Deck 6: Performance Evaluation: Variance Analysis

Question 1

The master budget is an example of a flexible budget.

Answer 1

False
The master budget is an example of a static budget,

Question 2

All differences between the flexible budget and actual performance result from selling prices and costs, rather than from differences in sales volume.

Answer 2

True

Question 3

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

Answer 3

False-The flexible budget variance is influenced most heavily by the actions of operations personnel,

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

The difference between actual sales volume and the flexible budget sales volume has no impact on the price and quantity variances.

Question 9

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

Question 10

A favorable variance occurs when the flexible budget operating income amount is greater than the actual operating income.

Question 11

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

Question 12

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

Question 13

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

Question 14

For a static budget, the difference between actual results and budgeted results is referred to as budget slack.

Question 15

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

Question 16

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

Question 17

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 18

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

Question 19

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

Question 20

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

Question 21

The master budget is an example of a

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

Question 22

Variances are labeled as

A)avoidable or unavoidable.
B)favorable or unfavorable.
C)spending or efficiency.
D)committed or discretionary.

Question 23

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 24

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

Question 25

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

Question 26

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

Question 27

Which of the following are factors that managers may use in deciding whether to investigate a variance?

A)Materiality and the effect of netting large and small variances
B)The effect of netting large and small variances and whether favorable or unfavorable
C)Whether the variance will increase or decrease operating income and materiality
D)Materiality and whether the variance will increase or decrease total costs

Question 28

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 29

An unfavorable variance is a variance that

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

Question 30

All differences between the flexible budget and actual performance result from

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

Question 31

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 or efficiency.

Question 32

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

Question 33

The difference between actual results and master budget amounts is referred to as

A)an efficiency variance.
B)a spending variance.
C)a static budget variance.
D)a flexible budget variance.

Question 34

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 35

Materiality can be measured in terms of

A)absolute dollars.
B)whether favorable or unfavorable.
C)type of variance.
D)efficiency.

Question 36

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 37

Most companies monitor their performance

A)frequently.
B)when costs are exceeding budgeted amounts.
C)at the end of each quarter.
D)annually.

Question 38

A favorable variance is a variance that

A)increases costs 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 39

The difference between actual results and budgeted results is referred to as

A)a variance.
B)management by exception.
C)a flexible budget.
D)a flexible outcome.

Question 40

Flexible budgets are used as a tool for

A)control, planning, and materiality.
B)evaluation, materiality, and flexibility.
C)planning flexibility, and evaluation.
D)control, planning, and evaluation.

Question 41

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 units. Actual results for the year were 28,000 units, reflected in the following income statement: What is the sales volume variance for direct labor?

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

Question 42

The actual sales volume is 69,000 units and the budgeted sales volume is 70,000 units.If the actual sales price is $6 and the budgeted sales price is $6.50, what is the sales volume variance for sales revenue?

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

Question 43

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 units. Actual results for the year were 28,000 units, reflected in the following income statement: What is the flexible budget variance for variable overhead?

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

Question 44

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 45

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 activity than that specified in the static budget.
D)the amount of each resource actually used in operations.

Question 46

Kevin Jarvis is the controller of Bitterroot Industries.He prepared the following budgeted income statement at various levels of sales.After careful review, 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 units. Actual results for the year were 28,000 units, reflected in the following income statement: What is the flexible budget variance for direct material?

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

Question 47

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 48

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 units. Actual results for the year were 28,000 units, reflected in the following income statement: What is the flexible budget variance for direct labor?

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

Question 49

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 50

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

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

Question 51

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 units. Actual results for the year were 28,000 units, reflected in the following income statement: What is the sales volume variance for direct material?

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

Question 52

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 53

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 54

The flexible budget variance reflects

A)how efficiently the company operated in producing a given sales volume.
B)how effectively the company reached its strategic goals.
C)a different volume of activity than used in the static budget.
D)the amount of each resource originally planned for usage in operations.

Question 55

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 56

The sales volume variance helps managers understand

A)the effects of price changes on actual results.
B)flexible budget variances.
C)why the company's actual total revenue differs from the amount budgeted.
D)the impact of greater actual sales over budgeted sales due to selling more units.

Question 57

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

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

Question 58

The direct materials price variance is calculated using which 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 59

The algebraic equation for the direct materials price variance is

A)Direct materials price variance = AQpurch × (AP - SP)
B)Direct materials price variance = SQpurch × (AP - SP)
C)Direct materials price variance = SP × (AQpurch - SQpurch)
D)Direct materials price variance = AP × (AQpurch - SQpurch)

Question 60

The difference between actual units sold and the original budgeted units to be sold is the reason for which variance?

A)Price variance
B)Quantity variance
C)Flexible budget variance
D)Sales volume variance

Question 61

Johnston Manufacturing Company purchased 14,000 switches to make 6,000 units.The standard allows for 2 switches per unit.The company actually used 14,500 to produce the 6,000 units.Johnston budgeted $0.75 per switch but had to pay $0.80 per switch.What is Johnston's direct materials price variance for the period?

A)$500 unfavorable
B)$600 unfavorable
C)$700 unfavorable
D)$725 unfavorable

Question 62

If you know the total dollar amount of direct materials purchased but not the actual unit price, which of the following can you use to calculate the unit price?

A)Multiply the total units used by the standard unit price.
B)Divide the total purchases amount by the actual number of units used.
C)Divide the total purchases amount by the actual number of units purchased.
D)Multiply the standard price per unit times the actual quantity used.

Question 63

If the actual price of direct material is $10 per unit while the standard price of the direct material is $11,

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 64

If the direct materials purchased costs $200 per unit while the standard price for direct materials is $180, and the total direct material used is 1,000 units while the standard direct materials allowed for actual production is 980 units,

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 65

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 66

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 order more materials than it expects to use.
B)The company may receive more materials than ordered.
C)The vendors may change their prices as a result of changes in the market.
D)The company may purchase fewer materials than used.

Question 67

Johnston Manufacturing Company purchased 14,000 switches to make 6,000 units.The standard allows for 2 switches per unit.The company actually used 14,500 to produce the 6,000 units.Johnston budgeted $0.75 per switch but had to pay $0.80 per switch.What is Johnston's direct materials quantity variance for the period?

A)$1,875 unfavorable
B)$1,875 favorable
C)$2,000 unfavorable
D)$1,000 favorable

Question 68

The algebraic equation for the direct materials quantity variance is

A)direct materials quantity variance = AQused × (AP - SP)
B)direct materials quantity variance = SQused × (AP - SP)
C)direct materials quantity variance = SP × (AQused - SQ)
D)direct materials quantity variance = AP × (AQused - SQ)

Question 69

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

A)using more or less material than the standard quantity allowed for actual production.
B)using more or less material than the standard quantity allowed for budgeted production.
C)purchasing more inventory than used.
D)paying more or less than the standard cost per unit for direct materials.

Question 70

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 quantity allowed for the units produced is 7,300 and the standard price of the copper tubing is $2.50 per foot.What is Backyard Creations' direct materials quantity variance for the period?

A)$250 favorable
B)$500 favorable
C)$750 favorable
D)$250 unfavorable.

Question 71

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 number of production workers
C)The supervision provided by the production manager
D)The quantity of materials on hand

Question 72

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)The quantity used in production is not known until units are produced.
D)Managers are required by GAAP to isolate the price variance at the latest point possible.

Question 73

Johnston Manufacturing Company purchased 14,000 switches to make 6,000 units.The standard allows for 2 switches per unit.The company actually used 12,500 to produce the 6,000 units.Johnston budgeted $0.75 per switch, but because they received a discount for purchasing more than 10,000 switches, they received a discount of $0.05 per switch and paid $0.70 each.What is Johnston's direct materials quantity variance for the period?

A)$375 unfavorable
B)$375 favorable
C)$1,125 favorable
D)$1,500 favorable

Question 74

If the actual price of direct materials purchased is $200 per unit while the standard price for direct materials is $180 per unit and the total direct material used is 1,000 units while the standard direct materials allowed for actual production is 1,200 units,

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

The direct materials quantity variance is calculated using which 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 allowed
C)Standard quantity used, actual price paid, standard price paid
D)Actual quantity used, actual price paid, standard price paid

Question 76

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 77

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 78

Johnston Manufacturing Company purchased 14,000 switches to make 6,000 units.The standard allows for 2 switches per unit.The company actually used 12,500 to produce the 6,000 units.Johnston budgeted $0.75 per switch, but because they received a discount for purchasing more than 10,000 switches, they received a discount of $0.05 per switch and paid $0.70 each.What is Johnston's direct materials price variance for the period?

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

Question 79

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 80

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.