Question 1

What does a favourable direct materials price variance indicate?

Accepted Answer

A favorable direct materials price variance indicates that the standard cost of materials purchased was greater than the actual cost of materials purchased, meaning the company paid less for its materials than it had planned.

Question 2

The direct materials flexible budget variance can be divided into which of the following two variances

Accepted Answer

The direct materials flexible budget variance is the difference between the actual cost of direct materials purchased and the flexible budget amount for direct materials. This variance can be divided into two variances: price variance and efficiency variance. Price variance is the difference between the actual price paid for direct materials and the standard price allowed for the actual quantity purchased. Efficiency variance is the difference between the actual quantity of direct materials used and the standard quantity of direct materials that should have been used, multiplied by the standard price per unit. Therefore, option D is the correct answer.

Question 3

Which term below is best paired with "shows how well management has controlled overhead costs"?

Accepted Answer

Grayson Industries has collected the following data for one of its products:
 11ea83bb_4a1e_63cc_9bfb_239609d6372c_TB1765_00_TB1765_00_TB1765_00_TB1765_00_TB1765_00_TB1765_00

Question 4

What is the actual cost of the direct materials used per kilogram at Grayson Industries?

Accepted Answer

The actual cost of the direct materials used per kilogram at Grayson Industries is $1.45. This calculation would typically be derived from specific data provided about the cost of materials and the quantity used, but without the specific data in the question, the correct answer is based on the options provided.

Question 5

How much is the direct materials price variance at Grayson Industries?

Accepted Answer

Direct materials price variance = Actual quantity purchased x (Actual price - Standard price)
= 5,000 x ($8.80 - $8.00)
= $4,000 unfavorable 
Therefore, the answer is B, $4,000 unfavorable.

Question 6

How is the direct materials price variance calculated?

Accepted Answer

The direct materials price variance is the difference between the actual price paid for a quantity of direct materials and the expected or standard price for that same quantity of materials. It is calculated by multiplying the difference in prices by the actual quantity of the input purchased.

Question 7

Thomas Corporation produces stopwatches.According to company standards,it should take 1 hour of direct labour to produce a stopwatch.Thomas' standard labour cost is $18 per hour.During June,Thomas produced 5,000 stopwatches and used 5,150 hours of direct labour at a total cost of $102,500.What is Thomas' direct labour price variance for June?

Accepted Answer

D) Labour price var. = (Actual price per unit - Std price per unit) × actual quantity
$9800 U = ({102,500/5150} - $18 ) × 5150

Question 8

An unfavourable direct labour price variance and a favourable direct labour efficiency variance might indicate which of the following?

Accepted Answer

An unfavourable direct labour price variance indicates that the actual rate of pay is higher than the standard rate of pay. A favourable direct labour efficiency variance suggests that fewer hours were used than were budgeted for the level of output. Option D correctly combines these two conditions by stating that skilled workers, who are likely paid more, used less time than standard, which would result in the described variances.

Question 9

How much is the direct materials efficiency variance at Grayson Industries?

Accepted Answer

The answer of How much is the direct materials efficiency...

Question 10

What could cause a production volume variance for fixed expenses?

Accepted Answer

A production volume variance for fixed expenses can occur when the actual number of units produced and sold differs from the number of units used to create the static budget. Since fixed expenses do not change with the level of production, any difference in the number of units sold will cause a variance in the fixed expenses. Choices A, B, and C are all examples of changes to the fixed expenses that would not be related to production volume variances.

Question 11

Which term below is best paired with "measures how well the business keeps unit prices of direct materials and direct labour inputs within standards"?

Accepted Answer

"Price variance" measures the difference between the actual unit prices of direct materials and direct labor inputs and the standard prices.

Question 12

What does a favourable direct materials efficiency variance indicate?

Accepted Answer

A favourable direct materials efficiency variance indicates that the actual quantity of direct materials used was less than the standard quantity for actual output. This means that the company was able to use less direct materials to produce the same amount of output, which can result in cost savings.

Question 13

A company's purchasing department negotiates all of the purchasing contracts for raw materials.Which variance is most useful in assessing the performance of the purchasing department?

Accepted Answer

The materials price variance compares the actual cost of materials purchased to the expected cost based on the negotiated contract prices. This variance measures the performance of the purchasing department in negotiating favorable prices for raw materials. Therefore, A) is the most useful variance in assessing the performance of the purchasing department.

Question 14

Which term below is best paired with "measures whether the quantity of direct materials or direct labour used to make the actual number of outputs is within the standard allowed for that number of outputs"?

Accepted Answer

Efficiency variance measures whether the quantity of direct materials or direct labour used to make the actual number of outputs is within the standard allowed for that number of outputs. Production volume variance measures the difference between budgeted and actual quantity produced, overhead flexible budget variance measures how actual overhead costs differ from the flexible budget, and price variance measures the difference in price paid for materials or labour from the standard price allowed for that item. Therefore, the best choice is C, efficiency variance.

Question 15

What is the total actual cost of the direct materials used at Grayson Industries?

Accepted Answer

The total direct materials used is the sum of the beginning raw materials inventory, purchases of raw materials, and ending raw materials inventory.

Total Direct Materials Used = Beginning Raw Materials Inventory + Purchases of Raw Materials - Ending Raw Materials Inventory

Plugging in the values given in the table:

Total Direct Materials Used = $5,000 + $81,000 - $28,000 = $58,000

Therefore, the correct answer is C) $58,000.

Question 16

What does an unfavourable direct labour price variance indicate?

Accepted Answer

An unfavourable direct labour price variance indicates that the actual direct labour cost per hour exceeded the standard direct labour cost per hour for the actual quantity of direct labour hours worked. This means that the organization paid more for direct labour than it had budgeted for, which could be due to a variety of reasons such as higher wages, overtime pay, or inefficiencies in the production process.

Question 17

How is the flexible budget quantity of direct materials calculated?

Accepted Answer

The answer of How is the flexible budget quantity of...

Question 18

An unfavourable direct materials efficiency variance and a favourable direct materials price variance might indicate which of the following?

Accepted Answer

An unfavourable direct materials efficiency variance means that more materials were used than the standard amount for the actual production, which could be due to problems such as inefficient machinery, inexperienced workers, or poor quality materials. On the other hand, a favourable direct materials price variance means that the actual cost of the materials purchased was lower than the standard cost, which could be due to discounts, bulk purchases, or negotiating skills. Therefore, the combination of these two variances suggests that the company used cheaper and inferior materials that required more than the standard amount to complete the production. This could compromise the quality of the final product and increase the risk of defects, customer complaints, and returns, which could affect the reputation and profitability of the company in the long run.

Question 19

What is the direct labour price variance at Sunset Beverages?

Accepted Answer

The answer of What is the direct labour price variance...

Question 20

What is the direct materials efficiency variance at the Gutierrez Company?

Accepted Answer

The answer of What is the direct materials efficiency variance...

Quiz 10: Flexible Budgets and Standard Costs