Deck 10: How Do Managers Evaluate Performance Using Cost Variance Analysis

Question 1

Standard cost information never comes from historical data.

Answer 1

False

Question 2

Standard cost typically refers to costs per unit for direct materials,direct labor,and variable overhead.

Answer 2

True

Question 3

When establishing ideal standards,several factors are considered including machine downtime,electricity outages,and materials waste.

Answer 3

False

Question 4

In the planning phase of budgeting,managers evaluate the company's performance by comparing budgeted amounts to actual results.

Question 5

The variable overhead efficiency variance is the difference between the actual hours worked at the actual rate and the standard hours worked at standard rate.

Question 6

Management by exception is a term used to describe managers who look at all variances,regardless of the amount.

Question 7

The labor rate variance is defined as the difference between actual costs for direct labor and budgeted costs based on the standards.

Question 8

A flexible budget is a revised master budget based on the actual activity level.

Question 9

The materials quantity variance is defined as the difference between the actual quantity of materials purchased at the actual price and the actual quantity of materials purchased at the standard price.

Question 10

The variable overhead efficiency variance is the difference between the actual hours worked at the standard rate and the standard hours worked at the standard rate.

Question 11

Actual sales rarely match budgeted sales in the master budget.

Question 12

A production manager is evaluated based on the quantity of direct materials used in production.If the production line actually uses materials to produce 50,000 units when the master budget shows materials needed for 44,000 units,the manager's evaluation should be based on a flexible budget.

Question 13

Standard costs are used to establish the flexible budget for direct labor.

Question 14

Regardless of whether a company uses the traditional costing approach or an activity-based costing approach,the process of performing variance analysis is similar.

Question 15

A favorable labor rate variance might be explained by an unexpected increase in available employees that caused lower wage rates than were anticipated.

Question 16

A higher mix of skilled indirect labor workers typically results in an unfavorable variable overhead spending variance.

Question 17

Management by exception is a term used to describe managers who focus solely on variances that are significant.

Question 18

Companies using standard costing systems wait for actual product cost data before recording transactions related to production.

Question 19

The cause of one variance might influence another variance.

Question 20

The performance report for Clouse Company showed the flexible budget for direct materials as $100,000 and actual direct materials as $86,000.This means there was a $14,000 unfavorable variance for the period.

Question 21

Cost variance analysis for activity-based costing uses a spending and efficiency variance for each activity.

Question 22

Exhibit 10-2
Benny's Bakery produces bagels for resale at local grocery stores.The master budget indicates that the company expects to use 2.5 pounds of direct materials for each unit produced at a cost of $10.00 per pound (one unit = one batch of bagels).Each unit produced will require 0.30 direct labor hours at a cost of $24.00 per hour.Variable manufacturing overhead is applied based on direct labor hours at a rate of $4.80 per hour.Last year's sales were expected to total 40,000 units.Benny just received last year's actual results showing sales of 35,000 units.
Refer to Exhibit 10-2.What is the standard cost per unit for variable manufacturing overhead?

A)$16.00
B)$4.80
C)$1.44
D)$10.00
E)None of the answer choices is correct.

Question 23

Exhibit 10-2
Benny's Bakery produces bagels for resale at local grocery stores.The master budget indicates that the company expects to use 2.5 pounds of direct materials for each unit produced at a cost of $10.00 per pound (one unit = one batch of bagels).Each unit produced will require 0.30 direct labor hours at a cost of $24.00 per hour.Variable manufacturing overhead is applied based on direct labor hours at a rate of $4.80 per hour.Last year's sales were expected to total 40,000 units.Benny just received last year's actual results showing sales of 35,000 units.
Refer to Exhibit 10-2.What amount would the flexible budget show for direct materials?

A)$1,000,000
B)$350,000
C)$140,000
D)$875,000
E)None of the answer choices is correct.

Question 24

When ideal standards are used,which of the following is most likely true?

A)The standards are not likely to be achieved.
B)The standards allow for occasional downtime for equipment.
C)The standards reflect what really happens in the factory.
D)The standards motivate employees to achieve perfection.
E)None of the answer choices is correct.

Question 25

Exhibit 10-1
Flatland Company applies fixed manufacturing overhead costs to products based on direct labor hours.Information for the month of April appears below.Flatland expects to produce and sell 18,000 units for the month.
Below is budget information for Flatland Company.

Refer to Exhibit 10-1.Based on this information,what is the fixed overhead production volume variance?

A)$15,000 unfavorable
B)$10,000 favorable
C)$15,000 favorable
D)$10,000 unfavorable
E)None of the answer choices is correct.

Question 26

Most managers prefer attainable standards rather than ideal standards for the following reasons except:

A)attainable standards reflect what really happens in the factory.
B)attainable standards allow for occasional downtime for equipment.
C)attainable standards motivate employees to achieve perfection.
D)attainable standards recognize that some materials might have to be scrapped.
E)None of the answer choices is correct.

Question 27

All of the following are possible causes of a favorable labor rate variance except:

A)a higher mix of unskilled workers causing hourly rates to be lower than anticipated.
B)product demand that was lower than expected causing a reduction in the amount of overhead initially anticipated.
C)a higher mix of skilled workers causing hourly rates to be higher than anticipated.
D)a new labor contract that was negotiated at lower pay rates than anticipated.
E)None of the answer choices is correct.

Question 28

Which of the following remains the same when comparing a flexible budget to a master budget?

A)Total sales.
B)Net income.
C)Total variable costs.
D)Total fixed costs.
E)None of the answer choices is correct.

Question 29

Which one of the following is most likely to be the responsibility of the purchasing manager?

A)The materials quantity variance.
B)The materials price variance.
C)The overhead volume variance.
D)The labor efficiency variance.
E)None of the answer choices is correct.

Question 30

Exhibit 10-2
Benny's Bakery produces bagels for resale at local grocery stores.The master budget indicates that the company expects to use 2.5 pounds of direct materials for each unit produced at a cost of $10.00 per pound (one unit = one batch of bagels).Each unit produced will require 0.30 direct labor hours at a cost of $24.00 per hour.Variable manufacturing overhead is applied based on direct labor hours at a rate of $4.80 per hour.Last year's sales were expected to total 40,000 units.Benny just received last year's actual results showing sales of 35,000 units.
Refer to Exhibit 10-2.What is the standard cost per unit for direct labor?

A)$80.00
B)$5.00
C)$24.00
D)$7.20
E)None of the answer choices is correct.

Question 31

Exhibit 10-2
Benny's Bakery produces bagels for resale at local grocery stores.The master budget indicates that the company expects to use 2.5 pounds of direct materials for each unit produced at a cost of $10.00 per pound (one unit = one batch of bagels).Each unit produced will require 0.30 direct labor hours at a cost of $24.00 per hour.Variable manufacturing overhead is applied based on direct labor hours at a rate of $4.80 per hour.Last year's sales were expected to total 40,000 units.Benny just received last year's actual results showing sales of 35,000 units.
Refer to Exhibit 10-2.What amount would the flexible budget show for direct labor?

A)$840,000
B)$252,000
C)$288,000
D)$280,000
E)None of the answer choices is correct.

Question 32

Baxter Company incurred labor costs of $10,800 in June (payable in July)for work requiring 1,100 standard hours at a standard rate of $10 per hour;1,200 actual direct labor hours were worked.Based on this information,what was the labor efficiency variance?

A)$200 favorable.
B)$1,200 favorable.
C)$1,000 favorable.
D)$1,000 unfavorable.
E)None of the answer choices is correct.

Question 33

Exhibit 10-1
Flatland Company applies fixed manufacturing overhead costs to products based on direct labor hours.Information for the month of April appears below.Flatland expects to produce and sell 18,000 units for the month.
Below is budget information for Flatland Company.

Refer to Exhibit 10-1.Based on this information,what is the fixed overhead spending variance?

A)$15,000 favorable
B)$10,000 unfavorable
C)$15,000 unfavorable
D)$10,000 favorable
E)None of the answer choices is correct.

Question 34

Unfavorable variances are recorded with a debit to the appropriate variance account.

Question 35

There is no efficiency variance for fixed manufacturing overhead since,by definition,fixed costs do not change with changes in the activity base.

Question 36

Exhibit 10-2
Benny's Bakery produces bagels for resale at local grocery stores.The master budget indicates that the company expects to use 2.5 pounds of direct materials for each unit produced at a cost of $10.00 per pound (one unit = one batch of bagels).Each unit produced will require 0.30 direct labor hours at a cost of $24.00 per hour.Variable manufacturing overhead is applied based on direct labor hours at a rate of $4.80 per hour.Last year's sales were expected to total 40,000 units.Benny just received last year's actual results showing sales of 35,000 units.
Refer to Exhibit 10-2.What amount would the flexible budget show for variable manufacturing overhead?

A)$50,400
B)$57,600
C)$560,000
D)$168,000
E)None of the answer choices is correct.

Question 37

Favorable variances are recorded with a credit to the appropriate variance account.

Question 38

Exhibit 10-2
Benny's Bakery produces bagels for resale at local grocery stores.The master budget indicates that the company expects to use 2.5 pounds of direct materials for each unit produced at a cost of $10.00 per pound (one unit = one batch of bagels).Each unit produced will require 0.30 direct labor hours at a cost of $24.00 per hour.Variable manufacturing overhead is applied based on direct labor hours at a rate of $4.80 per hour.Last year's sales were expected to total 40,000 units.Benny just received last year's actual results showing sales of 35,000 units.
Refer to Exhibit 10-2.What is the standard cost per unit for direct materials?

A)$25
B)$10
C)$4
D)$1
E)None of the answer choices is correct.

Question 39

A favorable materials price variance may be caused by:

A)A reduction in suppliers causing an unexpected increase in price.
B)Higher quality materials purchased at a higher cost resulting in fewer materials being used than expected.
C)Highly skilled employees using fewer materials than expected.
D)Low quality materials purchased at a lower cost than expected.
E)None of the answer choices is correct.

Question 40

Exhibit 10-1
Flatland Company applies fixed manufacturing overhead costs to products based on direct labor hours.Information for the month of April appears below.Flatland expects to produce and sell 18,000 units for the month.
Below is budget information for Flatland Company.

Refer to Exhibit 10-1.Based on this information,what is the standard cost per direct labor hour (rounded to the nearest cent)?

A)$5.29
B)$3.11
C)$3.00
D)$15.00
E)None of the answer choices is correct.

Question 41

Exhibit 10-3
Glenbrook Inc.has the following standard costs the one product the company produces.
Direct Materials (2 pounds at $18.00 per pound)= $36.00 per unit
Direct Labor (0.6 hours at $48.00 per hour)= $28.80 per unit
During March,Glenbrook produced 2,000 units,bought and used 4,200 pounds of direct materials at $19.20 per pound,and used 1,100 hours of labor at a total cost of $56,100.
Refer to Exhibit 10-3.Based on this information,what is the direct labor efficiency variance?

A)$4,800 favorable
B)$4,800 unfavorable
C)$5,100 unfavorable
D)$5,100 favorable
E)None of the answer choices is correct.

Question 42

Exhibit 10-4
Zingler Inc.applies variable manufacturing overhead at a standard rate of $9 per direct labor hour.The standard quantity of direct labor is 4 hours per unit.Variable overhead costs totaled $90,000 for the month of December.A total of 15,000 direct labor hours were worked during December to produce 4,000 units.
Refer to Exhibit 10-4.Based on this information,what is the variable overhead spending variance?

A)$45,000 unfavorable
B)$45,000 favorable
C)$54,000 unfavorable
D)$54,000 favorable
E)None of the answer choices is correct.

Question 43

Which of the following is true about managers who adhere to the concept of "management by exception"?

A)Managers will investigate only favorable variances.
B)Managers will investigate only variances that are significant.
C)Managers will investigate all favorable and unfavorable variances.
D)Managers will investigate only unfavorable variances.
E)None of the answer choices is correct.

Question 44

Colfax Company incurred production labor costs of $5,400 in February (payable in March)for work requiring 1,100 standard hours at a standard rate of $15 per hour;1,200 actual direct labor hours were worked.Based on this information,which one of the following would be included in the journal entry to record the labor costs?

A)$16,500 credit to Work-in-process Inventory.
B)$1,500 credit to Labor Efficiency Variance.
C)$16,200 credit to Wages Payable.
D)$1,500 credit to Labor Rate Variance.
E)None of the answer choices is correct.

Question 45

Which of the following would most likely be the reason for an unfavorable labor efficiency variance?

A)A higher mix of skilled workers made more efficient use of the labor hours.
B)The company used lower skilled workers than they anticipated to complete products.
C)High-quality materials resulted in less time spent working with materials waste.
D)An employee training program improved the efficient use of time.
E)None of the answer choices is correct.

Question 46

Exhibit 10-5
Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month.

Refer to Exhibit 10-5.What is the variable overhead spending variance for the purchase order activity?

A)$2,000 favorable
B)$2,000 unfavorable
C)$8,000 favorable
D)$8,000 unfavorable
E)None of the answer choices is correct.

Question 47

Exhibit 10-3
Glenbrook Inc.has the following standard costs the one product the company produces.
Direct Materials (2 pounds at $18.00 per pound)= $36.00 per unit
Direct Labor (0.6 hours at $48.00 per hour)= $28.80 per unit
During March,Glenbrook produced 2,000 units,bought and used 4,200 pounds of direct materials at $19.20 per pound,and used 1,100 hours of labor at a total cost of $56,100.
Refer to Exhibit 10-3.Based on this information,what is the direct labor rate variance?

A)$3,600 unfavorable
B)$3,600 favorable
C)$3,300 favorable
D)$3,300 unfavorable
E)None of the answer choices is correct.

Question 48

Which of the following is true about "management by exception"?

A)It requires managers to investigate all favorable and unfavorable variances.
B)It requires the use of variance analysis.
C)It rarely requires the use of variance analysis.
D)It requires managers to calculate standard costs,but ignore actual costs.
E)None of the answer choices is correct.

Question 49

Exhibit 10-5
Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month.

Refer to Exhibit 10-5.What is the variable overhead spending variance for the indirect labor activity?

A)$12,000 favorable
B)$12,000 unfavorable
C)$16,000 favorable
D)$16,000 unfavorable
E)None of the answer choices is correct.

Question 50

Which of the following is a possible cause for an unfavorable labor rate variance?

A)An unexpected increase in hiring new unskilled personnel.
B)Producing fewer units than expected.
C)An unexpected increase in demand caused the direct labor workforce to work overtime.
D)Using attainable standards rather than ideal standards.
E)None of the answer choices is correct.

Question 51

Which of the following could be indicated by the fixed overhead production volume variance?

A)Labor rates were lower than expected.
B)A higher mix of unskilled workers were utilized.
C)Raw materials were of lower quality than expected.
D)The quantity of units produced was different than expected.
E)None of the answer choices is correct.

Question 52

If an analysis shows an unfavorable materials price variance of $22,000,the journal entry to record the purchase of direct materials and the related price variance would include:

A)a debit to Accounts Payable for $22,000.
B)a debit for $22,000 to Materials Price Variance.
C)a credit for $22,000 to Materials Price Variance.
D)a credit to Work in Process Inventory for $22,000.
E)None of the answer choices is correct.

Question 53

Exhibit 10-4
Zingler Inc.applies variable manufacturing overhead at a standard rate of $9 per direct labor hour.The standard quantity of direct labor is 4 hours per unit.Variable overhead costs totaled $90,000 for the month of December.A total of 15,000 direct labor hours were worked during December to produce 4,000 units.
Refer to Exhibit 10-4.Based on this information,what is the variable overhead efficiency variance?

A)$48,000 favorable
B)$48,000 unfavorable
C)$9,000 unfavorable
D)$9,000 favorable
E)None of the answer choices is correct.

Question 54

Exhibit 10-5
Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month.

Refer to Exhibit 10-5.What is the variable overhead spending variance for the product testing activity?

A)$8,000 unfavorable
B)$8,000 favorable
C)$3,800 favorable
D)$3,800 unfavorable
E)None of the answer choices is correct.

Question 55

Exhibit 10-5
Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month.

Refer to Exhibit 10-5.What is the variable overhead efficiency variance for the product testing activity?

A)$8,000 favorable
B)$8,000 unfavorable
C)$3,800 unfavorable
D)$3,800 favorable
E)None of the answer choices is correct.

Question 56

Exhibit 10-5
Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month.

Refer to Exhibit 10-5.What is the variable overhead efficiency variance for the indirect labor activity?

A)$16,000 favorable
B)$16,000 unfavorable
C)$12,000 favorable
D)$12,000 unfavorable
E)None of the answer choices is correct.

Question 57

If an analysis shows an unfavorable labor rate variance of $18,000 and a favorable labor efficiency variance of $10,000,the entry to record the cost of direct labor and related variances would include:

A)a debit to Labor Rate Variance for $18,000.
B)a credit to Work in Process inventory for $18,000.
C)a debit to Labor Efficiency Variance for $10,000.
D)a debit to Cost of Goods Sold for $10,000.
E)None of the answer choices is correct.

Question 58

If Ever Green Corporation has an unfavorable fixed overhead spending variance,which of the following would most likely be the reason for this variance?

A)Actual fixed overhead was less than predicted.
B)More units were actually produced than predicted.
C)Actual fixed overhead was more than predicted.
D)Fewer units were actually produced than predicted.
E)None of the answer choices is correct.

Question 59

Exhibit 10-5
Catalina Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company produced 1,800 units of product last month,and identified three activities with the following information for last month.

Refer to Exhibit 10-5.What is the variable overhead efficiency variance for the purchase order activity?

A)$2,000 favorable
B)$2,000 unfavorable
C)$8,000 favorable
D)$8,000 unfavorable
E)None of the answer choices is correct.

Question 60

Which of the following is most likely to cause an unfavorable direct materials quantity variance?

A)Low quality materials increased waste of materials.
B)High quality materials reduced waste of materials.
C)New production techniques reduced waste of materials.
D)Improved maintenance of production equipment reduced waste of materials.
E)None of the answer choices is correct.

Question 61

Jake's Cheese Company produces gourmet cheese for resale at local grocery stores.Jake's expected to use 3.0 pounds of direct materials to produce one unit (batch)of product at a cost of $8 per pound.Actual results are in for last year,which indicates 45,000 batches of cheese were sold.The company purchased 160,000 pounds of materials at $7.50 per pound,and used 145,000 pounds in production.
(1)Calculate the materials price variance.
(2)Calculate the materials quantity variance.
(3)Suggest several possible reasons for the materials price and quantity variances calculated in requirements (1)and (2).

Question 62

Jake's Cheese Company produces gourmet cheese for resale at local grocery stores.Jake's expected to use 0.50 direct labor hours to produce one unit (batch)of product at a cost of $10 per hour.Actual results are in for last year,which indicates 45,000 batches of cheese were sold.The company's direct labor workforce worked 27,500 hours at $9 per hour.
(1)Calculate the labor rate variance.
(2)Calculate the labor efficiency variance.
(3)Suggest several possible reasons for the labor rate and efficiency variances.

Question 63

Kelton Company uses activity-based costing to allocate variable manufacturing overhead costs to products.The company identified three activities with the following information for last month.

Kelton Company produced 18,750 units last month.Prepare a variance analysis,clearly labeling each variance as favorable or unfavorable.

Question 64

At the end of the period,balances in Manufacturing Overhead and all variance accounts are typically closed out to:

A)sales.
B)cost of goods sold.
C)work in process inventory.
D)finished goods.
E)None of the answer choices is correct.

Question 65

Prado Company applies fixed manufacturing overhead costs to products based on direct labor hours.Information for the month of April appears below.Prado's expected to produce and sell 500 units for the month.

Calculate the fixed overhead spending variance and production volume variance.Clearly label each variance as favorable or unfavorable.

Question 66

Olympia Inc.produces small row boats.Standard cost information for each boat is presented below.

Olympia produced and sold 1,000 boats for the year,and encountered the following production variances.

Company policy is to investigate all unfavorable variances above 10 percent of the flexible budget amount for direct materials,direct labor,and variable overhead.
a.Identify the variances that should be investigated according to company policy.Show calculations to support your answer.
b.What potential weakness exists in the company's current policy?

Question 67

Jake's cheese Company produces gourmet cheese for resale at local grocery stores.Jake's expected to use 0.50 direct labor hours to produce one unit (batch)of product,and the variable overhead rate is $5.00 per hour.Actual results are in for last year,which indicates 45,000 batches of cheese were produced and sold.The company's direct labor workforce worked 27,500 hours,and variable overhead costs totaled $144,000.
(1)Calculate the variable overhead spending variance.
(2)Calculate the variable overhead efficiency variance.
(3)Suggest several possible reasons for the variable overhead spending and efficiency variances.

Question 68

If a company has a favorable materials quantity variance of $3,300,the journal entry to record the use of direct materials in production along with this related quantity variance would include:

A)a credit to Materials Quantity Variance.
B)a credit to Materials Price Variance.
C)a debit to Materials Quantity Variance.
D)a debit to Materials Price Variance.
E)None of the answer choices is correct.

Question 69

Jake's Cheese Company produces gourmet cheese for resale at local grocery stores.The master budget indicates that the company expects to use 3.0 pounds of direct materials for each unit produced at a cost of $8.00 per pound (one unit = one batch of cheese).Each unit produced will require 0.50 direct labor hours at a cost of $10.00 per hour.Variable manufacturing overhead is applied based on direct labor hours at a rate of $5.00 per hour.Last year's sales were expected to total 50,000 units.Jake just received last year's actual results showing sales of 45,000 units.
(1)Calculate the standard cost per unit for direct materials,direct labor,and variable manufacturing overhead.
(2)Prepare a flexible budget based on actual sales for direct materials,direct labor,and variable manufacturing overhead.