Deck 14: Operational Performance Measurement: Sales, Direct-Cost Variances, and the Role of Nonfinancial Performance Measures

Question 1

A flexible-budget variance measures the impact on short-term operating profit of:

A)Changes in sales volume.
B)Changes in output during the period.
C)Differences in sales mix-budgeted versus actual.
D)Selling price and cost differences-actual versus budgeted.
E)Selling price, but not cost differences-actual versus budgeted.

Answer 1

D

Question 2

By convention, short-term financial control is accomplished by all the following except:

A)Comparing actual to budgeted financial results.
B)Calculating a series of cost and revenue variances at the end of the period.
C)The use of flexible budgets and standard costs.
D)Explaining the total operating-income variance for a given period.
E)The use of productivity analysis.

Answer 2

E

Question 3

A standard cost system:

A)Cannot be used in conjunction with a job-cost system.
B)Is not permissible for financial-reporting purposes.
C)Is most easily introduced in conjunction with a process-cost system.
D)Is useful for planning but not control purposes.
E)Is useful for cost control but not planning purposes.

Answer 3

C

Question 4

A "standard cost" is a predetermined amount (e.g., cost) that:

A)Should be incurred under relatively efficient operating conditions.
B)Will be incurred for an operation or a specific objective.
C)Must occur for an operation or a specific objective.
D)Cannot be changed once it is established by management.
E)Is useful for planning and control but not inventory valuation purposes.

Question 5

Differences in expectation levels lead to two basic types of standards in a standard cost system:

A)Ideal and real.
B)Ideal and currently attainable.
C)Normal and conceptual.
D)Attainable and real.
E)Current and future.

Question 6

An organization subject to intense competitive pressures would most likely use:

A)Ideal standards for its operations.
B)Real standards for its operations.
C)Caution in even using standard costs at all.
D)A mix of types of standards.
E)Standards that are not modified over time.

Question 7

Another name for the total operating income variance for a period is:

A)Flexible-budget variance.
B)Master (static) budget variance.
C)Sales volume variance.
D)Total income variance.
E)Sales mix variance.

Question 8

Authoritative standards (within the context of a standard cost system) are determined primarily by:

A)Distributors.
B)Employees.
C)Negotiation.
D)A two-way information flow.
E)Managers.

Question 9

Which of the following is different in a flexible budget compared to the master budget for a period?

A)Selling price per unit.
B)Variable cost per unit.
C)Budgeted fixed cost.
D)Sales volume.
E)Budgeted fixed administrative costs.

Question 10

One important short-term financial goal for a company is to earn the projected operating income for the period. Attainment of this goal is measured by comparing the actual operating income for the period to the:

A)Flexible-budget operating income for the period.
B)Prior period's operating income.
C)Income reflected in the company's balanced scorecard.
D)Master budget operating income.
E)Industry average operating income.

Question 11

The "flexible budget" can best be described as a budget that adjusts:

A)Revenues for sales-dollar changes.
B)Revenues and expenses for changes in output (such as sales volume).
C)Expenses for changes in budgeted output between two periods.
D)For efficiency, but not selling price and cost variances.
E)For selling price and cost variances, but not efficiency variances.

Question 12

Traditional financial control systems have recently been criticized because:

A)They use flexible, not static, budgets.
B)They generally lead to goal-congruent behavior on the part of managers.
C)They focus more in improving basic business processes than short-term financial results.
D)They fail to incorporate nonfinancial performance indicators into the evaluation process.
E)They provide performance data on a real-time basis.

Question 13

Operational control systems can be distinguished from financial control systems:

A)In the time horizon: financial-control systems have a long-term perspective.
B)Because they focus on the control of basic business processes.
C)Because such systems rely on the use of flexible, not static, budgets.
D)Because they focus on explaining the total operating income variance for a period.
E)Because they do not include nonfinancial performance indicators.

Question 14

An organization's overall management accounting and control system:

A)Includes the planning function.
B)Is also referred as the organization's core performance-measurement system.
C)Is separate from its operational control system.
D)Includes nonfinancial, but not financial, performance measures.
E)Focuses on strategic, not operational, control

Question 15

An organization planned to use $82 of direct material per unit of output, but it actually used $80 per unit. During this period, the company planned to make 1,200 units, but actually produced only 1,000 units. The flexible budget amount for direct materials cost is:

A)$80,000.
B)$82,000.
C)$96,000.
D)$98,400.

Question 16

The total operating income variance for a period reveals whether a company has achieved:

A)The sales level budgeted for the period.
B)An adequate return on investment (assets) during the period.
C)Control of basic business processes.
D)Control of total expenses for the period.
E)The master budgeted operating income for the period.

Question 17

A materials efficiency variance can be caused by all of the following except:

A)Actual output volume of the period (i.e., units produced).
B)Performance of the workers in using the materials.
C)Quality of the materials.
D)Skill level of the workers using the materials.
E)Inadequate employee supervision.

Question 18

A ______________ standard gets progressively tighter over time:

A)Peak-efficiency.
B)Currently attainable.
C)Benchmarked.
D)Flexible-budget.
E)Continuous-improvement.

Question 19

A "currently attainable standard" emphasizes:

A)Ideal or theoretical performance.
B)Past performance of the organization.
C)Future performance of the organization's primary competitors.
D)Maximum performance.
E)Relatively efficient operating performance.

Question 20

The arrival of new manufacturing techniques such as automation, flexible manufacturing systems, and cluster or cell manufacturing has:

A)Emphasized the importance of direct labor variances.
B)Not had an effect on the importance of direct labor variances.
C)De-emphasized the importance of direct labor cost variances.
D)Made direct labor variances obsolete.
E)Eliminated the need to calculate and report direct materials variances.

Question 21

The difference between the total actual sales revenue of a period and the total flexible-budget sales revenue for the units sold during the period is the:

A)Total flexible-budget variance.
B)Sales volume variance.
C)Selling price variance.
D)Operating income flexible-budget variance.
E)Operating income variance.

Question 22

A standard that sets the performance criterion at a level that workers with proper training and experience can attain most of the time without extraordinary effort is a(n):

A)Currently attainable standard.
B)Practical standard.
C)Efficiency standard.
D)Ideal standard.
E)Authoritative standard.

Question 23

A standard that assumes perfect implementation and maximum efficiency is called a(n):

A)Currently attainable standard.
B)Practical standard.
C)Efficiency standard.
D)Normal standard.
E)Ideal standard.

Question 24

For a direct material, which one of the following is the difference between the actual and standard unit price of the direct material multiplied by the actual quantity of the material purchased?

A)Direct materials purchase price variance.
B)Direct materials volume variance.
C)Direct materials usage variance.
D)Direct materials flexible-budget variance.
E)Direct materials mix variance.

Question 25

For control purposes, it is usually preferable to calculate the materials price variance:

A)At point of purchase (i.e., when the materials are purchased).
B)At point of production (i.e., when the materials are issued to production).
C)At the end of the accounting period.
D)Only if the materials quantity variance is significant in amount.
E)Only if it is controllable by operating managers.

Question 26

Which of the following benefits is not typically associated with a move to a just-in-time (JIT) manufacturing system?

A)Raw materials are delivered as close as possible to time of production.
B)Existence of long-term contracts with selected suppliers.
C)Reduction in employee training and education costs.
D)Decreases in manufacturing lead time.
E)Improved customer-response time (CRT).

Question 27

The total variable cost flexible-budget variance for any given period:

A)Is the difference between actual total variable cost incurred and master budgeted total variable cost.
B)Is decomposable into sales-volume and sales-mix components.
C)Is decomposable into production-volume and production-mix components.
D)Can be broken down into flexible-budget variances for major costs such as materials, labor, variable overhead, and variable selling expenses.
E)Is directly affected by the difference between actual sales volume and the sales volume embodied in the flexible budget.

Question 28

The total variable cost flexible-budget variance includes all of the following except:

A)Direct materials variances.
B)Sales price variance.
C)Variable selling and administrative expenses variances.
D)Direct labor variances.
E)Variable overhead variances.

Question 29

The difference between the actual sales volume for a period and the flexible-budget sales volume is:

A)The total sales volume variance for the period.
B)The total production-volume variance for the period.
C)The sales price variance for the period.
D)The operating-income sales volume variance for the period.
E)Zero-by definition.

Question 30

Which one of the following is the difference between the actual hourly wage rate and the standard hourly wage rate, multiplied by the actual direct labor hours worked during a period?

A)Total direct labor standard cost variance.
B)Direct labor efficiency variance.
C)Direct labor usage variance.
D)Direct labor flexible-budget variance.
E)Direct labor rate variance.

Question 31

A total variable cost variance (such as for direct materials) can be broken down into separate variances that evaluate:

A)Price and efficiency.
B)Units and cost.
C)Volume and productivity.
D)Sales-volume versus sales-mix effects.
E)Efforts and results.

Question 32

The primary purpose of calculating standard cost variances each period is:

A)To achieve financial control regarding operating activities.
B)To facilitate the recording of manufacturing costs during a period.
C)To adjust reported income to flexible-budget income.
D)To diagnose the cause of operating problems as well as what should be done to correct such problems.
E)To minimize income tax liabilities.

Question 33

The difference between the flexible-budget operating income and the actual operating income in a period is the:

A)Sales mix variance.
B)Sales volume variance.
C)Sales price variance.
D)Operating income flexible-budget variance.
E)Total operating income variance.

Question 34

The way managers and employees who are affected by a standard cost system perceive the system will:

A)Be of little consequence on the success of the system if correctly implemented.
B)Generally be minimal in impact on the implementation of the system.
C)Affect its success or failure in implementing the system.
D)Be difficult to assess.
E)Not matter in the long run.

Question 35

A standard cost system should be designed to generate and report cost and revenue variances:

A)Coincidental with regular reporting intervals.
B)As soon as possible.
C)Only when significant in amount.
D)Only when negative in impact.
E)Only when requested by decision-makers.

Question 36

Using continuous-improvement standards likely has the effect(s) of all the following except:

A)Reductions in inefficiencies.
B)Reduced product defects.
C)Constantly decreasing standard levels.
D)Improved productivity.
E)Increasing pressure on employees and managers.

Question 37

Which one of the following, for each direct material used in production, is the difference between the actual units of material used and the total standard units of the direct material that should have been used for the units of the product manufactured during the period, multiplied by the standard unit price of the direct materials?

A)Direct materials sales-volume variance.
B)Direct materials rate variance.
C)Direct materials usage variance.
D)Direct materials flexible-budget variance.
E)Direct materials mix variance.

Question 38

The difference between the actual operating income of the period and master budgeted operating income for the period is the:

A)Total flexible-budget variance.
B)Sales volume variance.
C)Sales price variance
D)Operating income flexible-budget variance.
E)Total operating income variance.

Question 39

Which one of the following is the difference between the actual direct labor hours and the standard direct labor hours for the units manufactured, multiplied by the standard hourly wage rate per hour?

A)Direct labor price variance.
B)Direct labor efficiency variance.
C)Total direct labor standard cost variance.
D)Direct labor flexible-budget variance.
E)Direct labor operating-income variance.

Question 40

Which one of the following is the difference in direct material costs between the actual cost incurred during the period and the total standard cost in the flexible budget for the units manufactured during the period?

A)Direct materials price variance.
B)Direct materials mix variance.
C)Direct materials usage variance.
D)Direct materials flexible-budget variance.
E)Direct materials efficiency variance.

Question 41

A manufacturer planned to use $82 of materials per unit produced, but in the most recent period it actually used $80 of material per unit produced. During this same period, the company planned to produce 1,200 units, but actually produced only 1,000 units. The flexible-budget variance for materials is:

A)$2,000 favorable.
B)Impossible to determine without additional information.
C)$14,000 unfavorable
D)$16,400 unfavorable.
E)$2,400 unfavorable.

Question 42

Which of the following is not an anticipated benefit of switching to a JIT production system?

A)Reduction in inventory holding costs.
B)Reduction of monitoring costs associated with the production system.
C)Reduction in customer-response time.
D)Increased sales due to increases in quality and customer satisfaction.
E)Reduction in internal failure costs, such as the cost of reworking defective outputs.

Question 43

All of the following are limitations of short-term financial performance indicators except:

A)Employees and managers can take actions that improve short-term financial performance at the expense of long-term performance.
B)Focusing on individual cost variances can result in optimum local but not global (i.e., firm-wide) performance.
C)Operating personnel may not readily understand or be able to interpret financial-performance indicators.
D)Senior managers typically find non-financial performance indicators more useful than summary financial-performance indicators.

Question 44

The term "processing cycle efficiency" (PCE):

A)Like manufacturing cycle time, is a measure of operational efficiency.
B)Is defined as the ratio of manufacturing lead time to delivery time.
C)Is defined as manufacturing lead time minus delivery time.
D)Is defined as the ratio of customer-response time to order-delivery time.
E)Is at an optimum level when PCE = 0.

Question 45

A flexible budget contains:

A)Cost targets based on actual output (e.g., sales volume) for the period.
B)Cost targets based on planned output (e.g., sales volume) for the period.
C)Actual costs incurred for the actual output of the period.
D)Costs and revenues for the difference between planned and actual output.
E)Costs based on actual output of the period, and revenue based on master budgeted output.

Question 46

Customer-response time (CRT) is usually defined as:

A)The time between when a customer places an order and the time when the order is received by the customer.
B)The elapsed time between initial customer contact and the time a customer places an order.
C)The time between when a customer places an order and when that order is manufactured.
D)The time between when an order is started into production and when that order is completed.
E)The time it takes to respond to customer inquiries.

Question 47

A flexible-budget variance for any fixed cost:

A)Is defined as the difference between flexible-budget fixed cost and the level of fixed costs reflected in the master (static) budget.
B)Is undefined, except when actual output equals budgeted output.
C)Is typically zero, because the volume assumed in the flexible budget and the master budget for fixed costs is identical.
D)Is the difference between budgeted fixed cost and actual fixed cost.
E)Can be broken down into price and efficiency components.

Question 48

A favorable price variance for direct materials indicates that:

A)Lower-quality materials were purchased.
B)The materials standard is likely out of date.
C)A lower price than expected was paid for the materials.
D)Less material was used in production this period than was allowed.
E)There will most likely be an unfavorable materials efficiency (quantity) variance.

Question 49

The difference between actual and standard cost caused by the difference between the actual number of resource-units used and the standard number of resource-units that should have been used for the output of the period is called the:

A)Controllable variance.
B)Master budget variance.
C)Flexible-budget variance.
D)Quantity (or efficiency) variance.
E)Price variance.

Question 50

Which of the following is not considered a basic business process?

A)Operating processes.
B)Customer-management processes.
C)Innovation processes.
D)Social/regulatory processes.
E)Just-in-time (JIT) processes.

Question 51

For operational control, a management accounting system should include:

A)Performance measures associated with basic business processes.
B)Only financial-control measures, such as standard cost variances.
C)High-level financial metrics such as return on investment (ROI) or return on sales (ROS).
D)A combination of short-term and strategic financial-performance metrics.
E)Only flexible-budget cost and revenue variances.

Question 52

A favorable cost variance of significant magnitude:

A)Is likely the result of exceptional planning.
B)May lead to future improvements in production methods if the variance is investigated to determine its underlying cause(s).
C)Is strong evidence of excellent operating performance.
D)Is strong evidence of tight financial control.
E)Does not need to be investigated as to its underlying cause (because it is "favorable").

Question 53

A firm uses a JIT inventory system and has an unfavorable selling price variance for the period just ended. If the proportion of the total variable manufacturing costs to total sales in both the flexible budget and the actual operating results is 70%:

A)The firm has an unfavorable total variable manufacturing cost variance.
B)The firm has a favorable total variable manufacturing cost variance.
C)The firm has an unfavorable total flexible-budget variance.
D)The firm has a favorable contribution margin variance.
E)The firm has a favorable total flexible-budget variance.

Question 54

Which of the following is not a plausible cause of a direct labor efficiency variance?

A)Poor scheduling of work.
B)Inadequate supervision of workers.
C)Materials used are different from those specified.
D)Failure to update the standard cost to conform to wage provisions in the union contract.
E)Batch sizes during the period were different from standard.

Question 55

The effect on sales, expenses, or operating income of changes in units sold is measured by the:

A)Flexible-budget variance.
B)Sales-volume variance.
C)Sales price variance
D)Operating income flexible-budget variance.
E)Production-volume variance.

Question 56

The total operating-income variance for any period:

A)Is unaffected by variances between actual and budgeted sales volume.
B)Can be decomposed into a total flexible-budget variance and a sales-volume variance.
C)Can be decomposed into a total flexible-budget variance and a sales price variance.
D)Is equal to the sum of selling and administrative expense variances plus the total sales-volume variance for the period.
E)Equals the sum of the total flexible-budget variance plus the sales-mix variance for the period.

Question 57

Flexible budgets and standard costs are useful for assessing:

A)Strategic performance during the most recent period.
B)Operating performance during the period.
C)Short-term financial performance.
D)Management control.
E)The level of control over basic business processes.

Question 58

The direct materials usage ratio for a given period is:

A)Defined as the ratio of quantity purchased to quantity used.
B)Defined as the inverse of the materials quantity variance for the period.
C)Entered into its own variance account at the end of the period.
D)A useful indicator of performance by the manufacturing department.
E)A useful indicator of performance of the purchasing department.

Question 59

Which of the following is not indicated as an advantage of using nonfinancial performance measures, relative to financial performance measures, as part of an operational control system?

A)Nonfinancial performance indicators are readily understandable by operating personnel.
B)Nonfinancial performance indicators can be viewed as drivers of future financial performance.
C)Nonfinancial performance indicators direct attention to precise problem areas that need attention.
D)Nonfinancial performance measures are more reliable than financial performance measures.

Question 60

Which of the following statements about processing cycle efficiency (PCE) is not true:

A)It is defined as the ratio of processing time to non-processing time.
B)It is a measure of operating process efficiency.
C)It is based on the relationship between actual processing time and total production time.
D)It incorporates notions of "value-added" and "non-value-added," as discussed in the development of activity-based cost (ABC) systems.
E)The optimum value of PCE is 1.

Question 61

The actual direct labor hours worked (AQ) during November was:

A)18,720.
B)19,200.
C)20,800.
D)22,400.
E)22,464.

Question 62

The actual direct labor rate per hour (AP) is:

A)$12.00.
B)$12.30.
C)$12.60.
D)$13.20.
E)$13.50.

Question 63

The cost of PPS in the flexible budget for the number of units manufactured this period is:

A)$259,200.
B)$280,800.
C)$311,040.
D)$324,000.
E)$360,000.

Question 64

The direct labor rate variance is:

A)$36,900 unfavorable.
B)$37,800 unfavorable.
C)$55,350 unfavorable.
D)$56,700 unfavorable.
E)$73,800 unfavorable.

Question 65

The standard direct labor rate per hour (SP) is:

A)$13.44.
B)$13.65.
C)$13.78.
D)$14.00.
E)$14.35.

Question 66

The direct labor flexible-budget variance is:

A)$18,900 unfavorable.
B)$42,300 unfavorable.
C)$46,350 unfavorable.
D)$44,500 unfavorable.
E)$54,900 unfavorable.

Question 67

The total direct labor flexible-budget variance in February is:

A)$7,350 favorable.
B)$7,840 favorable.
C)$30,870 favorable.
D)$30,870 unfavorable.
E)$31,360 favorable.

Question 68

The actual purchase price per pound of PPS used is:

A)$5.20.
B)$5.76.
C)$6.24.
D)$6.84.
E)$7.20.

Question 69

The direct labor efficiency variance for November is:

A)$26,624.00 unfavorable.
B)$31,948.80 unfavorable.
C)$39,936.00 favorable.
D)$71,884.80 favorable.
E)$103,833.60 favorable.

Question 70

The direct labor efficiency variance in February is:

A)$13,440 favorable.
B)$13,650 favorable.
C)$13,776 favorable.
D)$14,000 favorable.
E)$19,110 favorable.

Question 71

The direct materials purchase-price variance is:

A)$51,840 favorable.
B)$56,160 favorable.
C)$62,208 favorable.
D)$64,840 favorable.
E)$72,000 favorable.

Question 72

The total standard direct labor cost for the period is:

A)$738,000.
B)$747,000.
C)$756,000.
D)$765,000.
E)$774,900.

Question 73

The standard direct labor rate per hour is:

A)$12.00.
B)$12.30.
C)$12.60.
D)$13.20.
E)$13.50.

Question 74

The direct materials usage variance for the period is:

A)$307.50 unfavorable.
B)$307.50 favorable.
C)$322.50 unfavorable.
D)$322.50 favorable.
E)$532.50 favorable.

Question 75

The actual purchase price per pound of direct materials is:

A)$6.12.
B)$6.15.
C)$6.50.
D)$6.75.
E)$7.13.

Question 76

The standard cost per pound of PPS is:

A)$5.20.
B)$5.76.
C)$6.24.
D)$6.84.
E)$7.20.

Question 77

The total standard direct labor hours (SQ) in November for the output produced are:

A)18,720.
B)19,200.
C)20,800.
D)22,400.
E)22,464.

Question 78

The direct labor rate variance for November is:

A)$26,624.00 unfavorable.
B)$31,948.80 unfavorable.
C)$39,936.00 favorable.
D)$71,884.80 favorable.
E)$103,833.60 favorable.

Question 79

The total standard direct labor cost for the units manufactured in February is:

A)$458,640.
B)$470,400.
C)$477,750.
D)$478,240.
E)$490,000.

Question 80

The actual direct labor rate per hour (AP) is:

A)$13.44.
B)$13.65.
C)$13.78.
D)$14.00.
E)$14.35.