Question 1

Unified Products Inc.makes and sells a unique product.At the beginning of the current year,the company had anticipated selling 10 000 of these units;however,11 000 units were actually produced and sold.Below is the company's static budget as well as actual results for the year:
$\begin{array}{c}
\begin{array}{lll}
\
\
\text {Sales revenue}\
\text {Variable costs:}\
\text {Direct materials}\
\text {Direct labour}\
\text {Overhead}\
\text {Contribution margin}\
\text {Fixed costs}\
\text {Net income}
\end{array}
\begin{array}{lll}
\text {(static budget) }&\text {(actual results)}\
\underline{\text { at 10000 units}}& \underline{\text {at 11000 units}}\
\$ 800000 & \$ 902000 \
\
90000 & 103400 \
100000 & 121000 \
50000 & 60500 \
\hline 560000 & 617100 \
200000 & 210000 \
\hline \$ 360000 & \$ 407100
\end{array}
\end{array}$
 
Required:
A. Prepare a flexible budget for the year.
B. Calculate the flexible budget variance for the year. Indicate whether it is favourable or unfavourable.
C. Calculate the sales price variance for the year. Indicate whether it is favourable or unfavourable

Accepted Answer

The answer of Unified Products Inc.makes and sells a unique...

Question 2

Answer the following questions:
A. How do ideal and practical standards differ?
B. As an employee who is evaluated based upon standards, which would you prefer and why?

Accepted Answer

The answer of Answer the following questions:
A. How do ideal...

Question 3

Which of the following statements is true regarding 'management by exception'?

Accepted Answer

Management by exception is a technique where managers focus on investigating and addressing variances that are significant or exceptional in nature, while ignoring those that are expected or within normal range. Flexible budgets are used to identify such variances as they allow for adjustments based on changes in business activity levels. Therefore, option C is correct. Options A, B, and D are incorrect as they are not consistent with the concept of management by exception.

Question 4

New Hampshire Products has a favourable fixed overhead spending variance.Which of the following would be the most likely reason for this variance?

Accepted Answer

A favourable fixed overhead spending variance means that actual fixed overhead was less than predicted.

Question 5

At the end of the year,your company had the following variances:
$\begin{array}{lr}
  \text { Direct material price variance } &\$3000\text {F}\
 \text { Direct material usage variance } &\$3500\text {U}\
 \text {Direct labour rate variance  } &\$5200\text {U}\
 \text { Direct labour efficiency variance } &\$7000\text {U}\
\end{array}$
 
Give at least one possible cause for each of the variances and discuss the possible relationships between them.

Accepted Answer

The answer of At the end of the year,your company...

Question 6

Which of the following statements is true regarding variance analysis in the modern manufacturing environment?

Accepted Answer

Variance analysis in the modern manufacturing environment is often performed with advanced software and technology, which allows for real-time tracking and analysis of variances. This means that timely analysis is possible, but it still has to be done by the managers in charge. Therefore, variance analysis is only useful if it is performed in a timely manner. All variances are not required to be investigated, and ideal standards may not always be the best motivator. An 'unfavourable' variance may not always be bad, as it may be due to factors beyond the control of the company.

Question 7

Managers who properly apply the concept called 'management by exception' will:

Accepted Answer

Managers who apply the concept of management by exception will investigate only variances of a certain size or scope. This means that they will ignore small variances that do not have a significant impact on the overall performance of the organization and focus on larger variances that require attention and action. This allows managers to prioritize their efforts and allocate resources efficiently.

Question 8

Jackie makes and sells handmade beaded jewellery.She anticipates selling 100 necklaces in March and prepared the following static budget as a result: $\begin{array}{lr}
 &\underline{\text { at  100 units }}\\
 \text {  Sales revenue} &\$3500\
 \text {Variable costs:  } &\
 \text {  Direct materials} &500\
 \text { Direct labour } &800\
 \text { Overhead } &300\
 \text { Fixed costs } &\underline{400}\
 \text {  Net income} &\underline{\underline{\$1500}}\
\end{array}$
 
During March,Jackie actually produced and sold 120 necklaces.
Required: Prepare a flexible budget for the month of March.

Accepted Answer

The answer of Jackie makes and sells handmade beaded jewellery.She...

Question 9

What is 'task analysis' and how is it used in the context of variance analysis?

Accepted Answer

The answer of What is 'task analysis' and how is...

Question 10

What is 'management by exception'? Do you think it represents an efficient use of management time? Why or why not?

Accepted Answer

The answer of What is 'management by exception'? Do you...

Question 11

Washington Inc.has an unfavourable fixed overhead spending variance.Which of the following would be the most likely reason for this variance?

Accepted Answer

An unfavourable fixed overhead spending variance means that the actual fixed overhead costs incurred were higher than the predicted or budgeted fixed overhead costs. Therefore, the most likely reason for this variance is that actual fixed overhead was more than predicted.

Question 12

Harkin Ltd.has a $5000 unfavourable variable overhead spending variance.Give two possible reasons for this variance.

Accepted Answer

The answer of Harkin Ltd.has a $5000 unfavourable variable overhead...

Question 13

Drummel Ltd.has a $7000 unfavourable variable overhead efficiency variance.Give one possible reason for this variance.

Accepted Answer

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Question 14

GEO Inc.has an unfavourable direct materials price variance.
A. Give two possible reasons for this variance.

B. Using one of the above reasons, how could this particular variance affect one of the other variances (ex. direct materials usage, direct labour rate, direct labour efficiency)?

Accepted Answer

The answer of GEO Inc.has an unfavourable direct materials price...

Question 15

Which of the following statements is false regarding variance analysis in the modern manufacturing environment?

Accepted Answer

While some managers may find certain details to be less useful than others, variance analysis should be as detailed as necessary to provide meaningful insights into performance. Therefore, statement B is false.

Question 16

True or false: Indicate whether each of the following statements is true (T)or false (F).

Accepted Answer

The answer of True or false: Indicate whether each of...

Question 17

What is the difference between a static and a flexible budget? Which one is most often used in variance analysis and why?

Accepted Answer

The answer of What is the difference between a static...

Question 18

At the end of the current year,Bowman Products has the following information available comparing the cost of direct materials on its flexible budget with the actual cost of direct materials:
$\begin{array}{lr}
 &\underline{ \text {  Flexible budget}} &\underline{\text {Actual results}  } &\underline{ \text {  Difference}  } &\
 \text { Direct materials  } &\$24000&\$30000&(6000)\
\end{array}$
 
Sally Vincent,the company's controller,has requested a meeting with Hank Rowland,the operations manager,asking him to explain why direct materials costs were more than what had been budgeted.
What two kinds of variance analysis should Hank do before his meeting with Sally? What would each of these variances measure?

Accepted Answer

The answer of At the end of the current year,Bowman...

Question 19

As a manager,how might you determine the standard price and quantity of materials,labour,and overhead for a particular product?

Accepted Answer

The answer of As a manager,how might you determine the...

Question 20

When managers use the process called 'management by exception':

Accepted Answer

Management by exception is a process where managers focus their attention on significant variances between planned and actual results, and take action to address them. This approach allows managers to prioritize their efforts and resources where they are most needed, rather than getting bogged down in minor deviations from the plan.

Quiz 13: Management Accounting for Cost Control and Performance Evaluation Flexible Budgets and Variance Analysis

Answer the following questions: A. How do ideal and practical standards differ? B. As an employee who is evaluated based upon standards, which would you prefer and why?