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**The correct answer for each question is indicated by a
**

1 CORRECT

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Which of the following is true regarding budget reports? They may contain information that compares actual results to planned A) activities. They are motivated by a need to both monitor performance and control B) activities. They can be viewed as progress reports or report cards on management's C) performance in achieving established objectives. D) All of the above.

None of the above. E) Feedback: All of the answers are true. They may contain information that compares actual results to planned activities. They are motivated by a need to both monitor performance and control activities. They can be viewed as progress reports or report cards on management's performance in achieving established objectives. C1

2 CORRECT

Which of the following statements is true with respect to the budgetary control process? A) B) C) It involves at least four distinct steps. It is not an important process in a business organization. It has nothing to do with comparing actual results to planned objectives.

Accounting personnel should not be involved with this phase of the D) budget. All of the above. E) Feedback: The budgetary control process involves at least four steps including (1) develop the budget from planned objectives, (2) compare actual results from budgeted amounts and analyze any differences, (3) take corrective and strategic actions, and (4) establish new planned objectives and prepare a new budget. Which of the following statements is/are not true? C1

3 CORRECT

Which of the following is a true statement regarding the purpose of flexible budgets? Flexible budgets are also known as static budgets.

with planned overhead costs of $800. . They are budgets that are developed at the start of the year and never C) adjusted. All of the above.000 $800. Fixed costs at 100% capacity are $240.000.000.000 None of the above E) Feedback: At 160.000 for variable overhead and $240.000 and $240. They are useful for management.000 and $300.000 hours to 200.000 $1. engineering.000 and $300.000 (200. D) They are of no use in comparing or evaluating actual results.000 direct labor hours the variable cost is $5 per hour (800.000). the same amount per hour as at 100.000. Variable costs at 100% capacity are $1.000 direct labor hours. P1 5 CORRECT Standard costs contain which of the following characteristics? They are preset costs for delivering a product or service under normal A) conditions. They are established by personnel.A) B) Flexible budgets are also known as variable budgets. what would be the variable and fixed costs at 100% capacity? A) B) C) D) $800.000 hours. They are useful for evaluation because they reflect budgeted revenues and expenses based on the actual level of activity.000. The fixed costs will remain unchanged from 160.000 hours.000 labor hours. E) Feedback: Flexible budgets are also known as variable budgets.000 $1. Management can use these cots to assess the reasonableness of actual C) consts incurred.000 for fixed overhead.000/160.000 and $240. A1 4 INCORRECT The Sydne Manufacturing Company prepared a fixed budget of 160.000 x $5). and accounting studies B) based on past experience and other data. Preparing a flexible budget at 100% capacity of 200.

000 units of finished product. favorable. not temporary or unusual circumstances that occurred. None of the above E) Feedback: Standards are set to allow comparisons and also to eliminate inefficiencies and waste. unfavorable $480.900 x $4. D) An unusual batch of materials were spoiled in the last production run. What was the total direct materials variance? A) B) C) D) $480. C1 6 INCORRECT Which of the following would be reasons to consider changing a standard cost? A worker was out ill and it took the rest of the team longer to make the A) product. Actual materials usage was 24.000 x $5) = $480.000 units at $5 per unit for 6. The correct answer is C.D) All of the above E) Feedback: All of the statements describe characteristics of standard costs. favorable None of the above E) Feedback: The total direct materials variance is the actual units multiplied by the actual price minus the standard units multiplied by the standard price. unfavorable $4. The total direct materials variance is (24.80 for the 6.800.Standard price) x Actual quantity used . favorable $4.900 units at $4. B) The cost of one raw material went up due to a temporary shortage. P2 8 INCORRECT Which formula does not compute the amount of the materials price variance? (Actual price . A new raw material has been added to an existing product to increase the C) quality of the finished good.000 units of finished product. C1 7 INCORRECT Budgeted materials are 24. Changes in the process or resources needed to carry out the process may require that a standard be changed.800.80) – (24.

08 ($4. and the total materials price variance (PV) was $3.12). What was the standard materials price? A) B) C) D) $4.400. $1.000 favorable. The standard price was $4.500. using 15. unfavorable .700 = $.Standard quantity) x Standard price (Actual quantity x Actual price) – (Actual quantity x Standard price) None of the above E) Feedback: The price variance is the difference between the actual price per unit (AP) and the standard price per unit (SP) multiplied by the actual quantity of materials used (AQ) or (AP . favorable $2.000 unfavorable. The material standards for the product are 4 pounds at $10 per pound.44 Cannot be determined from the information provided E) Feedback: The price variance was unfavorable.96 $4.$. Sixteen thousand pounds were purchased for $158. or $3.Actual price) x Actual quantity used (Actual quantity .SP) x AQ. P2 9 CORRECT The actual materials price (AP) was $4. $1.08 $4. favorable $2. How much is the materials quantity variance and materials price variance.20 .000 favorable. Variations of the formula are (SP – AP) x AQ and (AQ x AP) – (AQ x SP).000 pounds of raw material.20. unfavorable. therefore the actual price (AP) exceeded the standard price (SP).204/26.700 units.500.204.500.12.32 $3. P2 10 INCORRECT Leland Manufacturing produced 3. the actual quantity (AQ) of material was 26. respectively? A) B) C) $2. $1. The unit price variance is the total materials price variance divided by the actual quantity used.700 units of finished product.A) B) C) D) (Standard price .

000 29.SQ) x SP = Quantity variance.800.400/16.500.800) x $10 = $2.000 unfavorable. C.719 unfavorable. unfavorable Cannot be determined from the information given E) Feedback: The actual price is $158. E) Feedback: The materials price variance can be computed by (AP .100 28.000 = $9.100.400 .000 = $1.SP) x AQ = Price variance.90. or (15.90 – 10. the actual price is not used. P2 11 CORRECT Which of the following is correct with regard to using the actual price to compute the two materials variances? A) B) C) D) A..500 favorable.700 units x 4 pounds per unit = 14. $1. D. B. The materials quantity variance can be computed by (AQ . The standard quantity is 3. P2 12 INCORRECT The standard units were 29.73. E.800 29.D) $2. What were the actual units used? A) B) C) D) 29.000 – 14. The materials quantity variance is (AQ – SQ) x SP. and the materials quantity variance was $1.SP) x AQ or (9.00) x 15. actual price is used.000 unfavorable. the standard price was $5. The materials price variance is (AP .

the actual units exceed standard units.Cannot be determined from the information provided E) Feedback: When the quantity variance is unfavorable. P2 14 INCORRECT Which of the following is not one of the steps in effective management of variance analysis? A) B) C) Identifying questions and their explanations Preparing standard cost performance reports Taking corrective and strategic actions . E. the standard units of 29. The materials quantity variance can as computed by (AQ .719/$5. The actual units used were 29. B. The materials price variance can be computed as (AP .100 plus the variance of 300 units.73. D. P2 13 INCORRECT Which of the following is correct with regard to using the actual quantity used to compute the two materials variances? hich of the following is correct with regard to using the actual price to compute the two materials variances? A) B) C) D) A. or $1. C.SQ) x SP. or 300.400. E) Feedback: The actual quantity used is used in both variances. The unit quantity variance is computed as the quantity variance divided by the standard price per unit.SP) x AQ.

Standard rate) x Actual hours (Actual rate .Standard rate) x Standard hours None of the above E) Feedback: The labor rate variance is the difference between the actual labor rate and the standard labor rate multiplied by the actual labor hours used: (AR . actual labor rate is not used. P2 17 .SR) x AH.SR) x AH. E. P2 16 INCORRECT Which formula may be used to compute the labor rate variance? A) B) C) D) (Actual hours . C2 15 CORRECT Which of the following is correct with regard to the actual labor rate used to compute labor variances? A) B) C) D) A.Standard hours) x Actual rate (Actual rate . B. E) Feedback: The labor rate variance can be computed as: (AR . The labor efficiency variance can be computed as: (AH .SH) x SR. actual labor rate is used.D) Computing and analyzing variances All of the above E) Feedback: These are the four steps in effective management of variance analysis.Standard rate) x Actual hours (Actual hours . C. D.

00/$15. actual hours used were 767 (760 + 7).SH) x SR. favorable. Standard hours for the level of .SR) x AH.00). The standard hours allowed were 760 hours (2 x 380). P2 18 INCORRECT Which of the following is correct with regard to using the actual hours used to compute labor variances? A) B) C) D) A B C D E E) Feedback: The actual hours used are used in both variances. What were the actual labor hours? A) B) C) D) 774 hours 753 hours 760 hours 767 hours Cannot be determined from the information given E) Feedback: An unfavorable efficiency variance means more hours were used than were allowed (standard hours) for the level achieved.10. actual hours are used.00 per hour. Seven hours more than the standard were used ($105. The efficiency variance was $105. The company's labor rate variance was $275. The labor efficiency variance can be computed as: (AH . P2 19 INCORRECT The standard hourly rate was $4. The labor rate variance can be computed as: (AR . unfavorable. actual hours are used.INCORRECT The standard cost of one unit of product includes 2 hours of direct labor at $15. Three-hundred and eighty units were produced.

Actual fixed overhead was $13.000 (16.500) or $500 favorable. volume variance. unfavorable. What were the actual labor hours? A) B) C) D) 3.500).27 .000 for 16.000/4).000) minus the budgeted overhead (4.000 units at 4.17 = 3. $1.production are 4.700 4. volume variance. $1. $1.000 B) unfavorable Spending variance.10) will equal the actual hours. Which of the following is correct about the fixed overhead variances? A) Spending variance.500 hours of labor.250 hours of labor.500 for 16.50.500 . $1. The standard hours allowed were 4. fixed overhead (13.500 C) unfavorable D) Spending variance.000 units of production.$4.SR) x AH = rate variance. The volume variance is budgeted fixed overhead minus the applied fixed overhead [$13. The labor rate variance was $654.000 .850 = $654.000.500 x $3 or $13. The fixed overhead rate is $3 per hour at 18.850. $500 unfavorable. $750 unfavorable.500 favorable.50/$.500 $12.(4. Proof: ($4.850 4. $500 unfavorable. The spending variance is actual. P3 21 INCORRECT The Big Company's expected volume was 18. Actual variable overhead was $20.27 . Which of the following is correct about the variable overhead variances? Spending variance. The variable overhead rate is $5 per hour. $500 favorable.000 units. The actual rate was $4.000 units of production at 4.10) x 3. volume variance. efficiency variance. $1. or $13. the total variance ($654.$4.000 x $3).50.000]. P2 20 CORRECT The Big Company's expected volume is 18.150 3.500 favorable None of the above E) Feedback: Standard units produced per labor hour is 4 (18. therefore.500 unfavorable Spending variance. $1.500 hours of labor.000 Cannot be determined from the information provided E) Feedback: (AR .000 units at 4.50) when divided by the hourly difference ($4. volume variance.27. Actual hours: $654.000/4.

500 .000 .500).(4.000 unfavorable Fixed overhead spending variance Fixed overhead volume variance $10.000 favorable. P3 22 INCORRECT The overhead variances for Big Company were: Variable overhead spending variance $3600 favorable Variable overhead efficiency variance $6. favorable controllable variance.000 favorable $4.000/4. $3.600 favorable $13.000 (16. unfavorable. $750 unfavorable. which of the following points are valid? Variable costs per unit remain constant.600. efficiency variance.000 favorable What was the overhead controllable variance? A) B) C) D) $31.000 unfavorable $7.000 favorable $24. The volume variance is not considered a controllable variance. $1.250. $1. $1.250 x $5)) = $750.600 favorable E) Feedback: The controllable variance is the sum of the spending variances plus the efficiency variance.600 + $10.$6.250 D) favorable None of the above E) Feedback: Standard units produced per labor hour is 4 (18. The standard hours were 4.250 x $5) .000 x $5) = $1. efficiency variance. .250 B) unfavorable Spending variance. P3 23 CORRECT In setting overhead standards. The spending variance equals variable overhead minus actual hours multiplied by the standard variable rate ($20.(4.600 favorable $24.000/4). favorable.A) unfavorable Spending variance.000 = $7. $750 favorable. The efficiency variance equals the actual hours multiplied by the standard variable rate minus applied overhead (4. efficiency variance.250 C) unfavorable Spending variance. $1. but fixed costs per unit decline A) with increases in sales volume.

690.) P3 24 INCORRECT Under a standard costing system.53 each $0. E) Feedback: Variable costs per unit remain constant.52 each $0.54 each $0.51 each .740 favorable. when are the overhead variances recorded? A) When goods are transferred from work in process to the next department When the factory overhead is applied to the Goods in Process Inventory B) account C) D) When the factory labor is recorded When the units are transferred to the Finished Goods Inventory account When the materials quantity variance is recorded E) Feedback: The overhead variances are recorded when factory overhead is applied at the standard. None of the above. P4 25 CORRECT Under a standard cost system.970 unfavorable.B) C) D) Variable and fixed costs per unit remain constant. Ninety-six thousand units were completed. the materials quantity variance was recorded at $1. This means that the average total overhead cost per unit declines with increases in volume. What was the per unit price of the actual materials used? A) B) C) D) $0. and the Goods in Process was debited for $51. predetermined overhead rate to the Goods in Process Inventory account. (This also explains why large warehouse type stores can sell their goods much cheaper than smaller stores. Variable and fixed costs per unit both increase as production increases All of the above. but fixed costs per unit decline with increases in sales volume. the materials price variance was recorded at $3.

200 units at $11 per unit.950 = $510.920/96. The fixed budget shows sales at $79.690 + $1. favorable $240.200 units shows sales at $79.740)/96.$79. E) Feedback: All of the above are characteristics of management by exception.$3.440 . or $79. What is the sales price variance? A) B) C) D) $510. unfavorable None of the above E) Feedback: The sales price variance equals actual sales minus the flexible budget sales.Credit to Materials Price Variance)/96.000. C3 . unfavorable. The flexible budget for 7. unfavorable $240. The practice can be extremely helpful when directed at controllable C) items.$79.52. D) All of the above. or ($51. P4 26 INCORRECT Jan-Lee Outlets recorded sales of 7. The sales volume variance equals flexible budget sales minus the fixed budget sales or $79. None of the above.200 .440 = $240. unfavorable. B) The practice allows managers to concentrate on the irregular situations.950.None of the above E) Feedback: The unit cost of materials: (Debit to Goods in Process + Debit to Materials Quantity Variance .000. favorable $510.970 . A2 27 CORRECT Which of the following is a characteristic of management by exception? Management by exception means that managers focus attention on the A) most significant variances and give less attention to areas where performance is reasonably close to the standard.440. Per unit cost: $49.000 = $0.

$6. favorable controllable variance. E) Feedback: Variable costs per unit remain constant.000 .600 favorable A) $13. P3 23 CORRECT In setting overhead standards. D) None of the above. which of the following points are valid? A) B) Variable and fixed costs per unit both increase as production increases C) All of the above.600 favorable E) Feedback: The controllable variance is the sum of the spending variances plus the efficiency variance.000 favorable C) $4. but fixed costs per unit decline with increases in sales volume.000 = $7. This means that the average total overhead cost per unit declines with increases in volume. $3.) P3 Variable costs per unit remain constant.Fixed overhead volume variance $24. The volume variance is not considered a controllable variance. .600. (This also explains why large warehouse type stores can sell their goods much cheaper than smaller stores.000 unfavorable D) $7.600 + $10.600 favorable B) $24. Variable and fixed costs per unit remain constant. but fixed costs per unit decline with increases in sales volume.000 favorable What was the overhead controllable variance? $31.

740 favorable. predetermined overhead rate to the Goods in Process Inventory account. What was the per unit price of the actual materials used? $0.970 unfavorable. and the Goods in Process was debited for $51. the materials price variance was recorded at $3.51 each D) None of the above E) Feedback: The unit cost of materials: (Debit to Goods in Process + Debit to .53 each B) $0. P4 When the factory overhead is applied to the Goods in Process Inventory account When the factory labor is recorded 25 CORRECT Under a standard cost system.690. when are the overhead variances recorded? When goods are transferred from work in process to the next department A) B) C) When the units are transferred to the Finished Goods Inventory account D) When the materials quantity variance is recorded E) Feedback: The overhead variances are recorded when factory overhead is applied at the standard.54 each C) $0. Ninety-six thousand units were completed.52 each A) $0.24 INCORREC T Under a standard costing system. the materials quantity variance was recorded at $1.

unfavorable.$79.$79.$3. The fixed budget shows sales at $79.200 . All of the above. favorable A) $240. or $79.950. The flexible budget for 7. or ($51. unfavorable B) $240. unfavorable.000 = $0. P4 26 INCORREC T Jan-Lee Outlets recorded sales of 7. B) C) D) None of the above.440. A2 27 CORRECT Which of the following is a characteristic of management by exception? Management by exception means that managers focus attention on the most significant variances and give less attention to areas where A) performance is reasonably close to the standard.690 + $1.52.000.Credit to Materials Price Variance)/96.920/96.740)/96. unfavorable D) None of the above E) Feedback: The sales price variance equals actual sales minus the flexible budget sales.440 .200 units shows sales at $79.000. The practice allows managers to concentrate on the irregular situations. The sales volume variance equals flexible budget sales minus the fixed budget sales or $79. .200 units at $11 per unit. What is the sales price variance? $510.950 = $510.440 = $240.Materials Quantity Variance . favorable C) $510. Per unit cost: $49. The practice can be extremely helpful when directed at controllable items.970 .

C3 Bottom of Form .E) Feedback: All of the above are characteristics of management by exception.

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