Question 1

Periodic comparisons between planned objectives and actual performance are reported in:
A)zero-base reports
B)budget performance reports
C)master budgets
D)budgets

Accepted Answer

Periodic comparisons between planned objectives and actual performance are reported in budget performance reports. Zero-base reports focus on justifying every expense from scratch, while master budgets contain all of the company's budgets in a single document. Budgets are simply plans for anticipated income and expenses.

Question 2

A company must choose either a standard system or nonfinancial performance measures to evaluate the performance of a company.

Accepted Answer

A company can choose to use both financial and nonfinancial performance measures to evaluate its performance.

Question 3

An example of a nonfinancial measure is the number of customer complaints.

Accepted Answer

The number of customer complaints is a nonfinancial measure as it does not involve monetary values or transactions.

Question 4

Non-financial measures are often linked to the inputs or outputs of an activity or process.

Accepted Answer

Non-financial measures are often linked to the inputs or outputs of an activity or process. These can include measures such as customer satisfaction, employee satisfaction, quality of outputs, and efficiency of processes. They are important because they provide a more comprehensive view of the performance of an activity or process beyond just financial numbers.

Question 5

An unfavorable fixed factory overhead volume variance may be due to a failure of supervisors to maintain an even flow of work.

Accepted Answer

An unfavorable fixed factory overhead volume variance means that actual production levels were lower than the budgeted production levels, resulting in underutilization of the fixed factory overhead. This could be due to a variety of factors, such as lower demand for the company's products or equipment breakdowns. However, one possible cause could be a failure of supervisors to maintain an even flow of work, which would lead to inefficiencies and lower productivity.

Question 6

Standards that represent levels of operation that can be attained with reasonable effort are called
A)theoretical standards
B)ideal standards
C)variable standards
D)normal standards

Accepted Answer

Normal standards represent levels of operation that can be attained with reasonable effort. Theoretical standards are idealistic and not feasible, while ideal standards represent perfect performance and are not typically achievable. Variable standards change based on external factors such as market conditions, while normal standards are achievable benchmarks for businesses to strive towards.

Question 7

Though favorable fixed factory overhead volume variances are usually good news, if inventory levels are too high, additional production could be harmful.

Accepted Answer

Favorable fixed factory overhead volume variances indicate that production levels were higher than expected, which means more units were produced than planned. However, if inventory levels are already too high, producing even more units could lead to excess inventory and potential financial losses. Therefore, additional production may not be beneficial in this scenario.

Question 8

The most effective means of presenting standard factory overhead cost variance data is through a factory overhead cost variance report.

Accepted Answer

A factory overhead cost variance report contains detailed information on the actual factory overhead costs incurred during a period, the budgeted or standard factory overhead costs, and the variances between the two. This report is an effective means of presenting this data as it allows managers to easily see where there were significant deviations from the budgeted costs and analyze the reasons for these variances. It also helps in identifying areas where cost savings can be made in the future.

Question 9

The standard price and quantity of direct materials are separated because
A)GAAP and IFRS reporting requires separation
B)direct materials prices are controlled by the purchasing department and quantity used is controlled by the production department
C)standard prices are more difficult to estimate than standard quantities
D)standard quantities change more frequently than standard prices

Accepted Answer

Direct materials prices are typically set by the purchasing department while the quantity used is determined by the production department. Separating the standard price and standard quantity allows each department to be held accountable for their respective responsibilities.

Question 10

Which of the following conditions normally would not indicate that standard costs should be revised?
A)The engineering department has revised product specifications in responding to customer suggestions.
B)The company has signed a new union contract that increases the factory wages on average by $3.50 an hour.
C)Actual costs differed from standard costs for the preceding week.
D)The average price of raw materials increased from $4.68 per pound to $4.82 per pound.

Accepted Answer

Standard costs should not be revised based on short-term fluctuations or variances in actual costs. They should only be revised if there are significant long-term changes in factors such as materials prices, labor rates, or changes in product design or specifications. Therefore, choices A, B, and D all indicate situations where standard costs should be revised, but choice C does not.

Question 11

Standard costs are used in companies for a variety of reasons.Which of the following is not one of the benefits for using standard costs?
A)used to indicate where changes in technology and machinery need to be made
B)used to estimate cost of inventory
C)used to plan direct materials, direct labor, and variable factory overhead
D)used to control costs

Accepted Answer

Standard costs are used to plan and control costs, estimate inventory costs, and plan direct materials, direct labor, and variable factory overhead. However, they are not specifically used to indicate where changes in technology and machinery need to be made. This would likely be identified through a separate analysis or evaluation process.

Question 12

A company should only use nonfinancial performance measures when financial measures cannot be calculated.

Accepted Answer

A company should use both financial and nonfinancial performance measures to get a comprehensive understanding of its overall performance. Nonfinancial measures can provide valuable insights on aspects such as customer satisfaction, employee morale, and environmental impact. Utilizing both financial and nonfinancial measures can help companies make more informed decisions and achieve their strategic goals.

Question 13

Standard costs are a useful management tool that can be used solely as a statistical device apart from the ledger or they can be incorporated in the accounts.

Accepted Answer

Standard costs can be used for various purposes, including as a statistical tool to identify variances and areas for improvement, or as part of the accounting system to control costs and monitor performance.

Question 14

Nonfinancial performance output measures are used to improve the input measures.

Accepted Answer

Nonfinancial performance output measures, such as customer satisfaction, employee satisfaction, quality of products/services, etc., are used to identify areas for improvement in the input measures (e.g. production processes, employee training, etc.) and ultimately drive better financial outcomes.

Question 15

Volume variance measures the use of fixed factory overhead resources.

Accepted Answer

Volume variance is the difference between the actual fixed factory overhead costs and the budgeted fixed factory overhead costs based on the actual production volume. It measures the extent to which fixed factory overhead resources were used during a given period.

Question 16

Since the controllable variance measures the efficiency of using variable overhead resources, if budgeted variable overhead exceeds actual results, the variance is favorable.

Accepted Answer

A favorable variance occurs when the actual spending is less than what was budgeted, indicating efficient use of resources.

Question 17

The principle of exceptions allows managers to focus on correcting variances between
A)standard costs and actual costs
B)variable costs and actual costs
C)competitor's costs and actual costs
D)competitor's costs and standard costs

Accepted Answer

The principle of exceptions is used to identify significant variances between standard costs and actual costs. By focusing on these exceptions, managers can then take corrective action to improve performance and reduce costs.  The other options (B, C, D) are not directly related to the principle of exceptions.

Question 18

Standard cost variances are usually not reported in reports to stockholders.

Accepted Answer

Standard cost variances are typically used for internal management purposes, and are not considered relevant or significant enough to report to stockholders. Financial reports to stockholders focus more on overall financial performance and future expectations rather than detailed analyses of specific costs and variances.

Question 19

At the end of the fiscal year, the variances from standard are usually transferred to the finished goods account.

Accepted Answer

Variances from standard are typically transferred to a cost of goods sold or variance account, not the finished goods account.

Question 20

Favorable fixed factory overhead volume variances are never harmful, since achieving them encourages managers to run the factory above normal capacity.

Accepted Answer

Favorable fixed factory overhead volume variances indicate that the company is producing more than its normal capacity, which can lead to an increase in variable costs such as labor and material costs. This can result in lower profit margins and decreased efficiency in the long run. Therefore, favorable fixed factory overhead volume variances should be approached with caution and carefully evaluated in terms of their effects on overall profitability.

Quiz 7: Performance Evaluation Using Variances From Standard Costs

Periodic comparisons between planned objectives and actual performance are reported in: