Question 1

Describe the purpose of variance analysis.

Accepted Answer

The answer of Describe the purpose of variance analysis....

Question 2

The goal of variance analysis is for managers to understand why variances arise, to learn, and to improve future performance.

Accepted Answer

Variance analysis is a tool used by managers to compare actual results to expected results and identify the reasons for any discrepancies (variances). The ultimate goal of variance analysis is to use the insights and information gained from the analysis to improve future performance, whether by adjusting operations or setting new performance goals. Therefore, the statement is true.

Question 3

When benchmarking, the best levels of performance are typically found in companies that are totally different.

Accepted Answer

Benchmarking usually involves comparing performance metrics with similar companies or industry leaders to identify best practices and areas for improvement.

Question 4

Waddell Productions makes separate journal entries for all cost accounting-related activities. It uses a standard cost system for all manufacturing items. For the month of June, the following activities have taken place:
  Required:
Record the necessary journal entries to close the accounts for the month.

Accepted Answer

The answer of Waddell Productions makes separate journal entries for...

Question 5

It is best to rely totally on financial performance measures rather than using a combination of financial and nonfinancial performance measures.

Accepted Answer

It is not best to solely rely on financial performance measures as they do not provide a complete picture of the company's performance. By utilizing a combination of financial and nonfinancial performance measures such as customer satisfaction, employee engagement, and innovation, companies can get a more comprehensive view of their overall success and identify areas for improvement.

Question 6

Possible operational causes of an unfavorable direct materials efficiency variance include poor design of products or processes.

Accepted Answer

Poor design of products or processes can lead to inefficient use of direct materials, resulting in an unfavorable direct materials efficiency variance. Other possible operational causes can include poor training, inadequate supervision, or inefficient equipment/machinery.

Question 7

From the perspective of control, the direct materials price variance should be isolated at the time of purchase.

Accepted Answer

Direct materials price variance is a cost variance that measures the difference between the actual price paid for direct materials and the standard price that was expected. To isolate this variance at the time of purchase, it is important to establish a standard price for the materials before purchasing and record any deviations from the standard price at the time of purchase. This allows for better tracking of the variance and helps identify areas where control can be improved.

Question 8

One problem with benchmarking is ensuring that numbers are comparable.

Accepted Answer

Benchmarking requires the comparison of metrics or performance indicators to assess whether a process, product, or service is meeting or surpassing established standards. However, in order to compare metrics, they need to be measured using the same units, scales, or parameters. Therefore, ensuring that numbers are comparable is a crucial aspect of benchmarking. Failure to do so can lead to misinterpretation, flawed conclusions, or erroneous decisions.

Question 9

What is benchmarking, and how is it useful to a company?

Accepted Answer

The answer of What is benchmarking, and how is it...

Question 10

Employees logging in to production floor terminals and other modern technologies greatly facilitate the use of a standard costing system.

Accepted Answer

When employees log in to production floor terminals and other modern technologies, there is a greater accuracy in capturing data related to production and inventory levels. This makes it easier to implement a standard costing system, which relies on accurate and up-to-date data to calculate costs and variances.

Question 11

Ensuring benchmark numbers are comparable can be difficult because differences can exist across companies with:
A)overall company strategy
B)depreciation methods
C)inventory methods
D)All of these answers are correct.

Accepted Answer

All of these factors (company strategy, depreciation methods, and inventory methods) can have an impact on benchmark numbers and make them difficult to compare. Therefore, ensuring comparability may require adjustments and normalization of the data to better reflect differences in these areas.

Question 12

Mayberry Company had the following journal entries recorded for the end of June. Unfortunately, the company's only accountant quit on July 10 and the president is at a loss as to the company's performance for the month of June.
    Required:
a. What kind of performance did the company have for June? Explain each variance.
b. Why is Direct Materials given in two entries?

Accepted Answer

The answer of Mayberry Company had the following journal entries...

Question 13

When benchmarking:
A)the best levels of performance are usually found in companies that are within different industries
B)finding appropriate benchmarks is a minor issue
C)comparisons can highlight areas for better future cost management
D)Both A and C are correct.

Accepted Answer

The answer of When benchmarking:
A)the best levels of performance are...

Question 14

When benchmarking it is best when management accountants simply analyze the costs and allow management to provide the insight as to why the revenues and costs differ between companies.

Accepted Answer

It is best when management accountants analyze both the costs and revenues, and work in collaboration with management to understand why the performance of different companies vary.

Question 15

During February the Lungren Manufacturing Company's costing system reported several variances that the production manager was surprised to see. Most of the company's monthly variances are under $125, even though they may be either favorable or unfavorable. The following information is for the manufacture of garden gates, its only product:
  Required:
a. Provide the manager with some ideas as to what may have caused the price variances.
b. What may have caused the efficiency variances?

Accepted Answer

The answer of During February the Lungren Manufacturing Company's costing...

Question 16

Coffey Company maintains a very large direct materials inventory because of critical demands placed upon it for rush orders from large hospitals. Item A contains hard-to-get material Y. Currently, the standard cost of material Y is $4.00 per gram. During February, 22,000 grams were purchased for $4.10 per gram, while only 20,000 grams were used in production. There was no beginning inventory of material Y.
Required:
a. Determine the direct materials price variance, assuming that all materials costs are the responsibility of the materials purchasing manager.
b. Determine the direct materials price variance, assuming that all materials costs are the responsibility of the production manager.
c. Discuss the issues involved in determining the price variance at the point of purchase versus the point of consumption.

Accepted Answer

The answer of Coffey Company maintains a very large direct...

Question 17

Effectiveness is the relative amount of inputs used to achieve a given output level.

Accepted Answer

Effectiveness refers to the degree to which objectives are achieved, while efficiency is about the relative amount of inputs used to achieve a given output level.

Question 18

Benchmarking is the continuous process of measuring products, services, and activities against the best possible levels of performance, either inside or outside the organization.

Accepted Answer

Benchmarking is indeed the continuous process of measuring products, services, and activities against the best possible levels of performance, either inside or outside the organization.

Question 19

The process by which a company's products or services are measured relative to the best possible levels of performance is known as:
A)efficiency
B)benchmarking
C)a standard costing system
D)variance analysis

Accepted Answer

Benchmarking is the process of comparing a company's products or services to the best practices or standards in the industry. This helps the company identify areas where they can improve and increase their competitiveness. Efficiency, standard costing system, and variance analysis are important concepts in cost accounting, but they do not specifically relate to the process of comparing a company's performance to best practices or benchmarks.

Question 20

When benchmarking, management accountants are MOST valuable when they:
A)present differences in the benchmarking data to management
B)highlight differences in the benchmarking data to management
C)provide insight into why costs or revenues differ across companies
D)provide complex mathematical analysis

Accepted Answer

Providing insight into why costs or revenues differ across companies is the most valuable contribution of management accountants in benchmarking. This allows management to understand the reason for the differences and make informed decisions on how to improve their own processes. Simply presenting or highlighting differences in the data may not provide enough context for management to act upon. Complex mathematical analysis may be necessary in some cases, but it is not the primary role of management accountants in benchmarking.

Quiz 7: Flexible Budgets, Direct-Cost Variances, and Management Control