Question 1

Fox Manufacturing At the beginning of the year, Fox Manufacturing had budgeted for the production and sale of 24,000 units. The standard sales price and variable costs per unit were budgeted to be $20.00 and $8.00, respectively. Actual sales for the year totaled 21,000 units, and the actual sales price and variable costs per unit were $19.50 and $8.00, respectively. Both budgeted and actual fixed costs were $20,000.
Refer to the Fox Manufacturing information above. What was Fox's sales price variance for the year?
A) $10,500 F
B) $10,500 U
C) $12,000 F
D) $12,000 U

Accepted Answer

Sales price variance = (Actual sales price - Budgeted sales price) x Actual units sold
= ($19.50 - $20.00) x 21,000
= $10,500 U (Unfavorable because the actual sales price is lower than the budgeted sales price)

Question 2

Mystic Falls Inc. Mystic Falls Inc. bottles and sells a popular soft drink. In 2011, the company had expected to sell 1,000,000 bottles but actually bottled and sold 900,000 bottles. The standard direct materials cost for each bottle is $.40 comprised of 10 ounces at a cost of $.04 per ounce. During 2011, 10,000,000 ounces of material were purchased out of which 9,200,000 ounces were used at a cost of $.05 per ounce.
Refer to the Mystic Falls Inc. information above. The direct materials price variance for 2011 was:
A) $ 92,000 U.
B) $ 92,000 F.
C) $100,000 U.
D) $100,000 F.

Accepted Answer

The direct materials price variance is calculated as (Actual Price - Standard Price) x Actual Quantity Purchased. Here, (0.05 - 0.04) x 10,000,000 = $100,000 Unfavorable.

Question 3

Miller Company has an unfavorable materials price variance. Which of the following would be the least likely reason for this variance?
A) The company purchased a higher quality material than was budgeted.
B) The company could not take advantage of quantity discounts.
C) The company used more material than was budgeted for in each unit.
D) The company under budgeted the standard price for materials.

Accepted Answer

An unfavorable materials price variance occurs when the actual cost of materials is higher than the expected cost. This variance is specifically related to the price paid per unit of material, not the quantity used. Option C, which mentions the company using more material than budgeted, relates to a materials quantity variance, not a materials price variance, making it the least likely reason for an unfavorable materials price variance.

Question 4

When the quantity of materials purchased and materials used is different, which of the following is more relevant for the purpose of calculating the direct materials price variance?
A) Standard quantity allowed
B) Actual quantity purchased
C) Actual quantity used
D) The lower of the standard quantity allowed and the actual quantity purchased

Accepted Answer

The direct materials price variance is calculated based on the actual quantity purchased and the standard price, as it measures how much more or less the company paid for the materials than expected, regardless of how much of those materials were actually used in production.

Question 5

Lukey Products has an unfavorable materials usage variance. Which of the following would be the most likely reason for this variance?
A) The company under budgeted the quantity of material to be used for each unit.
B) The company purchased material at a price for less than what was expected.
C) The company budgeted for a lower sales volume than what actually occurred.
D) The company did not use up all the material that had been purchased.

Accepted Answer

An unfavorable materials usage variance occurs when the actual amount of materials used is more than the budgeted or standard amount. This could be due to factors such as inefficiencies in the production process, waste, or using more materials than expected for each unit. Option A suggests that the company may have under budgeted the quantity of material to be used, which is a common reason for an unfavorable materials usage variance.

Question 6

Dabney Inc. has a favorable direct labor efficiency variance. Which of the following would be the most likely reason for this variance?
A) The company used lower-paid workers in the production process more than they had expected.
B) Employees took a shorter amount of time to produce the product than expected.
C) The company used a standard direct labor rate that was too low.
D) Employees used less direct materials in the production process than expected.

Accepted Answer

A favorable direct labor efficiency variance means that the actual labor hours used were less than the standard labor hours allowed for the production of a given quantity of output. Option B is the most likely reason for this, as it means that employees were able to produce the product more quickly than expected, resulting in fewer labor hours used. The other options are not related to direct labor efficiency variance.

Question 7

Coppelli Inc. In early 2012, Coppelli Inc. had budgeted for the production and sale of 24,000 units. The standard sales price and variable costs per unit were budgeted to be $6.00 and $2.00, respectively. Actual sales for 2012 totaled 25,300 units, and the actual sales price and variable costs per unit were $6.50 and $2.10, respectively. Both budgeted and actual fixed costs were $30,000.
Refer to the Coppelli Inc. information above. What was Coppelli's sales price variance for 2012?
A) $12,650 F
B) $12,650 U
C) $12,000 F
D) $12,000 U

Accepted Answer

The sales price variance is calculated as the difference between the actual sales price and the budgeted sales price, multiplied by the actual quantity sold. Here, it is ($6.50 - $6.00) * 25,300 = $0.50 * 25,300 = $12,650 favorable, because the actual sales price was higher than the budgeted sales price.

Question 8

Tulley Manufacturing has an unfavorable direct labor rate variance. Which of the following would be the most likely reason for this variance?
A) The company used lower-paid workers in the production process than they had expected.
B) Employees took a longer amount of time to produce the product than expected.
C) The company gave employees an unexpected raise due to union negotiations.
D) Employees used more direct materials in the production process than expected.

Accepted Answer

An unfavorable direct labor rate variance occurs when the actual rate paid for labor is higher than the expected or standard rate. This could happen if the company had to give employees an unexpected raise, perhaps due to union negotiations, thus increasing the cost of labor beyond what was planned.

Question 9

Taylor Products Inc. has an $5,000 unfavorable flexible budget variance for October. Which of the following statements is true, if October's flexible budget net operating income was $175,000?
A) Taylor's static budget must have showed a net operating income of $180,000.
B) Taylor's static budget must have showed a net operating income of $170,000.
C) Taylor's actual net operating income must have been $180,000.
D) Taylor's actual net operating income must have been $170,000.

Accepted Answer

The unfavorable variance indicates that the actual net operating income was $5,000 less than the flexible budget, so it must have been $170,000.

Question 10

Bukowitz Inc. has a favorable direct labor rate variance. Which of the following would be the most likely reason for this variance?
A) The company used lower-paid workers in the production process more than they had expected.
B) Employees took a shorter amount of time to produce the product than expected.
C) The company used a standard direct labor rate that was too low.
D) Employees used less direct materials in the production process than expected.

Accepted Answer

A favorable direct labor rate variance occurs when the actual rate paid for labor is less than the expected or standard rate. This can happen if the company uses lower-paid workers than initially planned, leading to lower labor costs.

Question 11

Chilé Products Ltd. Chilé Products Ltd. bottles and sells hot pepper sauce. In 2012, the company had expected to sell 65,000 bottles but actually bottled and sold 80,000 bottles. The standard direct materials cost for each bottle is $.24 comprised of .60 ounces at a cost of $.40 per ounce. During 2012, 52,000 ounces of material were purchased out of which 46,000 ounces were used at a cost of $.37 per ounce.
Refer to the Chilé Products Ltd. information above. The direct materials price variance for 2012 was:
A) $1,560 F.
B) $1,560 U.
C) $1,380 F.
D) $1,380 U.

Accepted Answer

The direct materials price variance is calculated as (Actual Price - Standard Price) x Actual Quantity Purchased. Here, the actual price is $.37 per ounce, the standard price is $.40 per ounce, and the actual quantity purchased is 52,000 ounces. Thus, the variance is ($.37 - $.40) x 52,000 = -$1,560, indicating a favorable variance since the actual price is less than the standard price.

Question 12

Smith Corporation has a $6,000 favorable flexible budget variance for January. Which of the following statements is true, if January's flexible budget net operating income was $100,000?
A) Smith's static budget must have showed a net operating income of $106,000.
B) Smith's static budget must have showed a net operating income of $94,000.
C) Smith's actual net operating income must have been $106,000.
D) Smith's actual net operating income must have been $94,000.

Accepted Answer

A favorable flexible budget variance indicates that the actual net operating income was higher than the flexible budget net operating income. Therefore, Smith's actual net operating income must have been $106,000 ($100,000 + $6,000).

Question 13

When the quantity of materials purchased and materials used is different, which of the following is more relevant for the purpose of calculating the direct materials usage variance?
A) Actual quantity purchased
B) Actual quantity used
C) The lower of standard quantity allowed and actual quantity purchased
D) The lower of actual quantity used and actual quantity purchased

Accepted Answer

The direct materials usage variance is calculated to analyze the efficiency in using materials for production. It compares the actual quantity of materials used to the standard quantity that should have been used for the actual output. Therefore, the actual quantity used is more relevant for this calculation.

Question 14

Chapman Products has a favorable materials usage variance. Which of the following would be the most likely reason for this variance?
A) The company under budgeted the quantity of material to be used for each unit.
B) The company purchased material at a price for less than what was expected.
C) The company's employees were less trained than expected.
D) The company's machines were better maintained resulting in lower wastage of materials.

Accepted Answer

A favorable materials usage variance means that the actual amount of materials used was less than the expected amount. This could be due to factors such as better employee training or better machine maintenance resulting in less wastage of materials, as option D suggests. Options A and C suggest that the company underestimated the amount of materials needed for production, which would result in an unfavorable variance. Option B suggests a favorable price variance, which is different from a materials usage variance.

Question 15

Dorffman Inc. has a $18,000 favorable flexible budget variance for May. Which of the following statements is true, if May's actual net operating income was $72,000?
A) Dorffman's static budget must have showed a net operating income of $54,000.
B) Dorffman's static budget must have showed a net operating income of $90,000.
C) Dorffman's flexible budget must have showed a net operating income of $54,000.
D) Dorffman's flexible budget must have showed a net operating income of $90,000.

Accepted Answer

The flexible budget variance is the difference between the actual results and the flexible budget. If the variance is $18,000 favorable and the actual net operating income is $72,000, then the flexible budget must have shown a net operating income of $54,000 ($72,000 - $18,000).

Question 16

Prevo Products Inc. has a $15,000 unfavorable flexible budget variance for July. Which of the following statements is true, if July's actual net operating income was $300,000?
A) Prevo's static budget must have showed a net operating income of $315,000.
B) Prevo's static budget must have showed a net operating income of $285,000.
C) Prevo's flexible budget must have showed a net operating income of $315,000.
D) Prevo's flexible budget must have showed a net operating income of $285,000.

Accepted Answer

The flexible budget is adjusted to reflect the actual level of output, and an unfavorable variance means that actual results were worse than budgeted. If the actual net operating income was $300,000 and there was a $15,000 unfavorable variance, the flexible budget must have forecasted a net operating income of $315,000.

Question 17

Mystic Falls Inc. Mystic Falls Inc. bottles and sells a popular soft drink. In 2011, the company had expected to sell 1,000,000 bottles but actually bottled and sold 900,000 bottles. The standard direct materials cost for each bottle is $.40 comprised of 10 ounces at a cost of $.04 per ounce. During 2011, 10,000,000 ounces of material were purchased out of which 9,200,000 ounces were used at a cost of $.05 per ounce.
Refer to the Mystic Falls Inc. information above. The direct materials usage variance for 2011 was:
A) $ 8,000 U.
B) $ 8,000 F.
C) $40,000 U.
D) $40,000 F.

Accepted Answer

The direct materials usage variance is calculated as (Actual Quantity Used - Standard Quantity Allowed) x Standard Cost per Unit. Here, the actual quantity used is 9,200,000 ounces, and the standard quantity allowed for 900,000 bottles is 9,000,000 ounces (900,000 bottles * 10 ounces per bottle). The standard cost per ounce is $0.04. Thus, the variance is (9,200,000 - 9,000,000) x $0.04 = 200,000 x $0.04 = $8,000 Unfavorable, because more materials were used than the standard allowed.

Question 18

Peterson Inc. uses direct labor hours as the cost driver for variable overhead. Which of the following items does not need to be known, in order to calculate the variable overhead spending variance?
A) Actual overhead costs
B) Actual direct labor hours
C) Standard variable overhead rate per direct labor hour
D) Standard direct labor hours allowed

Accepted Answer

The variable overhead spending variance focuses on the difference between the actual overhead costs incurred and the expected (or standard) costs based on the actual direct labor hours worked. It does not require the standard direct labor hours allowed, which is more relevant for calculating efficiency variances.

Question 19

Byron Products has a favorable materials price variance. Which of the following would be the least likely reason for this variance?
A) The company over budgeted the standard price for materials.
B) The company took advantage of quantity discounts from its suppliers.
C) The company's employees were more efficient with the use of their production time.
D) The company purchased a substandard material at a cheaper price.

Accepted Answer

Efficiency in the use of production time would not directly affect the materials price variance, as this variance focuses on the cost paid per unit of material, not how efficiently the materials are used during production.

Question 20

Chilé Products Ltd. Chilé Products Ltd. bottles and sells hot pepper sauce. In 2012, the company had expected to sell 65,000 bottles but actually bottled and sold 80,000 bottles. The standard direct materials cost for each bottle is $.24 comprised of .60 ounces at a cost of $.40 per ounce. During 2012, 52,000 ounces of material were purchased out of which 46,000 ounces were used at a cost of $.37 per ounce.
Refer to the Chilé Products Ltd. information above. The direct materials usage variance for 2012 was:
A) $ 800 F.
B) $ 800 U.
C) $1,600 F.
D) $1,600 U.

Accepted Answer

The direct materials usage variance is calculated as (Actual Quantity Used - Standard Quantity Allowed) x Standard Price. The standard quantity allowed for 80,000 bottles is 80,000 bottles * 0.60 ounces/bottle = 48,000 ounces. The actual quantity used is 46,000 ounces. The standard price is $0.40 per ounce. Therefore, the variance is (46,000 - 48,000) * $0.40 = -2,000 * $0.40 = -$800, which is favorable (F) because less material was used than expected.

Quiz 10: Variance Analysis A Tool for Cost Control and Performance Evaluation

Miller Company has an unfavorable materials price variance. Which of the following would be the least likely reason for this variance?

When the quantity of materials purchased and materials used is different, which of the following is more relevant for the purpose of calculating the direct materials price variance?

Lukey Products has an unfavorable materials usage variance. Which of the following would be the most likely reason for this variance?

Dabney Inc. has a favorable direct labor efficiency variance. Which of the following would be the most likely reason for this variance?

Tulley Manufacturing has an unfavorable direct labor rate variance. Which of the following would be the most likely reason for this variance?

Taylor Products Inc. has an $5,000 unfavorable flexible budget variance for October. Which of the following statements is true, if October's flexible budget net operating income was $175,000?

Bukowitz Inc. has a favorable direct labor rate variance. Which of the following would be the most likely reason for this variance?

Smith Corporation has a $6,000 favorable flexible budget variance for January. Which of the following statements is true, if January's flexible budget net operating income was $100,000?

When the quantity of materials purchased and materials used is different, which of the following is more relevant for the purpose of calculating the direct materials usage variance?

Chapman Products has a favorable materials usage variance. Which of the following would be the most likely reason for this variance?

Dorffman Inc. has a $18,000 favorable flexible budget variance for May. Which of the following statements is true, if May's actual net operating income was $72,000?

Prevo Products Inc. has a $15,000 unfavorable flexible budget variance for July. Which of the following statements is true, if July's actual net operating income was $300,000?

Peterson Inc. uses direct labor hours as the cost driver for variable overhead. Which of the following items does not need to be known, in order to calculate the variable overhead spending variance?

Byron Products has a favorable materials price variance. Which of the following would be the least likely reason for this variance?