Question 1

A budget performance report compares actual results with the budgeted amounts and reports differences for possible investigation.

Accepted Answer

A budget performance report is designed to compare actual results with the budgeted amounts and report any differences or variances for possible investigation. This helps companies to identify areas where they exceeded expectations or fell short of their goals, and to make adjustments to their budget and spending plans accordingly. The report may include information on revenue, expenses, profits, and other key financial metrics, and may be broken down by department, project, or other relevant categories. Overall, a budget performance report is a valuable tool for assessing financial performance and making data-driven decisions about future spending and investment.

Question 2

Standards are designed to evaluate price and quantity variances separately.

Accepted Answer

Standards are designed to separate price variances from quantity variances in order to isolate the specific cause of any deviation from the expected cost of production.

Question 3

If the standard to produce a given amount of product is 2,000 units of direct materials at $12 and the actual was 1,600 units at $13, the direct materials quantity variance was $5,200 favorable.

Accepted Answer

The direct materials quantity variance formula is (Standard quantity - Actual quantity) x Standard price.

Using the information given: 
- Standard quantity: 2,000 units 
- Actual quantity: 1,600 units 
- Standard price: $12

Plugging these values into the formula: 
(2,000 - 1,600) x $12 = $4,800 favorable

Therefore, the correct answer is B, as the given answer of $5,200 favorable does not align with the actual calculation.

Question 4

The direct labor time variance measures the efficiency of the direct labor force.

Accepted Answer

The direct labor time variance measures the difference between the actual time taken by the direct labor force and the standard time allowed for the production of a product. Therefore, it reflects the efficiency of the direct labor force.

Question 5

A favorable cost variance occurs when actual cost is less than budgeted cost at actual volumes.

Accepted Answer

A favorable cost variance occurs when actual cost is less than budgeted cost, indicating that the actual expenses were less than what was originally estimated, resulting in savings for the company.

Question 6

An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost.

Accepted Answer

An unfavorable cost variance occurs when actual cost exceeds budgeted cost at actual volumes.

Question 7

Standard costs are determined by multiplying expected price by expected quantity.

Accepted Answer

Standard costs are determined by estimating the expected price and the expected quantity and multiplying them together.

Question 8

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $1,000 unfavorable.

Accepted Answer

The correct formula for direct materials quantity variance is:

(DMQV) = (Standard Quantity - Actual Quantity) x Standard Price

Using the given information:

(DMQV) = (1,000 - 800) x $11 = $2,200 unfavorable

Therefore, the statement is false. The direct materials quantity variance was actually $2,200 unfavorable, not $1,000.

Question 9

If the standard to produce a given amount of product is 500 direct labor hours at $15 and the actual was 600 hours at $17, the rate variance was $1,200 favorable.

Accepted Answer

The information given only allows us to calculate the labor rate variance, which is calculated as (actual rate - standard rate) x actual hours. Using the given information, the labor rate variance would be calculated as ($17 - $15) x 600 = $1,200 unfavorable, not favorable. Therefore, the statement is false.

Question 10

If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 600 hours at $17, the rate variance was $1,200 unfavorable.

Accepted Answer

The answer of If the standard to produce a given...

Question 11

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials price variance was $800 favorable.

Accepted Answer

The direct materials price variance is calculated as follows:

Actual Quantity x (Actual Price - Standard Price)

In this case:

800 x ($12 - $11) = $800 unfavorable

The answer given in the statement is incorrect.

Question 12

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials price variance was $800 unfavorable.

Accepted Answer

The answer of If the standard to produce a given...

Question 13

If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 500 hours at $17, the time variance was $1,700 unfavorable.

Accepted Answer

The given information provides information about the labor rate variance, not the time variance. The formula for the time variance is (actual hours - standard hours) x standard rate, which would be (500 - 600) x 15 = $-1,500, indicating an unfavorable variance.

Question 14

The variance from standard for factory overhead resulting from incurring a total amount of factory overhead cost that is greater or less than the amount budgeted for the level of operations achieved is termed controllable variance.

Accepted Answer

This is true. Controllable variance is the variance from standard resulting from incurring more or less factory overhead costs than the amount budgeted for the achieved level of operations.

Question 15

If the standard to produce a given amount of product is 600 direct labor hours at $17 and the actual was 500 hours at $15, the time variance was $1,500 unfavorable.

Accepted Answer

The given information does not help us calculate the time variance. To calculate the time variance, we need to know the difference between the standard time and actual time, multiplied by the standard labor rate. The information provided only tells us that the actual labor hours were less than the standard labor hours, but it does not give us the difference between the two. Therefore, we cannot determine whether the time variance is favorable or unfavorable.

Question 16

Principle of exceptions allows managers to focus on correcting variances between standard costs and actual costs.

Accepted Answer

The principle of exceptions states that managers should only focus on correcting significant variances between standard costs and actual costs, rather than every small deviation. This allows them to prioritize their time and resources, and focus on areas where improvements can have the biggest impact.

Question 17

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $2,200 unfavorable.

Accepted Answer

The answer of If the standard to produce a given...

Question 18

While setting standards, the managers should never allow for spoilage or machine breakdowns in their calculations.

Accepted Answer

Managers must consider the likelihood of spoilage or breakdowns and factor them into their calculations in order to set realistic and achievable standards.

Question 19

The variance from standard for factory overhead cost resulting from operating at a level above or below 100% of normal capacity is termed volume variance.

Accepted Answer

This statement is true. The variance resulting from operating at a level above or below 100% of normal capacity is called volume variance.

Question 20

Because accountants have financial expertise, they are the only ones that are able to set standard costs for the production area.

Accepted Answer

Setting standard costs requires input from both the accounting and production areas, as it involves understanding the costs of resources, labor, and other factors involved in production. Therefore, it is not solely the responsibility of accountants.

Quiz 7: Performance Evaluation Using Variances From Standard Costs

A budget performance report compares actual results with the budgeted amounts and reports differences for possible investigation.

Standards are designed to evaluate price and quantity variances separately.

If the standard to produce a given amount of product is 2,000 units of direct materials at $12 and the actual was 1,600 units at $13, the direct materials quantity variance was $5,200 favorable.

The direct labor time variance measures the efficiency of the direct labor force.

A favorable cost variance occurs when actual cost is less than budgeted cost at actual volumes.

An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost.

Standard costs are determined by multiplying expected price by expected quantity.

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $1,000 unfavorable.

If the standard to produce a given amount of product is 500 direct labor hours at $15 and the actual was 600 hours at $17, the rate variance was $1,200 favorable.

If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 600 hours at $17, the rate variance was $1,200 unfavorable.

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials price variance was $800 favorable.

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials price variance was $800 unfavorable.

If the standard to produce a given amount of product is 600 direct labor hours at $15 and the actual was 500 hours at $17, the time variance was $1,700 unfavorable.

The variance from standard for factory overhead resulting from incurring a total amount of factory overhead cost that is greater or less than the amount budgeted for the level of operations achieved is termed controllable variance.

If the standard to produce a given amount of product is 600 direct labor hours at $17 and the actual was 500 hours at $15, the time variance was $1,500 unfavorable.

Principle of exceptions allows managers to focus on correcting variances between standard costs and actual costs.

If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $2,200 unfavorable.

While setting standards, the managers should never allow for spoilage or machine breakdowns in their calculations.

The variance from standard for factory overhead cost resulting from operating at a level above or below 100% of normal capacity is termed volume variance.

Because accountants have financial expertise, they are the only ones that are able to set standard costs for the production area.