for the period?

A)$720 favorable
B)$720 unfavorable
C)$750 favorable
D)$750 unfavorable

Question 78

If the actual price of direct materials is $10 per

A)the direct materials quantity variance will be favorable.
B)the direct materials quantity variance will be unfavorable.
C)the direct materials price variance will be favorable.
D)the direct materials price variance will be unfavorable.

Question 79

The direct materials quantity variance is calculated using which of the three amounts?

A)Actual quantity used,standard quantity allowed for actual production,actual price paid
B)Actual quantity used,standard quantity allowed for actual production,standard price paid
C)Standard quantity used,actual price paid,standard price paid
D)Actual quantity used,actual price paid,standard price paid

Question 80

Sometimes you may know only the total dollar amount of direct materials purchased rather than the actual

A)The total purchases amount
B)Dividing the total purchases amount by the actual number of units purchased
C)Both by using the total purchases amount and by dividing the total purchases amount by the actual number of units purchased.
D)Total cost of materials used.