Question 1

A company provided the following direct materials cost information. Compute the direct materials quantity variance. $\text {Standard costs assigned:}$
$\begin{array}{llr}
  \text {Direct materials standard cost $ (405,000 $ units @\$2.00/unit)  } & \$ 810,000\
 \text {  Actual costs:} &\
 \text {Direct Materials costs incurred ( 403,750 units
@\$2.20/unit)  } &\$ 888,250 
\end{array}$

Accepted Answer

The answer of A company provided the following direct materials...

Question 2

A budget based on several different levels of activity, often including both a best-case and worst-case scenario, is called a:

Accepted Answer

A budget that is flexible and can adjust to changes in levels of activity is called a flexible budget. This type of budget often includes multiple scenarios or levels of activity, such as best and worst case, and can be adjusted accordingly. Rolling budgets refer to budgets that are updated and revised periodically throughout the year, while merchandise purchases, fixed, and production budgets are all specific types of budgets that may or may not include different levels of activity.

Question 3

In this type of control system, the master budget is based on a single prediction for sales volume, and the budgeted amount for each cost essentially assumes that a specific amount of sales will occur:

Accepted Answer

A fixed budget is based on a single prediction for sales volume, and the budgeted amount for each cost assumes a specific amount of sales will occur. It does not adjust or flex based on actual sales volume or other changes in the business environment. Therefore, a fixed budget is appropriate when the business environment is stable and predictable.

Question 4

The difference between actual quantity of input used and the standard quantity of input used results in a:

Accepted Answer

The difference between actual quantity of input used and the standard quantity of input used is referred to as the quantity variance. This variance evaluates the deviation in the amount of input required to produce a given level of output.

Question 5

A flexible budget may be prepared:

Accepted Answer

A flexible budget can be prepared at any time during the planning period, not just when the company encounters excessive costs. It is also prepared to adjust to changes in the operating environment or to analyze actual results during the operating period. Therefore, options C, D, and E are not correct. The best option is B.

Question 6

A company provided the following direct materials cost information. Compute the total direct materials cost variance. $\text {Standard costs assigned:}$
$\begin{array}{llr}
  \text {Direct materials standard cost $ (405,000 $ units @\$2.00/unit)  } & \$ 810,000\
 \text {  Actual costs:} &\
 \text {Direct Materials costs incurred ( 403,750 units
@\$2.20/unit)  } &\$ 888,250 
\end{array}$

Accepted Answer

It is not possible to calculate the total direct materials cost variance from the given information alone. The variance requires a comparison between the actual direct materials cost and a standard or budgeted cost. Without this comparison, we cannot determine whether the variance is favorable or unfavorable. Therefore, the answer is (E) "Cannot be determined from the given information."

Question 7

Variable budget is another name for:

Accepted Answer

Variable budget is another name for flexible budget, as it is designed to adjust for changes in volume or activity levels. It is different from a fixed budget, which remains constant regardless of changes in activity levels. A manufacturing budget refers specifically to the budget for production activities within a manufacturing company. Rolling budget is a budget that is continuously updated, while a cash budget is a projection of cash inflows and outflows over a certain time period.

Question 8

A flexible budget performance report compares the differences between:

Accepted Answer

A flexible budget is designed to adjust to changes in sales volume, and a flexible budget performance report compares actual performance to the budgeted performance based on the actual sales volume. This helps to accurately evaluate how well the organization is performing against its targets, even if sales volumes differ from what was initially budgeted.

Question 9

An analytical technique used by management to focus attention on the most significant variances and give less attention to the areas where performance is reasonably close to standard is known as:

Accepted Answer

Management by exception is a technique used by management to focus on significant variances and give less attention to areas where performance is reasonably close to the standard. It allows management to identify areas that require action and resources, therefore increasing efficiency and effectiveness. This technique involves establishing thresholds or benchmarks, which helps management to prioritize the allocation of resources and corrective actions. Therefore, E is the best answer.

Question 10

Static budget is another name for:

Accepted Answer

Static budget is the same as a fixed budget, which is based on a specific level of activity and does not change regardless of actual activity levels.

Question 11

An internal report that helps management analyze the difference between actual performance and budgeted performance based on the actual sales volume (or other level of activity) is called a(n):

Accepted Answer

A flexible budget performance report compares actual results to a budget that adjusts for changes in the level of activity. This allows for a more accurate analysis of performance and can help management identify areas for improvement. A static budget performance report would only compare actual results to the original budget, without adjusting for changes in activity levels. A master budget performance report would encompass all budgets and actual results, rather than focusing on one specific area. The sales budget and operating budget are specific components of the overall budget and would not provide the necessary analysis of performance based on activity level.

Question 12

The difference between actual price per unit of input and the standard price per unit of input results in a:

Accepted Answer

The difference between actual price per unit of input and the standard price per unit of input is called the price variance. This variance helps managers understand the reasons for the difference in costs between what they expected to pay for inputs and what they actually paid.

Question 13

Standard costs are used in the calculation of:

Accepted Answer

Standard costs are used to compare actual costs to expected/standard costs. Price and quantity variances are the two main components that make up the difference between actual and standard costs. Therefore, standard costs are used in the calculation of price and quantity variances.

Question 14

Sales variance analysis is used by managers for:

Accepted Answer

Sales variance analysis helps managers in both planning and control purposes. It helps in planning by identifying the factors that affect sales, such as changes in the market, customer preferences, or competition. It also helps in control by comparing actual sales with the planned or budgeted sales and identifying the reasons for any deviations. This helps managers take corrective actions and improve future sales performance.

Question 15

A company provided the following direct materials cost information. Compute the direct materials price variance. $\text {Standard costs assigned:}$
$\begin{array}{llr}
  \text {Direct materials standard cost $ (405,000 $ units @\$2.00/unit)  } & \$ 810,000\
 \text {  Actual costs:} &\
 \text {Direct Materials costs incurred ( 403,750 units
@\$2.20/unit)  } &\$ 888,250 
\end{array}$

Accepted Answer

The formula for direct materials price variance is:
Direct Materials Price Variance = (Actual Price - Standard Price) x Actual Quantity Purchased
The question did not provide us with the actual quantity purchased or the standard price, but we can find the actual cost and the total standard cost from the given information.
Actual cost = $405,000
Total standard cost = $485,500
Using these figures, we can find the standard price per unit:
Standard price per unit = Total standard cost / Total Standard quantity = $485,500 / 23,000 = $21.13
Now we can calculate the variance:
Direct Materials Price Variance = ($21.13 - $19) x Actual Quantity Purchased
$21.13 - $19 = $2.13 (actual price - standard price)
$2.13 x Actual Quantity Purchased = $405,000 (actual cost)
Actual Quantity Purchased = $405,000 / $2.13 = 190,141.85 units
Direct Materials Price Variance = ($21.13 - $19) x 190,141.85 = $42561.07 unfavorable
Therefore, the best choice is D, $80,750 Unfavorable.

Question 16

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The sales expected if the company produces and sells 16,000 units is:

Accepted Answer

The sales per unit is $48,000 / 12,000 units = $4 per unit. For 16,000 units, sales would be 16,000 units * $4 per unit = $64,000.

Question 17

Identify the situation below that will result in a favorable variance.

Accepted Answer

A favorable variance occurs when actual revenue or income is higher than budgeted revenue or income. This means that the business has achieved higher than expected profits or sales, leading to a positive impact on the bottom line. Option C is the only situation where actual results are higher than budgeted, indicating a favorable variance.

Question 18

The difference between the actual cost incurred and the standard cost is called the:

Accepted Answer

The difference between actual cost and standard cost is known as the cost variance. The cost variance can be either favorable or unfavorable, depending on whether actual costs are less than or greater than the standard costs. This variance is used to identify inefficiencies and areas where cost savings can be achieved.

Question 19

A company's flexible budget for 12,000 units of production showed sales, $48,000; variable costs, $18,000; and fixed costs, $16,000. The variable costs expected if the company produces and sells 16,000 units is:

Accepted Answer

Variable costs change with the level of production. The variable cost per unit is $18,000 / 12,000 units = $1.50 per unit. For 16,000 units, the variable costs would be 16,000 units * $1.50 = $24,000.

Question 20

Which of the following is not part of the flow of events in variance analysis:

Accepted Answer

The statement "Working to ensure that all variances are favorable" is not a part of the flow of events in variance analysis as it is not possible to ensure that all variances will be favorable. The other options including identifying questions and their explanations, preparing a standard cost performance report, computing and analyzing variances, and taking corrective and strategic actions are all key steps in the process of variance analysis.

Quiz 23: Flexible Budgets and Standard Costs