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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.

All of the above.000.000 direct labor hours the variable cost is $5 per hour (800.000).000.000/160.000 hours to 200.000 for fixed overhead. Preparing a flexible budget at 100% capacity of 200. A1 4 INCORRECT The Sydne Manufacturing Company prepared a fixed budget of 160.000 labor hours. with planned overhead costs of $800.000 x $5).000.000 $800.000 direct labor hours. They are useful for evaluation because they reflect budgeted revenues and expenses based on the actual level of activity.000 None of the above E) Feedback: At 160.A) B) Flexible budgets are also known as variable budgets.000 $1.000 (200.000 for variable overhead and $240. The fixed costs will remain unchanged from 160. They are established by personnel. . the same amount per hour as at 100.000. E) Feedback: Flexible budgets are also known as variable budgets. Variable costs at 100% capacity are $1. what would be the variable and fixed costs at 100% capacity? A) B) C) D) $800. They are budgets that are developed at the start of the year and never C) adjusted. Management can use these cots to assess the reasonableness of actual C) consts incurred.000 and $240. Fixed costs at 100% capacity are $240. They are useful for management.000 and $300.000 and $300.000 hours.000 hours. and accounting studies B) based on past experience and other data. engineering.000 $1.000 and $240. D) They are of no use in comparing or evaluating actual results. 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.

000 units of finished product. Changes in the process or resources needed to carry out the process may require that a standard be changed. 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.D) All of the above E) Feedback: All of the statements describe characteristics of standard costs. The correct answer is C.800.000 x $5) = $480. 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. favorable $4. What was the total direct materials variance? A) B) C) D) $480.Standard price) x Actual quantity used . D) An unusual batch of materials were spoiled in the last production run.900 x $4.000 units of finished product. not temporary or unusual circumstances that occurred.80 for the 6.900 units at $4. The total direct materials variance is (24. B) The cost of one raw material went up due to a temporary shortage.80) – (24. None of the above E) Feedback: Standards are set to allow comparisons and also to eliminate inefficiencies and waste. favorable. A new raw material has been added to an existing product to increase the C) quality of the finished good. unfavorable $480.000 units at $5 per unit for 6. C1 7 INCORRECT Budgeted materials are 24. unfavorable $4.800. P2 8 INCORRECT Which formula does not compute the amount of the materials price variance? (Actual price .

unfavorable .000 pounds of raw material.SP) x AQ. using 15.20. P2 10 INCORRECT Leland Manufacturing produced 3. The standard price was $4.A) B) C) D) (Standard price . therefore the actual price (AP) exceeded the standard price (SP).700 = $.204.400. $1.08 ($4. or $3.700 units.000 favorable.12.44 Cannot be determined from the information provided E) Feedback: The price variance was unfavorable.000 favorable.32 $3.500.000 unfavorable. and the total materials price variance (PV) was $3. What was the standard materials price? A) B) C) D) $4.20 . P2 9 CORRECT The actual materials price (AP) was $4.Actual price) x Actual quantity used (Actual quantity . favorable $2. Variations of the formula are (SP – AP) x AQ and (AQ x AP) – (AQ x SP). How much is the materials quantity variance and materials price variance.700 units of finished product.204/26. The unit price variance is the total materials price variance divided by the actual quantity used. unfavorable. favorable $2. The material standards for the product are 4 pounds at $10 per pound.08 $4.96 $4. $1. respectively? A) B) C) $2. the actual quantity (AQ) of material was 26.$.500.12). $1.500.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 . Sixteen thousand pounds were purchased for $158.

800. $1.400/16. 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. What were the actual units used? A) B) C) D) 29. E. unfavorable Cannot be determined from the information given E) Feedback: The actual price is $158.000 unfavorable.. E) Feedback: The materials price variance can be computed by (AP .000 = $9.000 – 14. The materials price variance is (AP .700 units x 4 pounds per unit = 14. The materials quantity variance is (AQ – SQ) x SP. actual price is used.000 unfavorable. B.SP) x AQ = Price variance.500. The standard quantity is 3.90 – 10.000 29. and the materials quantity variance was $1.90.SP) x AQ or (9.00) x 15.500 favorable.SQ) x SP = Quantity variance.800) x $10 = $2.000 = $1. D.800 29. the standard price was $5.100.400 . The materials quantity variance can be computed by (AQ . C.719 unfavorable. the actual price is not used.73. or (15. P2 12 INCORRECT The standard units were 29.100 28.D) $2.

C.73. the actual units exceed standard units. E. The unit quantity variance is computed as the quantity variance divided by the standard price per unit. 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 .SQ) x SP. The actual units used were 29.SP) x AQ. the standard units of 29. The materials price variance can be computed as (AP .Cannot be determined from the information provided E) Feedback: When the quantity variance is unfavorable.400. D.719/$5.100 plus the variance of 300 units. or $1. E) Feedback: The actual quantity used is used in both variances. 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. B. or 300. The materials quantity variance can as computed by (AQ .

SH) x SR.Standard hours) x Actual rate (Actual rate . C.Standard rate) x Actual hours (Actual rate . The labor efficiency variance can be computed as: (AH .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 .SR) x AH. P2 16 INCORRECT Which formula may be used to compute the labor rate variance? A) B) C) D) (Actual hours . E. P2 17 . actual labor rate is not used. actual labor rate is used. D. 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 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 . B. E) Feedback: The labor rate variance can be computed as: (AR .SR) x AH.

actual hours used were 767 (760 + 7).SH) x SR. favorable. actual hours are used.INCORRECT The standard cost of one unit of product includes 2 hours of direct labor at $15. 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. The efficiency variance was $105.SR) x AH. Standard hours for the level of .00/$15. The labor efficiency variance can be computed as: (AH . Three-hundred and eighty units were produced. actual hours are used.00 per hour. Seven hours more than the standard were used ($105.10. The labor rate variance can be computed as: (AR . The company's labor rate variance was $275. unfavorable. P2 19 INCORRECT The standard hourly rate was $4.00). 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. The standard hours allowed were 760 hours (2 x 380).

000.500 x $3 or $13.17 = 3. $1.850 4. $1. $1.production are 4. The actual rate was $4.10) x 3. unfavorable.50.27 .50) when divided by the hourly difference ($4. the total variance ($654.500 unfavorable Spending variance. $500 favorable.500 hours of labor.500 favorable None of the above E) Feedback: Standard units produced per labor hour is 4 (18.000 units. $500 unfavorable.000 B) unfavorable Spending variance.500 for 16.500 C) unfavorable D) Spending variance.$4.500 .500). $1.27.000 units at 4. The variable overhead rate is $5 per hour. fixed overhead (13.500) or $500 favorable.(4.000) minus the budgeted overhead (4. P2 20 CORRECT The Big Company's expected volume is 18.000 Cannot be determined from the information provided E) Feedback: (AR .000 for 16. $1. The standard hours allowed were 4. $1. The fixed overhead rate is $3 per hour at 18. The spending variance is actual. volume variance. efficiency variance.500 favorable.000/4).10) will equal the actual hours. volume variance.000 units of production.500 hours of labor.150 3. $500 unfavorable. What were the actual labor hours? A) B) C) D) 3.000 . The volume variance is budgeted fixed overhead minus the applied fixed overhead [$13. Actual hours: $654. P3 21 INCORRECT The Big Company's expected volume was 18.27 .$4. Actual fixed overhead was $13.000 (16. Actual variable overhead was $20.000 x $3).000 units at 4. $750 unfavorable.250 hours of labor. therefore.700 4.500 $12. volume variance.000/4. The labor rate variance was $654.SR) x AH = rate variance.850.000]. Which of the following is correct about the fixed overhead variances? A) Spending variance.850 = $654. or $13. Which of the following is correct about the variable overhead variances? Spending variance.50/$.50.000 units of production at 4. volume variance. Proof: ($4.

The standard hours were 4.000 . $1.250 x $5)) = $750. efficiency variance.000 = $7.250 C) unfavorable Spending variance. The volume variance is not considered a controllable variance.250 x $5) .000 unfavorable $7.600 favorable $13. unfavorable. $750 favorable. efficiency variance.500 .000 unfavorable Fixed overhead spending variance Fixed overhead volume variance $10.600 favorable E) Feedback: The controllable variance is the sum of the spending variances plus the efficiency variance. favorable controllable variance. which of the following points are valid? Variable costs per unit remain constant.250.600. $750 unfavorable. favorable. efficiency variance. The spending variance equals variable overhead minus actual hours multiplied by the standard variable rate ($20.500). .000 favorable $24.$6. P3 22 INCORRECT The overhead variances for Big Company were: Variable overhead spending variance $3600 favorable Variable overhead efficiency variance $6. but fixed costs per unit decline A) with increases in sales volume.600 + $10. $1.250 B) unfavorable Spending variance.(4. The efficiency variance equals the actual hours multiplied by the standard variable rate minus applied overhead (4.000 (16.000 favorable.250 D) favorable None of the above E) Feedback: Standard units produced per labor hour is 4 (18.(4.000 x $5) = $1.000 favorable $4. P3 23 CORRECT In setting overhead standards.000 favorable What was the overhead controllable variance? A) B) C) D) $31. $1.000/4. $1.600 favorable $24.000/4).A) unfavorable Spending variance. $3.

54 each $0. predetermined overhead rate to the Goods in Process Inventory account.) P3 24 INCORRECT Under a standard costing system.690.51 each .740 favorable. the materials price variance was recorded at $3. None of the above. but fixed costs per unit decline with increases in sales volume.970 unfavorable. P4 25 CORRECT Under a standard cost system. What was the per unit price of the actual materials used? A) B) C) D) $0. This means that the average total overhead cost per unit declines with increases in volume. and the Goods in Process was debited for $51. E) Feedback: Variable costs per unit remain constant.53 each $0. Ninety-six thousand units were completed. (This also explains why large warehouse type stores can sell their goods much cheaper than smaller stores. 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.B) C) D) Variable and fixed costs per unit remain constant.52 each $0. the materials quantity variance was recorded at $1. Variable and fixed costs per unit both increase as production increases All of the above.

000. unfavorable None of the above E) Feedback: The sales price variance equals actual sales minus the flexible budget sales.740)/96. unfavorable. or ($51.200 units shows sales at $79.200 units at $11 per unit. P4 26 INCORRECT Jan-Lee Outlets recorded sales of 7.200 . 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.$79.440.970 .$79.920/96.690 + $1. or $79.None of the above E) Feedback: The unit cost of materials: (Debit to Goods in Process + Debit to Materials Quantity Variance . The flexible budget for 7. favorable $240. C3 . The practice can be extremely helpful when directed at controllable C) items. Per unit cost: $49.000 = $0.000.440 = $240.$3. favorable $510. The fixed budget shows sales at $79. The sales volume variance equals flexible budget sales minus the fixed budget sales or $79. None of the above. E) Feedback: All of the above are characteristics of management by exception.52.Credit to Materials Price Variance)/96.950. D) All of the above. B) The practice allows managers to concentrate on the irregular situations.950 = $510. unfavorable $240.440 . What is the sales price variance? A) B) C) D) $510. unfavorable.

600 + $10.600 favorable E) Feedback: The controllable variance is the sum of the spending variances plus the efficiency variance.$6.000 = $7.000 favorable What was the overhead controllable variance? $31. This means that the average total overhead cost per unit declines with increases in volume.600 favorable B) $24. . but fixed costs per unit decline with increases in sales volume. $3.) P3 Variable costs per unit remain constant. (This also explains why large warehouse type stores can sell their goods much cheaper than smaller stores. 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.000 favorable C) $4. E) Feedback: Variable costs per unit remain constant.600. P3 23 CORRECT In setting overhead standards. D) None of the above.000 . The volume variance is not considered a controllable variance. favorable controllable variance.000 unfavorable D) $7.600 favorable A) $13. Variable and fixed costs per unit remain constant.Fixed overhead volume variance $24. but fixed costs per unit decline with increases in sales volume.

53 each B) $0. and the Goods in Process was debited for $51. the materials price variance was recorded at $3.52 each A) $0. the materials quantity variance was recorded at $1. predetermined overhead rate to the Goods in Process Inventory account.740 favorable.54 each C) $0.970 unfavorable.51 each D) None of the above E) Feedback: The unit cost of materials: (Debit to Goods in Process + Debit to . Ninety-six thousand units were completed. 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. 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.24 INCORREC T Under a standard costing system.690. What was the per unit price of the actual materials used? $0.

52. The sales volume variance equals flexible budget sales minus the fixed budget sales or $79.440 = $240. unfavorable B) $240.200 units at $11 per unit.440 .$79.740)/96.920/96. unfavorable. 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. favorable A) $240. or ($51.Materials Quantity Variance . All of the above.200 . The practice allows managers to concentrate on the irregular situations. Per unit cost: $49. B) C) D) None of the above. favorable C) $510. The fixed budget shows sales at $79. unfavorable D) None of the above E) Feedback: The sales price variance equals actual sales minus the flexible budget sales. The flexible budget for 7.950 = $510.$3. The practice can be extremely helpful when directed at controllable items.970 .200 units shows sales at $79.000.000 = $0.000.690 + $1.$79.950. What is the sales price variance? $510. unfavorable.440. or $79.Credit to Materials Price Variance)/96. P4 26 INCORREC T Jan-Lee Outlets recorded sales of 7. .

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

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