Question 1

Which of the following statements is true regarding "management by exception"?

Accepted Answer

A)  It is rarely used in variance analysis. 
B)  It forces managers to investigate all variances, regardless of size. 
C)  It requires managers to investigate variances that are material in amount. 
D)  It requires managers to calculate standard costs but not actual costs.

Question 2

Moreland Manufacturing Inc. Moreland Manufacturing Inc. produces and sells stainless steel faucets. In the current year, the company had budgeted for the production and sale of 6,000 faucets but, due to unexpected demand, 7,000 faucets were actually produced and sold. Each faucet has a standard requiring 15 ounces of direct material at a cost of $.40 per ounce and 15 minutes of assembly time at a cost of $.20 per minute. Actual costs for the production of 7,000 faucets were $41,359.50 for materials (106,050 ounces purchased and used @ $.39 per ounce) and $21,560 for labor (98,000 minutes @ $.22 per minute).
Refer to the Moreland Manufacturing Inc. information above. Moreland's direct labor rate variance is:

Accepted Answer

A)  $2,100 F. 
B)  $1,800 F. 
C)  $1,960 U. 
D)  $ 560 U.

Question 3

Jackie makes and sells handmade beaded jewelry. She anticipates selling 150 necklaces in March and prepared the following static budget as a result:
  During March, Jackie actually produced and sold 190 necklaces.
Required: Prepare a flexible budget for the month of March.

Accepted Answer

The answer of Jackie makes and sells handmade beaded jewelry....

Question 4

The variable overhead efficiency variance:

Accepted Answer

A)  is interpreted in the same manner as the direct labor efficiency variance. 
B)  measures the efficient use of factory utilities, factory maintenance, and factory supplies. 
C)  measures the efficient use of the cost driver used in the flexible budget. 
D)  measures the efficient use of direct materials.

Question 5

Differences in sales revenue between the flexible budget and actual results can be attributed to:

Accepted Answer

A)  the sales volume variance. 
B)  the flexible budget variance. 
C)  the sales price variance. 
D)  the variable overhead efficiency variance.

Question 6

Coppelli Inc. In early 2012, Coppelli Inc. had budgeted for the production and sale of 24,000 units. The standard sales price and variable costs per unit were budgeted to be $6.00 and $2.00, respectively. Actual sales for 2012 totaled 25,300 units, and the actual sales price and variable costs per unit were $6.50 and $2.10, respectively. Both budgeted and actual fixed costs were $30,000.
Refer to the Coppelli Inc. information above. What was Coppelli's sales price variance for 2012?

Accepted Answer

A)  $12,650 F 
B)  $12,650 U 
C)  $12,000 F 
D)  $12,000 U

Question 7

Armstrong Products Armstrong Products applies fixed overhead at a rate of $3 per direct labor hour. Each unit produced is expected to take 2 direct labor hours. Armstrong expected production in the current year to be 10,000 units but 9,000 units were actually produced. Actual direct labor hours were 19,000 and actual fixed overhead costs were $62,000.
Refer to the Armstrong Products information above. Armstrong's fixed overhead spending variance is:

Accepted Answer

A)  $8,000 F. 
B)  $8,000 U. 
C)  $2,000 F. 
D)  $2,000 U.

Question 8

Supreme Catering At the end of January, Supreme Catering prepared the following budget for the upcoming month of February estimating that they would serve 5,000 people:
 During February, there were 4,800 guests actually served. Actual costs incurred were $67,200 for variable costs and $8,000 for fixed costs. Each guest was charged $25.
Refer to the Supreme Catering information above. Supreme Catering's flexible budget for February would show net operating income of:

Accepted Answer

A)  $63,000. 
B)  $60,200. 
C)  $59,200. 
D)  $45,800.

Question 9

Gemma Products produces and sells a variety of domestic goods including sheets. In the current year, the company budgeted for the production and sale of 10,000 sets; however, 12,000 sets were actually produced and sold. Each set has a standard requiring 10 yards of material at a cost of $1.10 per yard and 20 minutes of direct labor (for sewing, assembly, and inspection) at a cost of $.20 per minute. Actual costs for the production of 12,000 sets were $138,240 for materials (128,000 yards purchased and used @ $1.08 per yard) and $55,200 for labor (230,000 minutes @ $.24 per minute).
Required: Compute each of the following variances. Indicate whether the variance is favorable (F) or unfavorable (U).

Accepted Answer

The answer of Gemma Products produces and sells a variety...

Question 10

Rogers Rods & Reels Ltd. Rogers Rods & Reels Ltd. manufactures and sells various types of fishing equipment. At the end of 2011, Rogers had estimated for the production and sale of 15,000 bass fishing rods. Each rod has a standard calling for 1.5 pounds of direct material at a standard rate of $8.00 per pound and 15 minutes of direct labor time at a standard rate of $.18 per minute. During 2012, Rogers actually produced and sold 16,000 rods. These 16,000 rods had an actual direct materials cost of $179,200 (25,600 pounds at $7.00 per pound) and an actual direct labor cost of $44,800 (224,000 minutes at $.20 per minute). Each rod sells for $50.
Refer to the Rogers Rods & Reels Ltd. information above. What is Rogers' net operating income based on a flexible budget?

Accepted Answer

A)  $579,500 
B)  $564,800 
C)  $576,000 
D)  $590,000

Question 11

Gantt Textiles Inc. incurred actual variable overhead expenses of $50,000 in the current year for the production of 6,000 units. Variable overhead was applied at a rate of $3.25 per direct labor hour and 2 direct labor hours were budgeted for each unit. The company used 16,000 direct labor hours for production.
Required: Compute each of the following variances. Indicate whether the variance is favorable (F) or unfavorable (U).

Accepted Answer

The answer of Gantt Textiles Inc. incurred actual variable overhead...

Question 12

Harkin Ltd. has a $5,000 unfavorable variable overhead spending variance. Give two possible reasons for this variance.

Accepted Answer

The answer of Harkin Ltd. has a $5,000 unfavorable variable...

Question 13

Rogers Rods & Reels Ltd. Rogers Rods & Reels Ltd. manufactures and sells various types of fishing equipment. At the end of 2011, Rogers had estimated for the production and sale of 15,000 bass fishing rods. Each rod has a standard calling for 1.5 pounds of direct material at a standard rate of $8.00 per pound and 15 minutes of direct labor time at a standard rate of $.18 per minute. During 2012, Rogers actually produced and sold 16,000 rods. These 16,000 rods had an actual direct materials cost of $179,200 (25,600 pounds at $7.00 per pound) and an actual direct labor cost of $44,800 (224,000 minutes at $.20 per minute). Each rod sells for $50.
Refer to the Rogers Rods & Reels Ltd. information above. What is Rogers' flexible budget variance?

Accepted Answer

A)  $11,200 F 
B)  $11,200 U 
C)  $ 3,500 F 
D)  $ 3,500 U

Question 14

Variance analysis compares:

Accepted Answer

A)  practical standards and ideal standards. 
B)  static budgets and flexible budgets. 
C)  standard costs and actual costs. 
D)  product costs and period costs.

Question 15

Hathaway Inc. produces and sells golf umbrellas to local resorts. Hathaway anticipates April to be a busy month with the sale of 2,000 umbrellas. The company has prepared the following static budget for April:  During April, Hathaway actually produced and sold 2,300 umbrellas. What should be Hathaway's net operating income in April based on a flexible budget?

Accepted Answer

A)  $44,025 
B)  $43,125 
C)  $37,500 
D)  $35,025

Question 16

Paw-Paw Products Paw-Paw Products produces and sells flannel covered dogbeds. In the current year, Paw-Paw had expected to sell 8,000 beds but actually produced and sold 8,500 beds. The following information is available regarding the standard cost to produce a single dogbed:
 In the current year, 44,000 yards of material were purchased and used at a cost of $1.60 per yard and 365,500 direct labor minutes were incurred at a cost of $.23 per minute.
Refer to the Paw-Paw Products information above. The company's direct material price variance for the current year is:

Accepted Answer

A)  $4,250 F. 
B)  $6,650 U. 
C)  $4,400 U. 
D)  $3,750 F.

Question 17

New Hampshire Products has a favorable fixed overhead spending variance. Which of the following would be the most likely reason for this variance?

Accepted Answer

A)  More units were actually produced than predicted. 
B)  Fewer units were actually produced than predicted. 
C)  Actual fixed overhead was more than predicted. 
D)  Actual fixed overhead was less than predicted.

Question 18

Fox Manufacturing At the beginning of the year, Fox Manufacturing had budgeted for the production and sale of 24,000 units. The standard sales price and variable costs per unit were budgeted to be $20.00 and $8.00, respectively. Actual sales for the year totaled 21,000 units, and the actual sales price and variable costs per unit were $19.50 and $8.00, respectively. Both budgeted and actual fixed costs were $20,000.
Refer to the Fox Manufacturing information above. What was Fox's sales price variance for the year?

Accepted Answer

A)  $10,500 F 
B)  $10,500 U 
C)  $12,000 F 
D)  $12,000 U

Question 19

Sampson Apparel Inc. Sampson Apparel Inc. incurred actual variable overhead expenses of $20,000 in the current year for the production of 5,000 units. Variable overhead was applied at a rate of $1.50 per direct labor hour and 2 direct labor hours were budgeted for each unit. The company used 9,000 direct labor hours for production.
Refer to the Sampson Apparel Inc. information above. What was Sampson's variable overhead efficiency variance?

Accepted Answer

A)  $6,500 U 
B)  $6,500 F 
C)  $1,500 U 
D)  $1,500 F

Question 20

Holt Products manufactures desktop computers. Management has determined that each computer has a standard labor cost of $75.00 when 5 hours of labor at a cost of $15.00 per hour are used. The static budget for the month of April showed an estimated production of 4,200 computers. During April, 4,500 computers were actually produced. The actual direct labor cost for each computer was $85.80 when 5.5 hours of labor at a cost of $15.60 per hour was used. What should be the total direct labor cost according to Holt's flexible budget for April?

Accepted Answer

A)  $360,360 
B)  $315,000 
C)  $337,500 
D)  $386,100

Exam 10: Variance Analysis A Tool for Cost Control and Performance Evaluation