Question 1

Given the following information in standard costing:
$$\begin{array} { | l | l | } 
\hline \text { Standard } & 16,000 \text { hours at } \$ 4.00 \
\hline \text { Actual } & 15,800 \text { hours at } \$ 4.20 \
\hline
\end{array}$$
What is the direct labor rate variance?

Accepted Answer

A)  $3,160 favorable. 
B)  $3,160 unfavorable. 
C)  $2,360 favorable. 
D)  $2,360 unfavorable. 
A)  $3,160 favorable. 
B)  $3,160 unfavorable. 
C)  $2,360 favorable. 
D)  $2,360 unfavorable. B

Question 2

The Elon Company had great difficulty in controlling overhead costs. At a recent convention, the president heard about a control device for overhead costs known as a flexible budget and she has hired you to implement this budgeting program. After some effort, you develop the following cost formulas for the company's machining department. These costs are based on a normal operating range of 15,000 to 23,000 machine-hours per month:
 $$\begin{array} { l l l } 
\text { Machine setup } & \$  0.20 \mathrm { per } \text { machine-hour } \
\text { Lubricarts } & \$  1.00 \text { er machine-hour plus } \$ 8,000 \text { per month } \
\text { Utilities } & \$  0.70 \text { per machine-hour } \
\text { Indirect labor } & \$  0.60 \text { per machine-hour plus } \$ 20,000 \text { per month } \
\text { Depreciation } & \$ 32,000 \text { per month }
\end{array}$$ 
During March, the first month after your preparation of the above data, the machining department worked 18,000 machine-hours and produced 9,000 units of product. The actual costs of this production were:
 $$\begin{array} { l r } 
\text { Machine set-up } & \$ 4,800 \
\text { Lubricarits } & 24,500 \
\text { Utilities } & 12,000 \
\text { Indirect labor } & 32,500 \
\text { Depreciation } & \underline{32,500} \
& \underline{\$ 106,300} \
\end{array}$$ 
The department had originally been budgeted to work 19,000 machine-hours during March.
Required:
Prepare a performance report for the machining department for the month of March including columns for the (a) actual results, (b) flexible budget, (c) flexible budget variance, (d) master budget, and (e) sales activity variance.

Accepted Answer

$\begin{array}{lrrrrr}
&&&\text { Flexible } &&\text { Sales }\
&&\text { Flexible }& \text { Budget }&\text { Master } &\text { Activity }\
&\text { Actual }&\text { Budget}&\text {  Variance }&\text { Budget }&\text { Variance }\
\text { Machine set- up} & 4,800 & 3,600 & 1,20 0\mathrm{U} & 3,800 & 200 \mathrm{~F}\
\text { Lubricants } & 24,500 & 26,000 & 1,500 \mathrm{F} & 27,000 & 1,000\mathrm{F} \
\text { Utilities } & 12,000& 12,600& 600 \mathrm{F} & 13,300& 700 \
\text { Indirect labor } & 32,500 & 30,800 & 1,700 \mathrm{U} & 31,400 & 600 \mathrm{F} \
\text { Depreciation } &  \underline{32,500} &  \underline{32,000 }& \underline{ 500 \mathrm{U} }& \underline{ 32,000} & \underline{ 0 }\
\text { Total } &  \underline{106,300 }& \underline{ 105,000}&  \underline{1,300 \mathrm{U} }&  \underline{107,500}& \underline{ 2,500 \mathrm{~F}}
\end{array}$ $\begin{array}{llrrr}
\text {Master Budget:}&&\text { Variable } & \text { Fixed} &\text {Total}\
\text { Machine set-up } & \$ 0.20 \times 19,000 & 3,800 & 0 & 3,8000 \
\text { Lubricants } & \$ 1.00 \times 19,000& 19,000 & 8,000& 27,000 \
\text { Utilities } & \$ 0.70 \times 19,000 & 13,300 & 0 & 13,300 \
\text { Indirect labor } & \$ 0.60 \times 19,000 & 11,400& 20,000 & 31,400 \
\text { Depreciation } & & \underline{ 0} & \underline{ 32,000} & \underline{ 32,000}\
\text { Total } &&  \underline{47,500}& \underline{ 60,000 }& \underline{ 107,500}\
\end{array}$
 $\begin{array}{llrrr}
\text {Master Budget:}&&\text { Variable } & \text { Fixed} &\text {Total}\
\text { Machine set-up } & \$ 0.20 \times 18,000 & 3,600 & 0 & 3,6000 \
\text { Lubricants } & \$ 1.00 \times 18,000& 18,000 & 8,000& 26,000 \
\text { Utilities } & \$ 0.70 \times 18,000 & 12,600 & 0 & 12,600 \
\text { Indirect labor } & \$ 0.60 \times 18,000 & 10,800& 20,000 & 30,800 \
\text { Depreciation } & & \underline{ 0} & \underline{ 32,000} & \underline{ 32,000}\
\text { Total } &&  \underline{45,000}& \underline{ 60,000 }& \underline{ 105,000}\
\end{array}$

Question 3

The budget (or spending) variance for fixed production costs is the difference between the actual fixed costs and the budgeted fixed costs.

Accepted Answer

A) True 
 B)False  True

Question 4

If materials are carried in the direct materials inventory account at standard cost, then it is reasonable to assume that the:

Accepted Answer

A)  raw materials inventory account is understated. 
B)  price variance is recognized when materials are purchased. 
C)  company does not follow generally accepted accounting principles. 
D)  price variance is recognized when materials are placed into production. 
A)  raw materials inventory account is understated. 
B)  price variance is recognized when materials are purchased. 
C)  company does not follow generally accepted accounting principles. 
D)  price variance is recognized when materials are placed into production.

Question 5

James Manufacturing has the following information available for July:
 
-
What was James's flexible budget sales revenue for July?

Accepted Answer

A)  $139,000. 
B)  $156,000. 
C)  $169,000. 
D)  $180,000. 
A)  $139,000. 
B)  $156,000. 
C)  $169,000. 
D)  $180,000.

Question 6

Upton Company uses a standard cost system for its single product. The following data are available:
Actual experience for the current year:
 $$\begin{array} { l c } 
\text { Purchases of raw materials } ( 15,000 \text { yards at } \$ 13 \text { per yard } ) & \$ 195,000 \
\text { Raw materials used } & 12,000 \text { yards } \
\text { Direct labor costs } ( 10,200 \text { hours at } \$ 10 \text { per hour } ) & \$ 102,000 \
\text { Actual variable overhead cost } & \$ 84,150 \
\text { Units produced } & 12,600 \text { units }
\end{array}$$ 
Standards per unit of product:
 $$\begin{array} { | l | l | } 
\hline \text { Raw materials } & 1.1 \text { yards at } \$ 15 \text { per yard } \
\hline \text { Direct labor } & 0.80 \text { hours at } \$ 9.50 \text { per hour } \
\hline \text { Variable overhead } & \$ 8 \text { per direct labor hour } \
\hline
\end{array}$$ 
Required:
Compute the following variances for raw materials, direct labor, and variable overhead, assuming that the price variance for materials is recognized at point of purchase:
a. Direct materials price variance.
b. Direct materials quantity variance.
c. Direct labor rate variance.
d. Direct labor efficiency variance.
e. Variable overhead rate variance.
f. Variable overhead efficiency variance.

Accepted Answer

a. & b.Direct Raw Materials:
Materials p

Question 7

Which one of the following variances is of least significance from a behavioral control perspective? (CMA adapted)

Accepted Answer

A)  Unfavorable materials quantity variance amounting to 20% of the quantity allowed for the output attained. 
B)  Unfavorable labor efficiency variance amounting to 10% more than the budgeted hours for the output attained. 
C)  Favorable materials price variance obtained by purchasing raw materials from a new vendor. 
D)  Fixed factory overhead volume variance resulting from management's decision midway through the fiscal year to reduce its budgeted output by 20%. 
A)  Unfavorable materials quantity variance amounting to 20% of the quantity allowed for the output attained. 
B)  Unfavorable labor efficiency variance amounting to 10% more than the budgeted hours for the output attained. 
C)  Favorable materials price variance obtained by purchasing raw materials from a new vendor. 
D)  Fixed factory overhead volume variance resulting from management's decision midway through the fiscal year to reduce its budgeted output by 20%.

Question 8

Which of the following is the name of a form providing standard quantities of inputs required to produce a unit of output and the standard prices for the inputs?

Accepted Answer

A)  Static budget 
B)  Standard cost sheet 
C)  Variance account 
D)  Master budget 
A)  Static budget 
B)  Standard cost sheet 
C)  Variance account 
D)  Master budget

Question 9

Which of the following statements regarding variances is(are) false?
(A) In general and holding all other things constant, an unfavorable variance decreases operating profits.
(B) A favorable variance is not always good, and an unfavorable variance is not always bad.

Accepted Answer

A)  Only A is false. 
B)  Only B is false. 
C)  Both of these are false. 
D)  Neither of these is false. 
A)  Only A is false. 
B)  Only B is false. 
C)  Both of these are false. 
D)  Neither of these is false.

Question 10

James Manufacturing has the following information available for July:
 
-
What was James's master budget contribution margin?

Accepted Answer

A)  $52,000. 
B)  $47,500. 
C)  $45,000. 
D)  $39,000. 
A)  $52,000. 
B)  $47,500. 
C)  $45,000. 
D)  $39,000.

Question 11

The following information relates to the month of April for The Trolley Manufacturing Company, which uses a standard cost accounting system.
 $\begin{array}{lrr}
  \text {Actual direct labor hours used } &7,000\
 \text { Standard hours allowed for good output } &7,500\
 \text {Fixed overhead spending variance - unfavorable  } &\$300\
 \text { Actual total overhead } &\$16,000\
 \text {Budgeted fixed costs  } &\$4,500\
 \text { Normal activity in hours } &6,000\
 \text { Total overhead application rate per DLH}&\$2025
\end{array}$
 
Required:
(Be sure to indicate whether the variances are favorable or unfavorable.)
a. What is the variable overhead efficiency variance?
b. What is the variable overhead price variance?
c. What is the fixed production volume variance?

Accepted Answer

Fixed overhead rate: $4,500/6,000 = $0.7

Question 12

TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.
$\begin{array}{lclr}
&\text { Standard } & \text { Standard } & \text { Standard } \
&\text { Quantity } & \text { Price } & \text { Cost }\
\text { Direct Materials } & \text { 8pounds } & \$ 1.80 \text { per pound } & \$ 14.40 \
\text { Direct Labor } & 0.25 \text { hour } & \$ 8.00 \text { per hour } &  \underline{2.00}\
&&& \underline{\$16.40}
\end{array}$

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours.
-
What is the direct labor rate variance for November?

Accepted Answer

A)  $1,800 
B)  $1,900 
C)  $2,000 
D)  $2,200 
A)  $1,800 
B)  $1,900 
C)  $2,000 
D)  $2,200

Question 13

If the total materials variance for a given operation is favorable, why must this variance be further evaluated as to price and usage?

Accepted Answer

A)  There is no need to further evaluate the total materials variance if it is favorable. 
B)  Generally accepted accounting principles require that all variances be analyzed in three stages. 
C)  All variances must appear in the annual report to equity owners for proper disclosure. 
D)  A further evaluation lets management evaluate the activities of the purchasing and production functions. 
A)  There is no need to further evaluate the total materials variance if it is favorable. 
B)  Generally accepted accounting principles require that all variances be analyzed in three stages. 
C)  All variances must appear in the annual report to equity owners for proper disclosure. 
D)  A further evaluation lets management evaluate the activities of the purchasing and production functions.

Question 14

The terms "master budget" and "flexible budget" mean the same thing and can be used interchangeably.

Accepted Answer

A) True 
 B)False

Question 15

A favorable materials price variance coupled with an unfavorable materials usage variance would most likely result from: (CMA adapted)

Accepted Answer

A)  machine efficiency problems. 
B)  product mix production changes. 
C)  labor efficiency problems. 
D)  the purchase of lower-than-standard-quality materials. 
A)  machine efficiency problems. 
B)  product mix production changes. 
C)  labor efficiency problems. 
D)  the purchase of lower-than-standard-quality materials.

Question 16

The following data have been provided by Vegas Corporation:
 $$\begin{array} { l l} 
\text { Budgeted production } & \text { 8,300units } \
\text { Stardard machine-hours per unit } & 4.5 \text { machine-hours } \
\text { Standard lubricarnts } & \$ \quad 5.10 \text { per machine-hour } \
\text { Standard supplies } & \$ \quad 2.90 \text { per machine-hour }
\end{array}$$ 
 $$\begin{array} { lr } 
\text { Actual production } & 8,600 \text { units } \
\text { Actual machine-hours } & 38,270 \text { machine-hours } \
\text { Actual lubricarits (total) } & \$ 211,801 \
\text { Actual supplies (total) } & \$ 107,566
\end{array}$$ 
Required:
Compute the variable overhead rate variances for lubricants and for supplies. Indicate whether each of the variances is favorable (F) or unfavorable (U). Show your work.

Accepted Answer

Lubricants:
Variable overhead rate varia

Question 17

Batson Company produces Trivets. Based on its master budget, the company should produce 1,000 Trivets each month, working 2,500 direct labor hours. During May, only 900 Trivets were produced. The company worked 2,400 direct labor hours. The standard hours allowed for May production would be:

Accepted Answer

A)  2,500 hours. 
B)  2,400 hours. 
C)  2,250 hours. 
D)  1,800 hours. 
A)  2,500 hours. 
B)  2,400 hours. 
C)  2,250 hours. 
D)  1,800 hours.

Question 18

An operating budget would not include a:

Accepted Answer

A)  cash budget. 
B)  sales budget. 
C)  labor budget. 
D)  production budget. 
A)  cash budget. 
B)  sales budget. 
C)  labor budget. 
D)  production budget.

Question 19

TaskMaster Enterprises employs a standard cost system in which direct materials inventory is carried at standard cost. TaskMaster has established the following standards for the prime costs of one unit of product.
$\begin{array}{lclr}
&\text { Standard } & \text { Standard } & \text { Standard } \
&\text { Quantity } & \text { Price } & \text { Cost }\
\text { Direct Materials } & \text { 8pounds } & \$ 1.80 \text { per pound } & \$ 14.40 \
\text { Direct Labor } & 0.25 \text { hour } & \$ 8.00 \text { per hour } &  \underline{2.00}\
&&& \underline{\$16.40}
\end{array}$

During November, TaskMaster purchased 160,000 pounds of direct materials at a total cost of $304,000. The total factory wages for November were $42,000, 90% of which were for direct labor. TaskMaster manufactured 19,000 units of product during November using 142,500 pounds of direct materials and 5,000 direct labor hours.
-
Is the direct materials price variance favorable or unfavorable?

Accepted Answer

A)  Favorable 
B)  Unfavorable 
A)  Favorable 
B)  Unfavorable

Question 20

If overhead is applied to production using direct labor hours and the direct labor efficiency variance is favorable, then the variable overhead efficiency variance is:

Accepted Answer

A)  favorable. 
B)  unfavorable. 
C)  either favorable or unfavorable. 
D)  neither favorable nor unfavorable. 
A)  favorable. 
B)  unfavorable. 
C)  either favorable or unfavorable. 
D)  neither favorable nor unfavorable.

Given the following information in standard costing: Standard 16,000 hours at \ 4.00 Actual 15,800 hours at \ 4.20 What is the direct labor rate variance?

The budget (or spending) variance for fixed production costs is the difference between the actual fixed costs and the budgeted fixed costs.

If materials are carried in the direct materials inventory account at standard cost, then it is reasonable to assume that the:

James Manufacturing has the following information available for July: - What was James's flexible budget sales revenue for July?

Which one of the following variances is of least significance from a behavioral control perspective? (CMA adapted)

Which of the following is the name of a form providing standard quantities of inputs required to produce a unit of output and the standard prices for the inputs?

Which of the following statements regarding variances is(are) false? (A) In general and holding all other things constant, an unfavorable variance decreases operating profits. (B) A favorable variance is not always good, and an unfavorable variance is not always bad.

James Manufacturing has the following information available for July: - What was James's master budget contribution margin?

If the total materials variance for a given operation is favorable, why must this variance be further evaluated as to price and usage?

The terms "master budget" and "flexible budget" mean the same thing and can be used interchangeably.

A favorable materials price variance coupled with an unfavorable materials usage variance would most likely result from: (CMA adapted)

Batson Company produces Trivets. Based on its master budget, the company should produce 1,000 Trivets each month, working 2,500 direct labor hours. During May, only 900 Trivets were produced. The company worked 2,400 direct labor hours. The standard hours allowed for May production would be:

An operating budget would not include a:

If overhead is applied to production using direct labor hours and the direct labor efficiency variance is favorable, then the variable overhead efficiency variance is:

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters

Exam 16: Fundamentals of Variance Analysis

Given the following information in standard costing: Standard 16,000 hours at \ 4.00 Actual 15,800 hours at \ 4.20 What is the direct labor rate variance?

The budget (or spending) variance for fixed production costs is the difference between the actual fixed costs and the budgeted fixed costs.

If materials are carried in the direct materials inventory account at standard cost, then it is reasonable to assume that the:

James Manufacturing has the following information available for July: - What was James's flexible budget sales revenue for July?

Which one of the following variances is of least significance from a behavioral control perspective? (CMA adapted)

Which of the following is the name of a form providing standard quantities of inputs required to produce a unit of output and the standard prices for the inputs?

Which of the following statements regarding variances is(are) false? (A) In general and holding all other things constant, an unfavorable variance decreases operating profits. (B) A favorable variance is not always good, and an unfavorable variance is not always bad.

James Manufacturing has the following information available for July: - What was James's master budget contribution margin?

If the total materials variance for a given operation is favorable, why must this variance be further evaluated as to price and usage?

The terms "master budget" and "flexible budget" mean the same thing and can be used interchangeably.

A favorable materials price variance coupled with an unfavorable materials usage variance would most likely result from: (CMA adapted)

Batson Company produces Trivets. Based on its master budget, the company should produce 1,000 Trivets each month, working 2,500 direct labor hours. During May, only 900 Trivets were produced. The company worked 2,400 direct labor hours. The standard hours allowed for May production would be:

An operating budget would not include a:

If overhead is applied to production using direct labor hours and the direct labor efficiency variance is favorable, then the variable overhead efficiency variance is:

Cost Accounting: Information for Decision Making

Cost Concepts and Behavior

Fundamentals of Cost-Volume-Profit Analysis

Fundamentals of Cost Analysis for Decision Making

Cost Estimation

Fundamentals of Product and Service Costing

Job Costing

Process Costing

Activity-Based Costing

Fundamentals of Cost Management

Service Department and Joint Cost Allocation

Fundamentals of Management Control Systems

Planning and Budgeting

Business Unit Performance Measurement

Transfer Pricing

Additional Topics in Variance Analysis

Performance Measurement to Support Business Strategy

Filters