Question 1

The most fundamental variance analysis compares:

Accepted Answer

A)  standard material prices with actual material prices.
B)  standard direct labor rates with actual direct labor rates.
C)  budgeted sales revenue with actual sales revenue.
D)  budgeted operating income with actual operating income. D

Question 2

The intercept of the flexible budget-line is total:

Accepted Answer

A)  sales.
B)  variable costs.
C)  fixed costs.
D)  contribution margin. C

Question 3

The production volume variance is the difference between fixed costs on the flexible budget and the fixed costs on the master budget.The production volume variance is the difference between the fixed costs on the flexible budget and the fixed overhead applied to production.

Accepted Answer

A) True 
 B)False  False

Question 4

Production cost variances are input variances,while sales activity variances are output variances.Costs are based on inputs,revenues are based on outputs.

Accepted Answer

A) True 
 B)False

Question 5

The basic difference between a master budget and a flexible budget is that a:

Accepted Answer

A)  flexible budget considers only variable costs but a master budget considers all costs.
B)  flexible budget allows management latitude in meeting goals whereas a master budget is based upon a fixed standard.
C)  master budget is for an entire production facility but a flexible budget is applicable to single departments only.
D)  master budget is based on one specific level of production and a flexible budget can be prepared for any production level within a relevant range.

Question 6

The sales price variance is the actual selling price per unit times the difference between budgeted number of units and the actual number of units sold.Sales price variance is the difference between actual and budgeted selling price times the actual number sold.

Accepted Answer

A) True 
 B)False

Question 7

Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost.Arrow has established the following standards for the prime costs of one unit of product.  During November,Arrow 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.Arrow 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 materials price variance for November?

Accepted Answer

A)  $14,250.
B)  $14,400.
C)  $16,000.
D)  $17,100.

Question 8

What is the master budget sales revenue?

Accepted Answer

A)  $124,000.
B)  $148,000.
C)  $156,000.
D)  $180,000.

Question 9

In general,the direct labor efficiency variance is the responsibility of the:

Accepted Answer

A)  purchasing agent.
B)  company president.
C)  production manager.
D)  industrial engineering.

Question 10

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.

Question 11

The following information summarizes the standard cost for producing one metal tennis racket frame.In addition,the variances for one month's production are given.Assume that all inventory accounts have zero balances at the beginning of the month.  What was the actual quantity of materials used during the month?

Accepted Answer

A)  2,156.
B)  2,100.
C)  2,225.
D)  1,975.

Question 12

The production volume variance is computed by the difference between the:

Accepted Answer

A)  actual fixed overhead and applied fixed overhead.
B)  actual fixed overhead and budget at actual level of activity reached.
C)  actual fixed overhead and budget at denominator level of activity planned.
D)  budget at actual levels of activity reached and fixed overhead applieD.Production volume = budget - applieD.

Question 13

Data on Goodman Company's direct-labor costs are given below:  What was Goodman's actual direct-labor rate?

Accepted Answer

A)  $3.60.
B)  $3.80.
C)  $4.00.
D)  $5.80.

Question 14

An operating budget would not include a:

Accepted Answer

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

Question 15

When computing standard cost variances,the difference between actual and standard price multiplied by actual quantity yields a(n): (CMA adapted)

Accepted Answer

A)  combined price and quantity variance.
B)  efficiency variance.
C)  price variance.
D)  quantity variance.

Question 16

The slope of the flexible budget-line is the:

Accepted Answer

A)  selling price per unit.
B)  variable cost per unit.
C)  fixed cost per unit.
D)  contribution margin per unit.

Question 17

Which of the following organizational policies is most likely to result in undesirable managerial behavior? (CMA adapted)

Accepted Answer

A)  Patel Chemicals sponsors television coverage of cricket matches between national teams representing India and Pakistan.The expenses of such media sponsorship are not allocated to its various divisions.
B)  Joe Walk,the chief executive officer of Eagle Rock Brewery,wrote a memorandum to his executives stating,"Operating plans are contracts and they should be met without fail."
C)  The budgeting process at Madsen Manufacturing starts with operating managers providing goals for their respective departments.
D)  Fullbright Lighting holds quarterly meetings of departmental managers to consider possible changes in the budgeted targets due to changing conditions.

Question 18

The difference between operating profits in the master budget and operating profits in the flexible budget is called:

Accepted Answer

A)  sales activity variance.
B)  flexible budget variance.
C)  production volume variance.
D)  total operating profit variance.

Question 19

Excess direct labor wages resulting from overtime premium will be disclosed in which type of variance? (CPA adapted)

Accepted Answer

A)  Yield.
B)  Quantity.
C)  Labor efficiency.
D)  Labor rate.

Question 20

An unfavorable direct labor efficiency variance could be caused by: (CMA adapted)

Accepted Answer

A)  an unfavorable materials quantity variance.
B)  an unfavorable variable overhead rate variance.
C)  a favorable materials quantity variance.
D)  a favorable variable overhead rate variance.

Exam 16: Fundamentals of Variance Analysis