Deck 16: Fundamentals of Variance Analysis

Question 1

Variance analysis for fixed production costs is virtually the same as for variable production costs.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

A flexible budget adjusts the static budget to reflect the actual activity level achieved during the period.

Answer 3

True

Question 4

In general,and holding all other things constant,an unfavorable variance decreases operating profits.

Question 5

The difference between operating profits in the master budget and operating profits in the flexible budget is called a sales price variance.

Question 6

The sales activity variance is the result of a difference between budgeted units sold and actual units sold.

Question 7

Variances are the difference between actual results and budgeted results.

Question 8

If the budgeted activity level is greater than the actual activity level,then the total budgeted costs of the master budget will be greater than the total budgeted costs of the flexible budget.

Question 9

The standard cost for a unit of output is the standard price per unit of input times the standard number of inputs per one unit of output.

Question 10

The terms "master budget" and "flexible budget" mean the same thing and can be used interchangeably.

Question 11

It is possible to have a favorable direct material price variance and an unfavorable direct material efficiency variance.

Question 12

The budget (or spending)variance for fixed production costs is the difference between the actual fixed costs and the budgeted fixed costs on the master budget.

Question 13

A favorable variance is not necessarily good,and an unfavorable variance is not necessarily bad.

Question 14

In essence,the terms "master budget" and "operating budget" mean the same thing and can be used interchangeably.

Question 15

Both the actual material used and the standard quantity allowed for material is based on the actual output attained.

Question 16

Production cost variances are input variances,while sales activity variances are output variances.

Question 17

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.

Question 18

The direct labor efficiency variance can be the result of poor supervision or poor scheduling by divisional managers.

Question 19

The flexible and master budget amounts are the same for fixed marketing and administrative costs.

Question 20

In setting standards,allowances usually include normal inefficiencies (e.g.,defects in the direct material,inexperienced workers,and coffee breaks).

Question 21

The intercept of the flexible budget-line is total

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

Question 22

If the total materials variance for a given operation is favorable,why must this variance be further evaluated as to price and usage?

A)There is no need to further evaluate the total materials variance if it is favorable.
B)Generally accepted accounting principles require that all variances be analyzed in three stages.
C)All variances must appear in the annual report to equity owners for proper disclosure.
D)A further evaluation lets management evaluate the activities of the purchasing and production functions.

Question 23

In general,the terms favorable and unfavorable are used to describe the effect of a variance on

A)net income.
B)sales revenue.
C)production costs.
D)operating expenses.
E)balance sheet.

Question 24

The purpose of the flexible budget is to

A)allow management some latitude in meeting goals.
B)eliminate cyclical fluctuations in production reports by ignoring variable costs.
C)compare actual and budgeted results at virtually any level of production.
D)reduce the total time in preparing the annual budget.

Question 25

A variance can best be described as

A)benchmarks common to other firms in the same industry.
B)differences between planned results and actual results.
C)useful for performance evaluations but not making decisions.
D)generally accepted accounting principles when standards are used.

Question 26

Which of the following statements regarding variances is (are)false? (A)In general and holding all other things constant,an unfavorable variance decreases operating profits.
(B)A favorable variance is not always good,and an unfavorable variance is not always bad.

A)Only A is false.
B)Only B is false.
C)Both A and B are false.
D)Neither A nor B is false.

Question 27

Which department is customarily held responsible for an unfavorable materials quantity variance?

A)Quality control.
B)Purchasing.
C)Engineering.
D)Production.

Question 28

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

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

Question 29

An operating budget would not include a

A)cash budget.
B)sales budget.
C)labor budget.
D)production budget.
E)operating expense budget.

Question 30

Which of the following statements is (are)true regarding the sales activity variance? (A)The sales activity variance is the actual selling price per unit times the difference between the budgeted units and actual units.
(B)If the sales activity variance for sales revenue is unfavorable,then the contribution margin sales activity variance will be unfavorable.

A)Only A is true.
B)Only B is true.
C)Neither A and B is true.
D)Both A and B are true.

Question 31

The most fundamental variance analysis compares

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.

Question 32

Which of the following statements is (are)true? (A)A favorable variance is not necessarily good,and an unfavorable variance is not necessarily bad.
(B)The master budget includes operating budgets (e.g.,production budget)and financial budgets (e.g.,cash budget).

A)Only A is true.
B)Only B is true.
C)Both A and B are true.
D)Neither A nor B is true.

Question 33

When are the following direct materials variances ideally reported?

A)a
B)b
C)c
D)d

Question 34

In the general model,a price variance is calculated as

A)(AP $\times$ AQ)- (AP $\times$ SQ)
B)(AP $\times$ SQ)- (SP $\times$ SQ)
C)(AP $\times$ AQ)- (SP $\times$ AQ)
D)(AP $\times$ AQ)- (SP $\times$ SQ)

Question 35

When using a flexible budget,what will happen to variable costs on a per-unit basis as production increases within the relevant range?

A)Decrease.
B)Increase.
C)Remain unchanged.
D)Fixed costs are not considered in flexible budgeting.

Question 36

In the general model,an efficiency variance is calculated as

A)(SP $\times$ AQ)- (SP $\times$ SQ)
B)(AP $\times$ SQ)- (SP $\times$ SQ)
C)(AP $\times$ AQ)- (SP $\times$ SQ)
D)(AP $\times$ AQ)- (SP $\times$ AQ)

Question 37

The sales price variance is the difference between the actual sales revenues and the

A)budgeted selling price multiplied by the budgeted number of units sold.
B)budgeted selling price multiplied by the actual number of units sold.
C)actual selling price multiplied by the budgeted number of units sold.
D)actual selling price multiplied by the actual number of units sold.

Question 38

Which of the following variances will always be favorable when actual sales exceeds budgeted sales?

A)variable cost
B)fixed cost
C)sales activity
D)operating profit
E)contribution margin

Question 39

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

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 40

The slope of the flexible budget-line is the

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

Question 41

What is the sales revenue in the flexible budget?

A)$139,000.
B)$156,000.
C)$169,000.
D)$180,000.

Question 42

Which of the following direct labor variances uses the standard hours allowed for the actual number of units produced?

A)a
B)b
C)c
D)d

Question 43

What is the activity variance for the variable manufacturing costs?

A)$4,000
B)$14,000
C)$24,000
D)$34,000

Question 44

A debit balance in the labor-efficiency variance account indicates that

A)standard hours exceed actual hours.
B)actual hours exceed standard hours.
C)standard rate and standard hours exceed actual rate and actual hours.
D)actual rate and actual hours exceed standard rate and standard hours.

Question 45

What is the actual sales revenue?

A)$156,000.
B)$169,000.
C)$180,000.
D)$191,000.

Question 46

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

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

Question 47

The production volume variance must be computed when a company uses

A)activity-based costing.
B)process costing.
C)job-order costing.
D)full-absorption costing.
E)variable costing.

Question 48

What is the flexible budget contribution margin?

A)$39,000.
B)$45,000.
C)$52,000.
D)$58,000.

Question 49

If overhead is applied to production using direct labor hours and the direct labor efficiency variance is favorable,then the variable overhead efficiency variance is

A)favorable.
B)unfavorable.
C)either favorable or unfavorable.
D)neither favorable not unfavorable.

Question 50

Is the activity variance for the variable manufacturing costs favorable or unfavorable?

A)favorable
B)unfavorable

Question 51

What is the master budget sales revenue?

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

Question 52

Which of these variances is least significant for cost control?

A)labor price variance
B)material quantity variance
C)fixed overhead price variance
D)production volume variance
E)labor efficiency variance

Question 53

Which of the following is not an alternative name for the production volume variance?

A)capacity variance
B)idle capacity variance
C)denominator variance
D)fixed overhead efficiency variance

Question 54

Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable labor efficiency variance?

A)The mix of workers assigned to the particular job was heavily weighted towards the use of higher paid experienced individuals.
B)The mix of workers assigned to the particular job was heavily weighted towards the use of new relatively low paid unskilled workers.
C)Because of the production schedule,workers from other production areas were assigned to assist this particular process.
D)Defective materials caused more labor to be used in order to produce a standard unit.

Question 55

Which variance will be unfavorable due to employees working more hours than allowed for the actual number of units produced?

A)Price (rate)
B)Efficiency
C)Sales activity
D)Production volume

Question 56

If materials are carried in the direct materials inventory account at standard cost,then it is reasonable to assume that the

A)raw materials inventory account is understated.
B)price variance is recognized when materials are purchased.
C)company does not follow generally accepted accounting principles.
D)price variance is recognized when materials are placed into production.

Question 57

The production volume variance is computed by the difference between the

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.

Question 58

The Redrock Company uses flexible budgeting for cost control.Redrock produced 10,800 units of product during October,incurring indirect material costs of $13,000.Its master budget for the reflected indirect material costs of $180,000 at a production volume of 144,000 units.What was the flexible budget variance for the indirect material costs in October?

A)$1,100 favorable
B)$1,100 unfavorable
C)$2,000 favorable
D)$2,000 unfavorable
E)$500 favorable

Question 59

The variable overhead price variance is due to

A)price items only.
B)efficiency items only.
C)both price and efficiency items.
D)neither price or efficiency items.

Question 60

What is the master budget contribution margin?

A)$52,000.
B)$47,500.
C)$45,000.
D)$39,000.

Question 61

Blue Company produces Trivets.Based on its master budget,the company should produce 1,000 Trivets each month,working 2,500 direct labor hours.During May,only 900 Trivets were produced.The company worked 2,400 direct labor hours.The standard hours allowed for May production would be

A)2,500 hours.
B)2,400 hours.
C)2,250 hours.
D)1,800 hours.

Question 62

What was Goodman's actual direct-labor rate?

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

Question 63

What is the direct materials price variance for November?

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

Question 64

Is the direct materials price variance favorable or unfavorable?

A)favorable
B)unfavorable

Question 65

What is the direct materials efficiency (quantity)variance for November?

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

Question 66

Is the direct materials efficiency (quantity)variance favorable or unfavorable?

A)favorable
B)unfavorable

Question 67

What were the actual direct labor hours worked during the month?

A)5,000.
B)4,800.
C)4,200.
D)4,000.
E)3,400.

Question 68

Information for Nighttime Company's direct labor cost for February is as follows: What were the standard direct labor hours for February?

A)70,000
B)69,000
C)72,000
D)71,400

Question 69

What is Barber's direct labor price (rate)variance?

A)$17,250
B)$20,700
C)$18,750
D)$21,000

Question 70

Is the direct labor price (rate)variance favorable or unfavorable?

A)favorable
B)unfavorable

Question 71

What was Goodman's standard direct-labor rate?

A)$3.54
B)$3.80
C)$4.00
D)$5.80

Question 72

What was the actual price paid for the direct material during the month,assuming all materials purchased were put into production?

A)$4.34.
B)$4.22.
C)$4.11.
D)$4.00.
E)$3.90.

Question 73

Is the direct labor price (rate)variance favorable or unfavorable?

A)favorable
B)unfavorable

Question 74

Is the direct labor efficiency variance favorable or unfavorable?

A)favorable
B)unfavorable

Question 75

What is the direct labor efficiency variance for November?

A)$1,800
B)$1,900
C)$2,000
D)$2,090
E)$2,200

Question 76

What is the direct labor price (rate)variance for November?

A)$1,800
B)$1,900
C)$2,000
D)$2,090
E)$2,200

Question 77

What were the actual quantity of materials used during the month?

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

Question 78

Given the following information in standard costing: What is the total direct labor cost variance?

A)$3,160,favorable
B)$3,160,unfavorable
C)$2,360,favorable
D)$2,360,unfavorable

Question 79

The following data pertains to the direct materials cost for the month of October: What is the direct materials efficiency (quantity)variance?

A)$950 favorable
B)$950 unfavorable
C)$1,000 favorable
D)$1,000 unfavorable
E)$50 unfavorable

Question 80

The Landry Company has developed standards for labor.During June,75 units were scheduled and 100 were produced.Data related to labor are: What is the labor rate variance for June?

A)$30 unfavorable
B)$31 favorable
C)$31 unfavorable
D)$30 favorable