Question 1

The Mason and Dixon Candle Company has assembled the data below regarding two of the raw materials it uses in its candle-making process. 
  Required:
Compute the price and usage variances for each of the raw materials. Indicate whether each variance is favorable or unfavorable.

Accepted Answer

Paraffin Wax:
Material price variance = ($0.09 x 21,000) - ($0.10 x 21,000) = $210 F
Material usage variance = ($0.10 x 21,000) - ($0.10 x 20,000) = $100 U
Scent:
Material price variance = ($52 x 110) - ($50x 110) = $220 U
Material usage variance = ($50 x 110) - ($50 x 100) = $500 U

Question 2

Caswell Company employs direct labor in two of its processing departments. Data regarding direct labor usage in the most recent period have been assembled and reported below.
  Required:
Compute the rate and efficiency variances for each of the processing departments. Indicate whether each variance is favorable or unfavorable.

Accepted Answer

Fabricating:
Rate variance = ($28 x 13,000) - ($30 x 13,000) = $26,000 F
Efficiency variance = ($30 x 13,000) - ($30 x 12,000) = $30,000 U
Assembly:
Rate variance = ($29 x 8,400) - ($28 x 8,400) = $8,400 U
Efficiency variance = ($28 x 8,400) - ($28 x 9,000) = $16,800 F

Question 3

Grant Manufacturing uses a standard cost system with overhead applied based on direct labor hours. The manufacturing budget for the production of 5,000 units for the month of May included the following information.
  During May, 4,500 units were actually produced and the direct labor efficiency variance was $1,500 unfavorable.
Required:
Compute the actual number of direct labor hours that were used in May.

Accepted Answer

Since the efficiency variance is $1,500 U, we can write the following equation:
$1,500 = ($15 x AH) - {$15 x [(10,000/5,000) x 4,500]} = ($15 x AH) - ($15 x 9,000)
Solving for AH yields 9,100 actual labor hours.

Question 4

JD's Sporting Products, Inc., is a distributor of both tennis and golf equipment. Currently, the golf equipment takes up 50% of the floor space in the company's distribution center. The CEO is considering whether the company should discontinue the golf equipment line and focus on tennis equipment. The table below contains the most recent income statement by product line. If the golf equipment line is discontinued, all salaries and other direct fixed costs can be avoided. In addition, sales of tennis equipment can be increased by 15% with no impact on direct fixed costs. The common fixed costs have been allocated to the two product lines based on relative sales, and all will continue whether the golf line is dropped or retained, and will continue at their present levels if tennis sales expand by as much as 15%.
  Required:
Perform an incremental analysis to determine the financial advantage or disadvantage for dropping the golf equipment line.

Accepted Answer

The answer of JD's Sporting Products, Inc., is a distributor...

Question 5

Transactions Systems Limited develops and leases software systems for community banks that support electronic transactions at automatic teller machines. The company developed quarterly sales goals for the current year and is now trying to assess progress against those goals. The table below contains data on the goal for each quarter and actual sales in that quarter.
  Required:
Perform a gap analysis for each month and a trend analysis using a line chart. Which approach to the data is more informative?

Accepted Answer

The answer of Transactions Systems Limited develops and leases software...

Question 6

Look Your Best, Inc., operates 30 dry cleaning stores in a large metropolitan area. Internal benchmarking could be useful in assessing the performance of one of these stores.

Accepted Answer

Internal benchmarking involves comparing the performance metrics and processes of one part of an organization against another. In this case, comparing one dry cleaning store's performance against the others can help identify best practices and areas for improvement.

Question 7

Best-in-class benchmarks are established with reference to the performance of firms in the same industry as the firm conducting the analysis.

Accepted Answer

The answer of Best-in-class benchmarks are established with reference to...

Question 8

Trend analysis improves on gap analysis by examining performance over multiple time periods.

Accepted Answer

Trend analysis adds value to gap analysis by evaluating performance trends over several time periods, offering a more dynamic and comprehensive view of progress and potential issues.

Question 9

A Pareto chart is most appropriate if one wishes to assess performance on multiple dimensions simultaneously.

Accepted Answer

A Pareto chart is used to identify the most significant factors in a dataset and is based on the Pareto principle, which states that 80% of the effects come from 20% of the causes. It does not assess performance on multiple dimensions simultaneously but rather focuses on prioritizing the most significant factors contributing to a particular effect.

Question 10

A Pareto chart is useful in identifying the most pressing of a number of performance problems facing an entity.

Accepted Answer

A Pareto chart is a type of chart that contains both bars and a line graph, where individual values are represented in descending order by bars, and the cumulative total is represented by the line. It is used to identify the most significant factors in a dataset and is based on the Pareto principle, which states that roughly 80% of the effects come from 20% of the causes. This makes it useful in identifying the most pressing performance problems facing an entity by highlighting the few critical issues that contribute the most to the problem.

Question 11

A favorable variance will result in an increase in net income over what was originally planned.

Accepted Answer

A favorable variance indicates that actual costs were lower or actual revenues were higher than what was budgeted, leading to an increase in net income over the planned amount.

Question 12

The material price variance is always computed based on the standard quantity of material allowed for the actual rate of output achieved.

Accepted Answer

The material price variance is computed based on the actual quantity of material purchased, not the standard quantity allowed for the actual rate of output achieved.

Question 13

The material usage variance quantifies the difference between the actual quantity of material used and the standard quantity allowed weighted by the standard price of the material.

Accepted Answer

The material usage variance does indeed measure the difference between the actual quantity of material used in production and the standard quantity that should have been used, with this difference being valued at the standard cost per unit of the material. This helps in assessing the efficiency and cost-effectiveness of material usage in the production process.

Question 14

Whitney Company has recorded a total labor variance of $2,000 unfavorable and a labor rate variance of $300 favorable. The labor efficiency variance must have been $1,700 unfavorable.

Accepted Answer

The answer of Whitney Company has recorded a total labor...

Question 15

A production scheduling error at Vanadium Alloy and Steel Company required two days of overtime to complete an order. This error will most likely be reflected in an unfavorable labor rate variance.

Accepted Answer

An unfavorable labor rate variance occurs when the actual labor rate paid is higher than the standard labor rate. In this case, the overtime pay will result in a higher actual labor rate, leading to an unfavorable labor rate variance.

Question 16

THE FOLLOWING QUESTIONS ARE BASED ON THE INFORMATION BELOW.
Reliance Aircraft Corporation currently manufactures a complex hydraulic valve that controls rudder movement in its popular 707 jet aircraft. The unit cost to produce the valve is:
  Reliance has an offer from Kennametal Company to supply all 200 of the valves Reliance requires annually for $4,000 per unit. If Reliance accepts the offer and ceases production of the valve, production workers and supervisors will be reassigned to other areas of 707 production. The equipment cannot be used elsewhere and has no market value. The factory floor space devoted to the production of the valves, however, can be used by another division of the company that currently leases space elsewhere at an annual cost of $85,000. Which of the following costs is avoidable if Reliance accepts Kennametal's offer?
-Supervisory salaries are an avoidable cost if Reliance purchases the valves from Kennametal.

Accepted Answer

Supervisory salaries are typically considered fixed costs and are not directly tied to the production decision (such as purchasing valves from Kennametal), making them unavoidable in the short term.

Question 17

THE FOLLOWING QUESTIONS ARE BASED ON THE INFORMATION BELOW.
Reliance Aircraft Corporation currently manufactures a complex hydraulic valve that controls rudder movement in its popular 707 jet aircraft. The unit cost to produce the valve is:
  Reliance has an offer from Kennametal Company to supply all 200 of the valves Reliance requires annually for $4,000 per unit. If Reliance accepts the offer and ceases production of the valve, production workers and supervisors will be reassigned to other areas of 707 production. The equipment cannot be used elsewhere and has no market value. The factory floor space devoted to the production of the valves, however, can be used by another division of the company that currently leases space elsewhere at an annual cost of $85,000. Which of the following costs is avoidable if Reliance accepts Kennametal's offer?
-The $85,000 leasing cost is an incremental cost of producing the valve internally.

Accepted Answer

The leasing cost is an additional cost that would not be incurred if the valve were not produced internally.

Question 18

THE FOLLOWING QUESTIONS ARE BASED ON THE INFORMATION BELOW.
Reliance Aircraft Corporation currently manufactures a complex hydraulic valve that controls rudder movement in its popular 707 jet aircraft. The unit cost to produce the valve is:
  Reliance has an offer from Kennametal Company to supply all 200 of the valves Reliance requires annually for $4,000 per unit. If Reliance accepts the offer and ceases production of the valve, production workers and supervisors will be reassigned to other areas of 707 production. The equipment cannot be used elsewhere and has no market value. The factory floor space devoted to the production of the valves, however, can be used by another division of the company that currently leases space elsewhere at an annual cost of $85,000. Which of the following costs is avoidable if Reliance accepts Kennametal's offer?
-The depreciation of the equipment is a sunk cost that is irrelevant to the make-or-buy decision.

Accepted Answer

Depreciation is a sunk cost because it represents a past expenditure that cannot be recovered or changed, and therefore, it should not influence future decisions such as whether to make or buy a product.

Question 19

THE FOLLOWING QUESTIONS ARE BASED ON THE INFORMATION BELOW.
Reliance Aircraft Corporation currently manufactures a complex hydraulic valve that controls rudder movement in its popular 707 jet aircraft. The unit cost to produce the valve is:
  Reliance has an offer from Kennametal Company to supply all 200 of the valves Reliance requires annually for $4,000 per unit. If Reliance accepts the offer and ceases production of the valve, production workers and supervisors will be reassigned to other areas of 707 production. The equipment cannot be used elsewhere and has no market value. The factory floor space devoted to the production of the valves, however, can be used by another division of the company that currently leases space elsewhere at an annual cost of $85,000. Which of the following costs is avoidable if Reliance accepts Kennametal's offer?
-The depreciation on the equipment, the depreciation on the building, and the supervisory salaries are irrelevant to Reliance's decision because they are fixed.

Accepted Answer

The answer of THE FOLLOWING QUESTIONS ARE BASED ON THE...

Question 20

Quaker Company refines a single raw material in a process that results in several joint products. The refining costs incurred prior to the split-off point where the joint products appear is irrelevant to the decision to further process any of the joint products.

Accepted Answer

The refining costs incurred prior to the split-off point are considered sunk costs and do not affect the decision to further process the joint products.

Quiz 5: Understanding the Management Process

The Mason and Dixon Candle Company has assembled the data below regarding two of the raw materials it uses in its candle-making process. Required: Compute the price and usage variances for each of the raw materials. Indicate whether each variance is favorable or unfavorable.